ppbi_10k-2008.htm
UNITED
STATES SECURITIES AND EXCHANGE
COMMISSION
|
Washington,
DC 20549
FORM
10-K
For the
fiscal year ended December 31, 2008
or
For
the transition period from to .
Commission
File No.: 0-22193
Pacific
Premier Bancorp, Inc.
(Exact
name of registrant as specified in its charter)
Delaware 33-0743196
(State of
Incorporation) (I.R.S.
Employer Identification No)
1600
Sunflower Ave. 2nd Floor,
Costa Mesa, California 92626
(714)
431-4000
----------------
Securities
registered pursuant to Section 12(b) of the Act:
Title of class
|
Name of each exchange on which
registered
|
Common
Stock, par value $0.01 per share
|
NASDAQ Global
Market
|
Securities
registered pursuant to Section 12(g) of the Act:
None
----------------
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes [__] No [X]
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes [__] No [X]
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [_]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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
definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (Check
one).
Large
accelerated filer
|
[ ]
|
|
Accelerated
filer
|
[ ]
|
Non-accelerated
filer
|
[ ]
|
(Do
not check if a smaller reporting company)
|
Smaller
reporting company
|
[X]
|
Indicate
by check mark whether the registrant is a shell company (as defined in Exchange
Act Rule 12b-2). Yes
[__] No [X]
The
aggregate market value of the voting stock held by non-affiliates of the
registrant, i.e., persons other than directors and executive officers of the
registrant, was approximately $24,205,263 and was based upon the last sales
price as quoted on The NASDAQ Stock Market as of June 30, 2008, the last
business day of the most recently completed 2nd fiscal
quarter.
As of
March 31, 2009, the Registrant had 4,803,451 shares outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Proxy Statement for the 2009 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Form 10-K.
INDEX
Forward-Looking
Statements
All
references to “we”, “us”, “our”, or the “Company” mean Pacific Premier Bancorp,
Inc. and our consolidated subsidiaries, including Pacific Premier Bank, our
primary operating subsidiary. All references to ‘‘Bank’’ refer to
Pacific Premier Bank. All references to the “Corporation” refer to
Pacific Premier Bancorp, Inc.
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 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 projects 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.
The
Company cautions that the foregoing list of risks is not all-inclusive. If one
or more of the factors affecting these forward-looking statements proves
incorrect, then the Company’s actual results, performance, or achievements could
differ materially from those expressed in, or implied by, forward-looking
statements contained in this Annual Report on Form 10-K. Therefore, the Company
cautions you not to place undue reliance on these forward-looking
statements.
The
Company does not intend to update these forward-looking statements, whether
written or oral, to reflect change. All forward-looking statements attributable
to the Company are expressly qualified by these cautionary
statements.
Overview
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 (the
“DFI”), the Board of Governors of the Federal Reserve System (the “Federal
Reserve”), and by the Federal Deposit Insurance Corporation (the
“FDIC”).
We
conduct business throughout Southern California from our six locations in the
counties of Orange and San Bernardino. We operate depository branches
in the cities of Huntington Beach, Los Alamitos, Newport Beach, San Bernardino,
Seal Beach, and Costa Mesa, California. Our corporate headquarters
are located in Costa Mesa, California.
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. Through our branches and our
Internet website at www.ppbi.net, 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, and
U.S. Small Business Administration (“SBA”) loans. At December 31,
2008, we had consolidated total assets of $740.0 million, net loans of $623.1
million, total deposits of $457.1 million, and consolidated total stockholders’
equity of $57.5 million. At December 31, 2008, the Bank was
considered a “well-capitalized” financial institution for regulatory capital
purposes.
Recent
Events
The
global and U.S. economies, and the economies of the local communities in which
we operate, experienced a rapid decline in 2008. The financial markets, and the
financial services industry in particular, suffered significant disruption in
2008, resulting in many institutions failing or requiring, government
intervention to avoid failure. These conditions were brought about primarily by
dislocations in the U.S. and global credit markets, including a significant and
rapid deterioration of the mortgage lending and related real estate
markets.
The
United States, state and foreign governments have taken or are considering
extraordinary actions in an attempt to deal with the global financial crisis and
the severe decline in the economy. In the United States, the federal government
has adopted Emergency Economic Stabilization Act of 2008 (enacted on
October 3, 2008) and the American Recovery and Reinvestment Act of 2009
(enacted on February 17, 2009). Among other matters, these
laws:
·
|
provide
for the government to invest additional capital into banks and otherwise
facilitate bank capital formation (commonly referred to as the Troubled
Asset Relief Program or “TARP”);
|
·
|
increase
the limits on federal deposit insurance;
and
|
·
|
provide
for various forms of economic stimulus, including to assist homeowners in
restructuring and lowering mortgage payments on qualifying
loans.
|
Other
laws, regulations, and programs at the federal, state and even local levels are
under consideration that seek to address the economic climate and/or the
financial institutions industry. The effect of these initiatives cannot be
predicted at this time.
History
The Bank was founded in 1983 as a
state-chartered savings and loan association, became a federally-chartered stock
savings bank in 1991 and on March 30, 2007, converted to a state-chartered
commercial bank licensed by the DFI. From 1983 to 1994, the Bank
engaged in traditional community banking activities, consisting primarily of
deposit taking and originating one-to-four family home loans. In
1994, the Bank shifted its operating strategy and implemented a nationwide
sub-prime focused mortgage banking platform. The Bank expanded its
operations to originate and to sell sub-prime residential home loans through
asset securitizations and whole loan sales. Lending activities
were funded primarily through non-core deposits, such as wholesale and brokered
certificates of deposit (“CDs”), as well as high rate consumer
CDs. In 1998, we began to experience operating losses. By
the third quarter of 2000, the Bank was deemed under-capitalized, was operating
under regulatory enforcement agreements and incurring losses primarily due to
loan defaults.
The current management team was
retained and implemented a new business plan in the fourth quarter of 2000 in
order to refocus the Company’s business model toward a community
bank. We implemented a three-phase strategic plan which involved: (1)
lowering the risk profile of the Bank and re-capitalizing the Company, (2)
growing the balance sheet at an accelerated rate through the origination of
adjustable rate multi-family loans, thus, returning the Company to
profitability, and (3) transforming the institution to a commercial banking
business model. The first two phases of our plan were completed in
2002 and 2004, respectively. Phase three of our plan involved the
transition to a commercial banking platform and thus, our primary focus is to
retain and grow the number of business banking relationships within our targeted
markets.
Operating
Strategy
Our goal
is to develop the Bank into one of Southern California’s top performing
commercial banks as an alternative to the large regional and national banks for
businesses, professionals, entrepreneurs and non-profit organizations for the
long term benefit of our shareholders, customers and employees. The
following are our operating strategies to achieve our goals:
·
|
Recruitment of Business
Bankers. We began our transition to a commercial banking
platform in 2005 by recruiting experienced business bankers who possess an
established following of customer relationships. These relationships
typically include businesses that have both deposit and loan needs, as
well as, the personal depository needs of the business owners
themselves. Our incentive plans compensate our business bankers
for the generation and retention of customer relationships as measured by
the level of low cost deposits maintained at the
Bank.
|
·
|
Relationship
Banking. We recognize that customer relationships are
built through a series of consistently executed experiences in both
routine transactions and higher value interactions. Our
business bankers are focused on developing long term relationships with
business owners, professionals, entrepreneurs, real estate investors, and
non-profit organizations through consistent and frequent
contact. Our bankers are actively involved in community
organizations and events, thus building and capitalizing on the Bank’s
reputation within our local
communities.
|
·
|
Growing Core Deposits/Reducing
our Wholesale Funding. The second phase of our strategic
plan relied on wholesale borrowings, such as advances from the Federal
Home Loan Bank (the “FHLB”) System and brokered deposits to fund a large
portion of our accelerated loan growth during that phase. As we
transitioned towards a commercial banking platform, we began reducing our
reliance on these funding sources. Historically, we have
managed our growth and our concentration in commercial real estate
(“CRE”), in part, by selling excess loan production, generally
multi-family loans. In response to the deteriorating credit markets
beginning in late 2007, we substantially slowed the origination of
multi-family and investor owned CRE
lending.
|
·
|
Expansion through Electronic
Banking, Organic Growth and Acquisitions. We believe that the
consolidation and current turmoil in the banking industry has created an
opportunity at the community banking level in the markets that we
serve. Many bank customers feel displaced by large
out-of-market acquirers and are attracted to institutions that have local
decision making capability, more responsive customer service, and greater
familiarity with the needs in their markets. We
intend to continue expanding our franchise in the high growth areas of
Orange and Los Angeles Counties, primarily through electronic banking,
such as, remote or merchant capture, on-line banking and cash management
service available through our website. As opportunities arise, we will
consider expansion into markets contiguous to our own through potential
acquisitions and/or de novo
branching.
|
·
|
Diversifying our Loan
Portfolio. We believe it is important to diversify our
loan portfolio and to increase the amount of owner occupied commercial
real estate, commercial and industrial (“C&I”) loans and SBA loans
within our portfolio. As a result, we believe it is essential
to be able to offer our customers a wide array of products and
services. We provide flexible and structured loan products to
meet our customer’s needs, which, in turn, provide us the opportunity to
become their full service banker. We continually reassess our
various product and service offerings to ensure they allow us to achieve
our objectives.
|
·
|
Maintain Asset
Quality. Our credit and risk management culture has
resulted in low levels of nonperforming loans and an overall high credit
quality within our loan portfolio. We monitor existing economic
trends and conditions that could positively or negatively impact our
business. We seek to exploit these trends by entering or
exiting certain lines of business or through offering or eliminating
various loan product types. We will continue to adjust our risk
management practices to the on-going changes in our local economy that
impact our business.
|
·
|
Premier Customer Service
Provider. We believe it is imperative that the Bank
provide a consistent level of quality service which generates customer
retention and referrals. All of our employees, through
training, understand that each interaction with our customers is an
opportunity to exceed their expectations. Our employees’
incentive compensation is, in part, predicated on achieving a consistently
high level of customer
satisfaction.
|
Our
executive offices are located at 1600 Sunflower Avenue, 2nd Floor,
Costa Mesa, California 92626 and our telephone number is (714)
431-4000. Our Internet website address is
www.ppbi.com. Our Annual Reports on Form 10-K, Quarterly Reports
on Form 10-Q and Current Reports on Form 8-K, and all amendments
thereto, from 1998 to present that have been filed with the Securities and
Exchange Commission (the “SEC”), are available free of charge on our Internet
website. Also on our website are our Code of Ethics, Insider Trading
and Beneficial Ownership forms, and Corporate Governance
Guidelines. The information contained in our website, or in any
websites linked by our website, is not a part of this Annual Report on Form
10-K.
Lending
Activities
General. In 2008,
we maintained our commitment to a high level of credit quality in our lending
activities. We expanded our efforts to diversify our loan portfolio
and to increase our C&I and owner-occupied commercial real estate lending
activities while reducing our dependency on our multi-family and commercial real
estate loan programs. The Bank offers a full complement of flexible
and structured loan products tailored to meet the needs of our
customers.
Loans
were made primarily to borrowers within our market area and secured by real
property and business assets located principally in Southern
California. We emphasized relationship lending and focused on
generating retail production by dealing directly with customers. We
have and will continue to offer loans up to our legal lending limits, which were
$17.0 million for secured loans and $10.2 million for unsecured loans as of
December 31, 2008. These efforts assisted us in establishing
depository relationships with new and existing customers consistent with the
Bank’s strategic direction. During 2008, we originated or purchased
$59.1 million in owner-occupied commercial real estate, $34.2 million in
multi-family, $46.9 million in investor owned commercial real estate, $17.5
million of C&I loans, $1.2 million of SBA loans, and $1.5 million of
consumer loans. At December 31, 2008, we had $628.8 million in total gross
loans outstanding.
Multi-family Real Estate
Lending. We originate and purchase loans secured by
multi-family residential properties (five units and greater) located
predominantly in Southern California. Pursuant to our underwriting
policies, multi-family residential loans may be made in an amount up to 75% of
the lesser of the appraised value or the purchase price of the collateral
property. In addition, we generally require a stabilized minimum debt
service coverage ratio of 1.15:1, based on the qualifying loan interest
rate. Loans are made for terms of up to 30 years with amortization
periods up to 30 years. As of December 31, 2008, we had $287.6
million of multi-family real estate secured loans, constituting 45.7% of our
loan portfolio. Multi-family loans originated or purchased in 2008
had an average outstanding balance of $726,000, an average loan-to-value ratio
of 57.3%, and an average debt coverage ratio of 1.30:1 at
origination. We had previously sold a significant portion of our
multi-family loans in the secondary markets to generate gain on sale
income. Due to turmoil in the credit markets during 2007 and
2008, however, the level of loans sales decreased and we do not expect to sell
multi-family loans in the foreseeable future.
Investor Commercial Real Estate
Lending. We originate and purchase loans secured by commercial
real estate, such as retail centers, small office and light industrial
buildings, and mixed-use commercial properties located predominantly in Southern
California. Pursuant to our underwriting policies, commercial real
estate loans may be made in amounts up to 75% of the lesser of the appraised
value or the purchase price of the collateral property. We consider
the net operating income of the property and typically require a stabilized debt
service coverage ratio of at least 1.20:1, based on the qualifying interest
rate. Loans are generally made for terms up to 15 years with
amortization periods up to 30 years. As of December 31, 2008, we had
$166.0 million of commercial real estate secured loans, constituting 26.4% of
our loan portfolio. Commercial real estate loans originated in 2008
had an average balance of $1,605,000, an average loan-to-value ratio of 46.9%
and an average debt coverage ratio, on investor-owned real estate, of 1.32:1 at
origination.
Owner-Occupied Commercial Real Estate
Lending. We originate and purchase loans secured by
owner-occupied commercial real estate, such as retail buildings, small office
and light industrial buildings, and mixed-use commercial properties located
predominantly in Southern California. We will also, from time to time,
make a loan secured by a special purpose property, such as a gas station.
Pursuant to our underwriting policies, owner-occupied commercial real estate
loans may be made in amounts of up to 75% of the lesser of the appraised value
or the purchase price of the collateral property. Loans are generally made for
terms up to 15 years with amortization periods up to 30 years. As of
December 31, 2008, we had $112.4 million of owner-occupied commercial real
estate secured loans, constituting 17.9% of our loan
portfolio. Commercial real estate loans originated or purchased in
2008 had an average balance of $918,000 and an average loan-to-value ratio of
45.33% at origination.
C&I Lending. We
originate loans secured by business assets including inventory, receivables,
machinery and equipment to businesses located in our primary market
area. In many instances, real estate holdings of the borrower, its
principals or loan guarantors are also taken as collateral. Loan
types include revolving lines of credit, term loans, seasonal loans and loans
secured by liquid collateral such as cash deposits or marketable
securities. We also issue letters of credit on behalf of our
customers, backed by loans or deposits with the Bank. As of December
31, 2008, we had total commitments of $57.1 million in commercial business lines
of credit, of which, $43.2 million were disbursed, constituting 6.9% of our loan
portfolio.
One-to-Four Family
Lending. The Bank is not an active participant in single
family lending on a transactional basis and does not engage in Alt-A or subprime
lending. In keeping with the Bank’s strategy of offering a full
complement of loan products to customers, home loans are available to banking
customers only. In 2008, the Bank did not originate any loans secured
by single family residences. The Bank’s portfolio of one-to-four
family home loans at December 31, 2008 totaled $9.9 million, constituting 1.6%
of our loan portfolio, of which $8.1 million consists of loans secured by first
liens on real estate and $1.8 million consists of loans secured by second or
junior liens on real estate.
SBA Lending. The
Bank was approved to originate loans under the SBA’s Preferred Lenders Program
(“PLP”) in the third quarter of 2006. The PLP lending status affords
the Bank a higher level of delegated credit autonomy, translating to a
significantly shorter turnaround time from application to funding, which is
critical to our marketing efforts. We originate loans under the SBA’s
7(a), 504, and express loan programs, in conformity with SBA underwriting and
documentation standards. The guaranteed portion of the 7(a) loans has
been typically sold on the secondary market; however, in 2008, the demand for
the SBA products in the secondary market diminished due to the turmoil in the
securitization market. As of December 31, 2008, we had $4.9 million
of SBA loans, constituting 0.8% of our loan portfolio.
Sourcing of our
Loans. In keeping with our business strategy, our Business
Bankers successfully expanded our retail lending activities in
2008. Direct loan originations accounted for 73.1% of our loans,
which represented an increase of 182.4% over 2007. These loans were
sourced through referrals from our depository branches and by soliciting
business owners directly. Our bankers continue to focus on developing
and maintaining relationships with individual investors, accountants,
consultants, commercial real estate investment sales and leasing agents, and
other banks to further increase the percentage of direct referrals in future
periods.
Interest Rates on Our
Loans. We employ a risk-based pricing strategy on all loans
that we fund. The interest rates, fees and loan structure of our
loans generally vary based on a number of factors, including the degree of
credit risk, size, maturity of the loan, a borrower’s business or property
management expertise, and prevailing market rates for similar types of
loans. Adjustable rate C&I and SBA loans are typically priced
based on a margin over the Prime rate. Investor owned real estate
loans are typically 3, 5, 7, or 10-year fixed rate hybrid adjustable-rate loans
and are based on one of several interest rate indices. Many of the
C&I loans and substantially all of the investor owned real estate loans
originated by the Bank in 2008 had minimum interest rates, or floor rates, below
which the rate charged may not be reduced regardless of further reductions in
the underlying interest rate index. Substantially all investor real
estate loans also include prepayment penalties.
Lending Risks on our
Loans. Lending risks vary by the type of loan
extended. In our C&I and SBA lending activities, collectability
of the loans may be adversely affected by risks generally related to small
businesses, such as:
·
|
Changes
or continued weakness in general or local economic
conditions;
|
·
|
Changes
or continued weakness in specific industry segments, including weakness
affecting the business’ customer
base;
|
·
|
Changes
in a business’ personnel;
|
·
|
Increases
in supplier costs that cannot be passed along to
customers;
|
·
|
Increases
in operating expenses (including energy
costs);
|
·
|
Changes
in governmental rules, regulations and fiscal
policies;
|
·
|
Increases
in interest rates, tax rates; and
|
·
|
Other
factors beyond the control of the borrower or the
lender.
|
In our
investor real estate loans, payment performance and the liquidation values of
collateral properties may be adversely affected by risks generally incidental to
interests in real property, such as:
·
|
Changes
or continued weakness in general or local economic
conditions;
|
·
|
Changes
or continued weakness in specific industry
segments;
|
·
|
Declines
in real estate values;
|
·
|
Declines
in rental rates;
|
·
|
Declines
in occupancy rates;
|
·
|
Increases
in other operating expenses (including energy
costs);
|
·
|
The
availability of property financing;
|
·
|
Changes
in governmental rules, regulations and fiscal policies, including rent
control ordinances, environmental legislation and
taxation;
|
·
|
Increases
in interest rates, real estate and personal property tax rates;
and
|
·
|
Other
factors beyond the control of the borrower or the
lender.
|
We
attempt to mitigate these risks through sound and prudent underwriting
practices, as well as a proactive loan review process and our risk management
practices. See “Lending Activities - Underwriting and Approval
Authority for Our Loans.” We will not extend credit to any one
borrower that is in excess of regulatory limits.
Underwriting and Approval Authority
for Our Loans. Our board of directors establishes our lending
policies. Each loan must meet minimum underwriting criteria
established in our lending policies and must fit within our overall strategies
for yield, interest rate risk, and portfolio concentrations. The
underwriting and quality control functions are managed through our corporate
office. Each loan application is evaluated from a number of
underwriting perspectives. For business and SBA loans, underwriting
considerations include historic business cash flows, debt service coverage,
loan-to-value ratios of underlying collateral, if any, debt to equity ratios,
credit history, business experience, history of business, forecasts of
operations, economic conditions, business viability, net worth, and
liquidity. For real estate-secured loans, underwriting considerations
include property appraised value, loan-to-value ratios, level of debt service
coverage utilizing both the actual net operating income and forecasted net
operating income and use and condition of the property, as well as the
borrower’s liquidity, income, credit history, net worth, and operating
experience. We do not offer loans on a limited- or no-documentation
basis unless fully secured by cash collateral.
Business
loans are generally originated as recourse or with full guarantees from key
borrowers or borrower principals. Loans secured by real estate are
originated on both a non-recourse and full recourse basis. On loans
made to entities, such as partnerships, limited liability companies,
corporations or trusts, we typically obtain personal guarantees from the
appropriate managing members, major shareholders, trustees or other appropriate
principals. In 2008, substantially all of our loans to entities were
originated with full recourse and/or personal guarantees from the principals of
the borrowers.
Upon
receipt of a completed loan application from a prospective borrower, a credit
report and other required reports are ordered and, if necessary, additional
information is requested. Prior to processing and underwriting any
loan, we issue a letter of interest based on a preliminary analysis by our
bankers, which letter details the terms and conditions on which we will consider
the loan request. Upon receipt of the signed letter of interest and a
deposit, we process and underwrite each loan application and prepare all the
loan documentation after the loan has been approved.
Our
credit memorandums, which are prepared by our underwriters, include a
description of the transaction and prospective borrower and guarantors, the
collateral securing the loan, if any, the proposed uses of loan proceeds and
source(s) of repayment, as well as an analysis of the borrower’s business and
personal financial statements and creditworthiness. The financial
statements and creditworthiness of any guarantors are also
analyzed. For loans secured by real property, the credit memorandum
will include an analysis of the property. Loans in which real estate
is the primary collateral require an independent appraisal conducted by a
licensed appraiser. All appraisal reports are appropriately reviewed
by our appraisal department. Our board of directors reviews and
approves annually the independent list of acceptable appraisers. When
appropriate, environmental reports are obtained and reviewed as
well.
Following
loan approval and prior to funding, our underwriting and processing departments
ensure that all loan approval terms have been satisfied, that those terms
conform with lending policies (or are properly documented as exceptions with
required approvals), and that all the required documentation is present and in
proper form.
Commercial
business loans are subject to the Bank guidelines regarding appropriate
covenants and periodic monitoring requirements which may include, but are not
limited to:
·
|
Capital
and lease expenditures;
|
·
|
Salaries
and other withdrawals;
|
·
|
Working
capital levels;
|
·
|
Debt
to net worth ratios;
|
·
|
Cash
flow requirements;
|
·
|
Profitability
requirements;
|
·
|
Collateral
coverage ratio;
|
·
|
Current
and quick ratios.
|
Subject
to the above standards, our board of directors delegates authority and
responsibility to management for loan approvals of up to $1.5 million for all
loans secured by real estate and up to $250,000 for loans not secured by real
estate. Loan approvals at the management level require the approval
of at least two members of our Management Loan Committee, consisting of our
President and Chief Executive Officer, Chief Credit Officer, and Chief Banking
Officer. All loans in excess of $1.5 million, including total
aggregate borrowings by one borrower in excess of $1.5 million, and any loan in
excess of $250,000 not secured by real estate, require a majority approval of
our board’s Credit Committee, which is comprised of three directors, including
our President and Chief Executive Officer.
Portfolio Management and Loan
Servicing. Portfolio management and loan servicing
activities are centralized at our corporate headquarters. Our loan
servicing operations are intended to provide prompt customer service and
accurate and timely information for account follow-up, financial reporting and
loss mitigation. Following the funding of an approved loan, the data
is entered into our data processing system, which provides monthly billing
statements, tracks payment performance, and effects agreed upon interest rate
adjustments. Loan servicing activities include (i) the collection and
remittance of loan payments, (ii) accounting for principal and interest and
other collections and expenses, and (iii) holding and disbursing escrow or
impounding funds for real estate taxes and insurance premiums.
Our
portfolio management operations are intended to ensure that management and the
board of directors has timely and comprehensive information regarding the
performance of businesses and real properties that underlie our loan
portfolio. This information provides an essential leading indicator
of potential performance issues prior to loan payment
delinquency. For each of the Bank’s non-homogeneous loans, our
Portfolio Managers collect financial information from borrowers and guarantors
in order to conduct a detailed loan review annually or more often as
appropriate. The Portfolio Managers also visit properties and
businesses on a periodic basis to perform inspections of our collateral and
associated revenue-generating activities of borrowers. In conjunction
with the loan review process, all loans in the portfolio are assigned a risk
grade that, among other purposes, factors into the Bank’s allowance for loan and
lease losses calculations.
When
payments are not received by their contractual due date, collection efforts are
initiated by our loss mitigation personnel. Accounts past-due by more
than 10 days are assigned to our collector for comprehensive payment collection
efforts. Our Portfolio Managers conduct an evaluation of all loans 90
days or more past due by obtaining an estimate of value on the underlying
collateral. The evaluation may result in our charging off either part
of, or the entire loan, but collection efforts still
continue. Portfolio Managers also conduct discussions with borrowers
in order to identify whether alternatives to foreclosure exist. When
foreclosure will maximize the Bank’s recovery for a non-performing loan, the
Portfolio Managers will prosecute the foreclosure process, including any
associated judicial legal actions.
Loan Portfolio
Composition. At December 31, 2008, our net loans receivable
held for investment totaled $622.5 million and net loans receivable held for
sale totaled $668,000. The types of loans that the Bank may originate
are subject to federal and state law.
The
following table sets forth the composition of our loan portfolio in dollar
amounts and as a percentage of the portfolio at the dates
indicated:
|
|
At
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
%
of
|
|
|
|
|
|
%
of
|
|
|
|
|
|
%
of
|
|
|
|
|
|
%
of
|
|
|
|
|
|
%
of
|
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
|
|
(dollars
in thousands)
|
|
Real
estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
$ |
287,592 |
|
|
|
45.74 |
% |
|
$ |
341,263 |
|
|
|
54.46 |
% |
|
$ |
357,275 |
|
|
|
58.80 |
% |
|
$ |
459,714 |
|
|
|
75.99 |
% |
|
$ |
394,582 |
|
|
|
83.67 |
% |
Commercial
|
|
|
165,978 |
|
|
|
26.40 |
% |
|
|
147,523 |
|
|
|
23.54 |
% |
|
|
173,452 |
|
|
|
28.55 |
% |
|
|
123,364 |
|
|
|
20.39 |
% |
|
|
53,937 |
|
|
|
11.44 |
% |
One-to-four
family (1)
|
|
|
9,925 |
|
|
|
1.58 |
% |
|
|
13,080 |
|
|
|
2.09 |
% |
|
|
12,825 |
|
|
|
2.11 |
% |
|
|
16,561 |
|
|
|
2.74 |
% |
|
|
22,347 |
|
|
|
4.74 |
% |
Business
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
owner occupied (2)
|
|
|
112,406 |
|
|
|
17.88 |
% |
|
|
57,614 |
|
|
|
9.19 |
% |
|
|
35,929 |
|
|
|
5.91 |
% |
|
|
2,062 |
|
|
|
0.34 |
% |
|
|
565 |
|
|
|
0.12 |
% |
Commercial
and industrial
|
|
|
43,235 |
|
|
|
6.87 |
% |
|
|
50,993 |
|
|
|
8.14 |
% |
|
|
22,762 |
|
|
|
3.75 |
% |
|
|
3,248 |
|
|
|
0.54 |
% |
|
|
103 |
|
|
|
0.02 |
% |
SBA
|
|
|
4,942 |
|
|
|
0.78 |
% |
|
|
13,995 |
|
|
|
2.23 |
% |
|
|
5,312 |
|
|
|
0.87 |
% |
|
|
- |
|
|
|
0.00 |
% |
|
|
- |
|
|
|
0.00 |
% |
Other
loans
|
|
|
4,689 |
|
|
|
0.75 |
% |
|
|
2,224 |
|
|
|
0.35 |
% |
|
|
63 |
|
|
|
0.01 |
% |
|
|
27 |
|
|
|
0.00 |
% |
|
|
75 |
|
|
|
0.01 |
% |
Total
gross loans
|
|
|
628,767 |
|
|
|
100.00 |
% |
|
|
626,692 |
|
|
|
100.00 |
% |
|
|
607,618 |
|
|
|
100.00 |
% |
|
|
604,976 |
|
|
|
100.00 |
% |
|
|
471,609 |
|
|
|
100.00 |
% |
Less
(plus):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
loan origination (costs), fees, (premiums), and discounts
|
|
|
(252 |
) |
|
|
|
|
|
|
(769 |
) |
|
|
|
|
|
|
(1,024 |
) |
|
|
|
|
|
|
(1,467 |
) |
|
|
|
|
|
|
(1,371 |
) |
|
|
|
|
Allowance
for loan losses
|
|
|
5,881 |
|
|
|
|
|
|
|
4,598 |
|
|
|
|
|
|
|
3,543 |
|
|
|
|
|
|
|
3,050 |
|
|
|
|
|
|
|
2,626 |
|
|
|
|
|
Loans
receivable, net
|
|
$ |
623,138 |
|
|
|
|
|
|
$ |
622,863 |
|
|
|
|
|
|
$ |
605,099 |
|
|
|
|
|
|
$ |
603,393 |
|
|
|
|
|
|
$ |
470,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Includes second trust deeds.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
Secured by real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Maturity. The following
table shows the contractual maturity of the Bank's gross loans for the period
indicated. The table does not reflect prepayment assumptions.
|
|
At
December 31, 2008
|
|
|
|
Multi-Family
|
|
|
Commercial
Investor
|
|
|
Commercial
Owner Occupied
|
|
|
Commercial
Business
|
|
|
SBA
|
|
|
One-to-Four
Family
|
|
|
Other
Loans
|
|
|
Total
Loans Receivable
|
|
|
|
(in
thousands)
|
|
Amounts
due:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One
year or less
|
|
$ |
1,113 |
|
|
$ |
4,065 |
|
|
$ |
- |
|
|
$ |
34,211 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,760 |
|
|
$ |
41,149 |
|
More
than one year to three years
|
|
|
- |
|
|
|
11,241 |
|
|
|
- |
|
|
|
3,492 |
|
|
|
- |
|
|
|
47 |
|
|
|
2,770 |
|
|
|
17,550 |
|
More
than three years to five years
|
|
|
790 |
|
|
|
4,313 |
|
|
|
234 |
|
|
|
2,018 |
|
|
|
2,616 |
|
|
|
477 |
|
|
|
15 |
|
|
|
10,463 |
|
More
than five years to 10 years
|
|
|
9,199 |
|
|
|
125,586 |
|
|
|
50,772 |
|
|
|
3,509 |
|
|
|
2,219 |
|
|
|
1,145 |
|
|
|
142 |
|
|
|
192,572 |
|
More
than 10 years to 20 years
|
|
|
1,958 |
|
|
|
11,422 |
|
|
|
19,674 |
|
|
|
- |
|
|
|
107 |
|
|
|
2,130 |
|
|
|
- |
|
|
|
35,291 |
|
More
than 20 years
|
|
|
274,532 |
|
|
|
9,351 |
|
|
|
41,726 |
|
|
|
5 |
|
|
|
- |
|
|
|
6,126 |
|
|
|
2 |
|
|
|
331,742 |
|
Total
amount due
|
|
|
287,592 |
|
|
|
165,978 |
|
|
|
112,406 |
|
|
|
43,235 |
|
|
|
4,942 |
|
|
|
9,925 |
|
|
|
4,689 |
|
|
|
628,767 |
|
Less
(plus):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
loan origination fees (costs)
|
|
|
(108 |
) |
|
|
11 |
|
|
|
(115 |
) |
|
|
(27 |
) |
|
|
(6 |
) |
|
|
(10 |
) |
|
|
3 |
|
|
|
(252 |
) |
Allowance
for loan losses
|
|
|
1,641 |
|
|
|
1,151 |
|
|
|
784 |
|
|
|
941 |
|
|
|
148 |
|
|
|
194 |
|
|
|
71 |
|
|
|
4,930 |
|
Allowance
for loan losses (unallocated)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
951 |
|
Total
loans, net
|
|
|
286,059 |
|
|
|
164,816 |
|
|
|
111,737 |
|
|
|
42,321 |
|
|
|
4,800 |
|
|
|
9,741 |
|
|
|
4,615 |
|
|
|
623,138 |
|
Loans
held for sale, net
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
668 |
|
|
|
- |
|
|
|
- |
|
|
|
668 |
|
Loans
held for investment, net
|
|
$ |
286,059 |
|
|
$ |
164,816 |
|
|
$ |
111,737 |
|
|
$ |
42,321 |
|
|
$ |
4,132 |
|
|
$ |
9,741 |
|
|
$ |
4,615 |
|
|
$ |
622,470 |
|
The following
table sets forth at December 31, 2008, the dollar amount of gross loans
receivable contractually due after December 31, 2009, and whether such loans
have fixed interest rates or adjustable interest rates.
|
|
Loans
Due After December 31, 2009
|
|
|
|
At
December 31, 2008
|
|
|
|
Fixed
|
|
|
Adjustable
|
|
|
Total
|
|
|
|
(in
thousands)
|
|
Residential
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
$ |
5,166 |
|
|
$ |
4,712 |
|
|
$ |
9,878 |
|
Multi-family
|
|
|
1,537 |
|
|
|
284,943 |
|
|
|
286,480 |
|
Commercial
real estate
|
|
|
19,021 |
|
|
|
133,695 |
|
|
|
152,716 |
|
Commercial
owner occupied
|
|
|
37,472 |
|
|
|
74,934 |
|
|
|
112,406 |
|
Commercial
and industrial
|
|
|
1,709 |
|
|
|
3,823 |
|
|
|
5,532 |
|
SBA
|
|
|
- |
|
|
|
4,942 |
|
|
|
4,942 |
|
Other
loans
|
|
|
157 |
|
|
|
2 |
|
|
|
159 |
|
Total
gross loans receivable
|
|
$ |
65,062 |
|
|
$ |
507,051 |
|
|
$ |
572,113 |
|
The
following table sets forth the Bank's loan originations, purchases, sales, and
principal repayments for the periods indicated:
|
|
For
the Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance of gross loans
|
|
$ |
626,692 |
|
|
$ |
607,618 |
|
|
$ |
604,976 |
|
Loans
originated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
34,166 |
|
|
|
311,236 |
|
|
|
182,378 |
|
Commercial
real estate
|
|
|
33,058 |
|
|
|
23,040 |
|
|
|
90,840 |
|
Commercial
owner occupied
|
|
|
5,375 |
|
|
|
17,208 |
|
|
|
28,396 |
|
Commecial
and industrial
|
|
|
17,512 |
|
|
|
37,705 |
|
|
|
34,420 |
|
SBA
|
|
|
907 |
|
|
|
14,209 |
|
|
|
9,230 |
|
Other
loans
|
|
|
1,465 |
|
|
|
3,333 |
|
|
|
1,537 |
|
Total
loans originated
|
|
|
92,483 |
|
|
|
406,731 |
|
|
|
346,801 |
|
Loans
purchased:
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
4,577 |
|
|
|
- |
|
|
|
- |
|
Commercial
real estate
|
|
|
9,305 |
|
|
|
- |
|
|
|
- |
|
Commercial
owner occupied
|
|
|
53,710 |
|
|
|
- |
|
|
|
- |
|
Construction
loans
|
|
|
- |
|
|
|
2,750 |
|
|
|
- |
|
Total
loans purchased
|
|
|
67,592 |
|
|
|
2,750 |
|
|
|
- |
|
Total
loan production
|
|
|
160,075 |
|
|
|
409,481 |
|
|
|
346,801 |
|
Total
|
|
|
786,767 |
|
|
|
1,017,099 |
|
|
|
951,777 |
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
repayments
|
|
|
150,498 |
|
|
|
149,550 |
|
|
|
138,116 |
|
Sales
of loans
|
|
|
6,235 |
|
|
|
239,396 |
|
|
|
205,268 |
|
Charge-offs
|
|
|
1,174 |
|
|
|
701 |
|
|
|
266 |
|
Transfer
to other real estate owned
|
|
|
93 |
|
|
|
760 |
|
|
|
509 |
|
Total
gross loans
|
|
|
628,767 |
|
|
|
626,692 |
|
|
|
607,618 |
|
Ending
balance loans held for sale, gross
|
|
|
668 |
|
|
|
749 |
|
|
|
795 |
|
Ending
balance loans held for investment, gross
|
|
$ |
628,099 |
|
|
$ |
625,943 |
|
|
$ |
606,823 |
|
Delinquencies and Classified
Assets. Federal regulations require that the Bank utilize an internal
asset classification system to identify and report problem and potential problem
assets. The Bank’s Chief Credit Officer has responsibility for
identifying and reporting problem assets to the Bank’s Credit and Investment
Review Committee (“CIRC”), which operates pursuant to the board-approved CIRC
policy. The policy incorporates the regulatory requirements of
monitoring and classifying all assets of the Bank. The Bank currently designates
or classifies problem and potential problem assets as “Special Mention”,
“Substandard” or “Loss” assets. An asset is considered “Substandard” if it is
inadequately protected by the current net worth and paying capacity of the
obligor or of the collateral pledged, if any. “Substandard” assets include those
characterized by the “distinct possibility” that the Bank will sustain “some
loss” if the deficiencies are not corrected. All other real estate
owned (“OREO”) acquired from foreclosure is classified as
“Substandard”. Assets classified as “Loss” are those that are
considered “uncollectible” and of such little value that their continuance as
assets is not warranted. Assets which do not currently expose the
Bank to sufficient risk to warrant classification in one of the aforementioned
categories, but possess weaknesses, are designated “Special
Mention.”
The
Bank’s determination as to the classification of its assets and the amount of
its valuation allowances are subject to review by bank regulatory agencies,
which can order the establishment of an additional general or a change in a
classification. The federal banking agencies adopted an interagency policy
statement on the allowance for loan and lease losses. The policy statement
provides guidance for financial institutions on both the responsibilities of
management for the assessment and establishment of adequate allowances and
guidance for banking agency examiners to use in determining the adequacy of
general valuation allowances. Generally, the policy statement
recommends that institutions establish and maintain effective systems and
controls to identify, monitor and address asset quality problems; that
management analyzes all significant factors that affect the collectability of
the portfolio in a reasonable manner; and that management establishes acceptable
allowance evaluation processes that meet the objectives set forth in the policy
statement. While the Bank believes that it has established an adequate allowance
for estimated loan losses, there can be no assurance that its regulators, in
reviewing the Bank’s loan portfolio, will not request the Bank to materially
increase its allowance for estimated loan losses, thereby negatively affecting
the Bank’s financial condition and earnings at that time. Although management
believes that an adequate allowance for estimated loan losses has been
established, actual losses are dependent upon future events and, as such,
further additions to the level of allowances for estimated loan losses may
become necessary.
The
Bank’s CIRC reviews the Chief Credit Officer’s recommendations for
classifying the Bank’s assets quarterly and reports the results of its review to
the board of directors. The following tables set forth information concerning
substandard assets, OREO and total classified assets at December 31,
2008 and 2007 for the Company:
|
|
At
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Substandard
|
|
|
|
Total
Substandard Assets
|
|
|
OREO
|
|
|
Assets
and OREO
|
|
|
|
Gross
Balance
|
|
|
#
of Loans
|
|
|
Gross
Balance
|
|
|
#
of Properties
|
|
|
Gross
Balance
|
|
|
#
of Assets
|
|
|
|
(dollars
in thousands)
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
$ |
307 |
|
|
|
7 |
|
|
$ |
11 |
|
|
|
3 |
|
|
$ |
318 |
|
|
|
10 |
|
Multi-family
|
|
|
350 |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
350 |
|
|
|
1 |
|
Commercial
Real Estate
|
|
|
6,362 |
|
|
|
6 |
|
|
|
- |
|
|
|
- |
|
|
|
6,362 |
|
|
|
6 |
|
Commercial
Owner Occupied
|
|
|
912 |
|
|
|
2 |
|
|
|
- |
|
|
|
- |
|
|
|
912 |
|
|
|
2 |
|
Commercial
Business
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
SBA
|
|
|
1,261 |
|
|
|
10 |
|
|
|
26 |
|
|
|
1 |
|
|
|
1,287 |
|
|
|
11 |
|
Other
loans
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Specific
Allowance
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
Substandard Assets
|
|
$ |
9,192 |
|
|
|
26 |
|
|
$ |
37 |
|
|
|
4 |
|
|
$ |
9,229 |
|
|
|
30 |
|
|
|
At
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Substandard
|
|
|
|
Total
Substandard Assets
|
|
|
OREO
|
|
|
Assets
and OREO
|
|
|
|
Gross
Balance
|
|
|
#
of Loans
|
|
|
Gross
Balance
|
|
|
#
of Properties
|
|
|
Gross
Balance
|
|
|
#
of Assets
|
|
|
|
(dollars
in thousands)
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
$ |
406 |
|
|
|
11 |
|
|
$ |
- |
|
|
|
2 |
|
|
$ |
406 |
|
|
|
13 |
|
Multi-family
|
|
|
- |
|
|
|
- |
|
|
|
711 |
|
|
|
1 |
|
|
|
711 |
|
|
|
1 |
|
Commercial
Real Estate
|
|
|
5,929 |
|
|
|
5 |
|
|
|
- |
|
|
|
- |
|
|
|
5,929 |
|
|
|
5 |
|
Commercial
Owner Occupied
|
|
|
320 |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
320 |
|
|
|
1 |
|
Commercial
Business
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
SBA
|
|
|
741 |
|
|
|
3 |
|
|
|
- |
|
|
|
- |
|
|
|
741 |
|
|
|
3 |
|
Construction
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
loans
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Specific
Allowance
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
Substandard Assets
|
|
$ |
7,396 |
|
|
|
20 |
|
|
$ |
711 |
|
|
|
3 |
|
|
$ |
8,107 |
|
|
|
23 |
|
At
December 31, 2008, the Company had $15.7 million of Special Mention assets and
$9.2 million of Substandard assets.
The
following table sets forth delinquencies in the Company's loan portfolio as of
the dates indicated:
`
|
|
60-89
Days
|
|
|
90
Days or More
|
|
|
|
|
|
|
Principal
Balance
|
|
|
|
|
|
Principal
Balance
|
|
|
|
#
of Loans
|
|
|
of
Loans
|
|
|
#
of Loans
|
|
|
of
Loans
|
|
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
- |
|
|
$ |
- |
|
|
|
1 |
|
|
$ |
350 |
|
Commercial
real estate
|
|
|
1 |
|
|
|
317 |
|
|
|
2 |
|
|
|
3,188 |
|
Commercial
owner occupied
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Commercial
and industrial
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
SBA
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
|
|
127 |
|
One-to-four
family and other loans
|
|
|
2 |
|
|
|
33 |
|
|
|
8 |
|
|
|
637 |
|
Total
|
|
|
3 |
|
|
$ |
350 |
|
|
|
13 |
|
|
$ |
4,302 |
|
Delinquent
loans to total gross loans
|
|
|
|
|
|
|
0.06 |
% |
|
|
|
|
|
|
0.68 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
Commercial
real estate
|
|
|
1 |
|
|
|
641 |
|
|
|
1 |
|
|
|
3,125 |
|
Commercial
owner occupied
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Commercial
and industrial
|
|
|
3 |
|
|
|
458 |
|
|
|
- |
|
|
|
- |
|
SBA
|
|
|
5 |
|
|
|
804 |
|
|
|
- |
|
|
|
- |
|
One-to-four
family and other loans
|
|
|
15 |
|
|
|
719 |
|
|
|
7 |
|
|
|
284 |
|
Total
|
|
|
24 |
|
|
$ |
2,622 |
|
|
|
8 |
|
|
$ |
3,409 |
|
Delinquent
loans to total gross loans
|
|
|
|
|
|
|
0.42 |
% |
|
|
|
|
|
|
0.54 |
% |
Nonperforming
Assets. At December 31, 2008 and 2007, we had $5.2 million and
$4.9 million of net nonperforming assets, respectively, which included $5.2
million and $4.2 million of net nonperforming loans, respectively. Our current
policy is not to accrue interest on loans 90 days or more past due or on loans
where, in the opinion of management, there is reasonable doubt as to the
collectability. The increase in nonperforming loans in 2008 is primarily due to
four SBA loans totaling $796,000, one commercial real estate loan for $638,000,
one multi-family loan for $350,000, and two one-to-four family loans totaling
$413,000 that were deemed to be nonperforming in 2008. Partially offsetting the
aforementioned increases was a $550,000 principal reduction on a $3.1 million
nonperforming commercial real estate loan. Management believes that it will not
suffer a loss on this loan, which represents 49% of our nonperforming assets, as
the collateral value securing the loan is considered adequate.
OREO was
$37,000 (consisting of four properties) at December 31, 2008, compared to
$711,000 (consisting of three properties) at December 31,
2007. Properties acquired through or in lieu of foreclosure are
initially recorded at the lower of fair value less cost to sell, or the balance
of the loan at the date of foreclosure through a charge to the allowance for
loan losses. The Bank generally obtains an appraisal and/or a market evaluation
on all OREO at the time of possession. After foreclosure, valuations are
periodically performed by management as needed due to changing market conditions
or factors specifically attributable to the properties’ condition. If the
carrying value of the property exceeds its fair value less estimated cost to
sell, a charge to operations is recorded. The decline in OREO over
the periods represented reflects the sales of OREO properties.
The
following table sets forth information concerning nonperforming loans and OREO
at the periods indicated:
|
|
At
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(dollars
in thousands)
|
|
Nonperforming
assets (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
$ |
637 |
|
|
$ |
284 |
|
|
$ |
634 |
|
|
$ |
1,687 |
|
|
$ |
2,371 |
|
Multi-family
|
|
|
350 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Commercial
real estate
|
|
|
3,188 |
|
|
|
3,125 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Business
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
owner occupied
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Commercial
and industrial
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
SBA
(2)
|
|
|
1,025 |
|
|
|
784 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
loans
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
nonaccrual loans
|
|
|
5,200 |
|
|
|
4,193 |
|
|
|
634 |
|
|
|
1,687 |
|
|
|
2,371 |
|
Foreclosures
in process
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Specific
allowance
|
|
|
- |
|
|
|
- |
|
|
|
(60 |
) |
|
|
(185 |
) |
|
|
(244 |
) |
Total
nonperforming loans, net
|
|
|
5,200 |
|
|
|
4,193 |
|
|
|
574 |
|
|
|
1,502 |
|
|
|
2,127 |
|
Foreclosed
other real estate owned
|
|
|
37 |
|
|
|
711 |
|
|
|
138 |
|
|
|
211 |
|
|
|
351 |
|
Total
nonperforming assets, net (3)
|
|
$ |
5,237 |
|
|
$ |
4,904 |
|
|
$ |
712 |
|
|
$ |
1,713 |
|
|
$ |
2,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured
loans (4)
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Allowance
for loan losses as a percent of gross loans receivable (5)
|
|
|
0.94 |
% |
|
|
0.73 |
% |
|
|
0.58 |
% |
|
|
0.50 |
% |
|
|
0.56 |
% |
Allowance
for loan losses as a percent of total nonperforming loans,
gross
|
|
|
113.10 |
% |
|
|
109.66 |
% |
|
|
558.83 |
% |
|
|
180.79 |
% |
|
|
110.75 |
% |
Nonperforming
loans, net of specific allowances, as a percent of gross loans
receivable
|
|
|
0.83 |
% |
|
|
0.67 |
% |
|
|
0.09 |
% |
|
|
0.25 |
% |
|
|
0.45 |
% |
Nonperforming
assets, net of specific allowances, as a percent of total
assets
|
|
|
0.83 |
% |
|
|
0.64 |
% |
|
|
0.10 |
% |
|
|
0.24 |
% |
|
|
0.46 |
% |
(1)
|
During
the years ended December 31, 2008, 2007, 2006, 2005, and 2004,
approximately $212,000, $347,000, $41,000, $75,000, and $131,000,
respectively, of interest income related to these loans was included in
net income. Additional interest income of approximately
$491,000, $315,000, $106,000, $310,000, and $317,000, would have been
recorded for the years ended December 31, 2008, 2007, 2006, 2005, and
2004, respectively, if these loans had been paid in accordance with their
original terms and had been outstanding throughout the applicable period
then ended or, if not outstanding throughout the applicable period then
ended, since origination.
|
(2)
|
The
SBA totals include the guaranteed amount, which was $609,000 as of
December 31, 2008.
|
(3)
|
Nonperforming
assets consist of nonperforming loans and OREO. Nonperforming
loans consisted of all loans 90 days or more past due and on loans where,
in the opinion of management, there is reasonable doubt as to the
collectability.
|
(4)
|
A
“restructured loan” is one where the terms of the loan were renegotiated
to provide a reduction or deferral of interest or principal because of
deterioration in the financial position of the borrower. We did
not include in interest income any interest on restructured loans during
the periods presented.
|
(5)
|
Gross
loans include loans receivable held for investment and held for
sale.
|
Allowance for Loan Losses.
We maintain an allowance for loan losses to absorb losses inherent in the
loans held for investment portfolio. Loans held for sale are carried at
the lower of cost or estimated market value. Net unrealized losses, if
any, are recognized in a lower of cost or market valuation allowance by charges
to operations. The allowance is based on ongoing, quarterly assessments of
probable estimated losses inherent in our loan portfolio. The allowance is
increased by a provision for loan losses which is charged to expense and reduced
by charge-offs, net of recoveries.
As of
December 31, 2008, the allowance for loan losses totaled $5.9 million, compared
to $4.6 million at December 31, 2007 and $3.5 million at December 31,
2006. The allowance for loan losses at December 31, 2008, as a
percent of nonperforming loans and gross loans, was 113.1% and 0.94%, compared
with 109.7% and 0.73% at December 31, 2007, and 558.8% and 0.58% at December 31,
2006, respectively. The specific allowance amount included in the
allowance for loan losses totaled zero as of both December 31, 2008 and
2007, and $166,000, as of December 31, 2006.
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 California
as collected by the FDIC as the base rate. Then the following
internal and external risk factors are added to the average:
Internal
Factors
· Changes
in lending policies and procedures, including underwriting standards and
collection, charge-offs, and recovery practices;
· Changes
in the nature and volume of the loan portfolio and 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 our loan portfolio;
· Changes
in the volume and severity of past due and classified loans, and in the volume
of non-accruals, troubled debt restructurings, and other loan
modifications;
· Changes
in the quality of our loan review system and the degree of oversight by our
board of directors; 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 developments and
regulatory requirements on the level of estimated credit losses in our current
loan portfolio.
The
factor amount for each of the nine above-described risk factors are determined
by the Chief Credit Officer and approved by the CIRC on a quarterly
basis.
For the
homogeneous single-family residential loan portfolio, the allowance for loan and
lease loss factors for pre-2002 originations of first and second deeds of trust
loans are based upon the Bank’s 10 year historical loss experience from
charge-offs and real estate owned and the migration history
analysis. For loans secured by 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 risk factors mentioned
above.
The
following table sets forth the Bank’s allowance for loan losses and the percent
of gross loans to total gross loans in each of the categories listed at the
dates indicated:
|
|
As
of and For the Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Balances:
|
|
(dollars
in thousands)
|
|
Average
net loans outstanding during the period
|
|
$ |
617,569 |
|
|
$ |
617,528 |
|
|
$ |
607,439 |
|
|
$ |
546,426 |
|
|
$ |
351,968 |
|
Total
loans outstanding at end of the period
|
|
|
628,767 |
|
|
|
626,692 |
|
|
|
607,618 |
|
|
|
604,976 |
|
|
|
471,609 |
|
Allowance
for Loan Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
|
4,598 |
|
|
|
3,543 |
|
|
|
3,050 |
|
|
|
2,626 |
|
|
|
1,984 |
|
ALLL
Transfer In *
|
|
|
8 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Provision
for loan losses
|
|
|
2,241 |
|
|
|
1,651 |
|
|
|
531 |
|
|
|
349 |
|
|
|
705 |
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
|
226 |
|
|
|
101 |
|
|
|
266 |
|
|
|
211 |
|
|
|
252 |
|
Multi-family
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Commercial
real estate
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Construction
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Business
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
owner occupied
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Commercial
and industrial
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
SBA
|
|
|
948 |
|
|
|
600 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
loans
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5 |
|
|
|
148 |
|
Total
charge-offs
|
|
|
1,174 |
|
|
|
701 |
|
|
|
266 |
|
|
|
216 |
|
|
|
400 |
|
Recoveries
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
|
88 |
|
|
|
103 |
|
|
|
225 |
|
|
|
191 |
|
|
|
122 |
|
Multi-family
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Commercial
real estate
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Construction
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
74 |
|
|
|
- |
|
Business
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
owner occupied
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Commercial
and industrial
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
SBA
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
loans
|
|
|
120 |
|
|
|
2 |
|
|
|
3 |
|
|
|
26 |
|
|
|
215 |
|
Total
recoveries
|
|
|
208 |
|
|
|
105 |
|
|
|
228 |
|
|
|
291 |
|
|
|
337 |
|
Net
loan charge-offs
|
|
|
966 |
|
|
|
596 |
|
|
|
38 |
|
|
|
(75 |
) |
|
|
63 |
|
Balance
at end of period
|
|
$ |
5,881 |
|
|
$ |
4,598 |
|
|
$ |
3,543 |
|
|
$ |
3,050 |
|
|
$ |
2,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
charge-offs to average net loans
|
|
|
0.16 |
% |
|
|
0.10 |
% |
|
|
0.01 |
% |
|
|
(0.01 |
)% |
|
|
0.02 |
% |
Allowance
for loan losses to gross loans at end of period
|
|
|
0.94 |
% |
|
|
0.73 |
% |
|
|
0.58 |
% |
|
|
0.50 |
% |
|
|
0.56 |
% |
Allowance
for loan losses to total nonperforming loans
|
|
|
113.10 |
% |
|
|
109.66 |
% |
|
|
558.83 |
% |
|
|
180.79 |
% |
|
|
110.75 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Note: Represents
the addition of valuation reserves for overdrafts that were previously
held outside of the General Allowance.
|
|
The following
table sets forth the Bank’s allowance for loan losses and the percent of gross
loans to total gross loans in each of the categories listed at the dates
indicated:
|
|
As
of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
%
of Loans
|
|
|
|
|
|
%
of Loans
|
|
|
|
|
|
%
of Loans
|
|
|
|
|
|
|
in
Category to
|
|
|
|
|
|
in
Category to
|
|
|
|
|
|
in
Category to
|
|
Balance
at End of Period Applicable to
|
|
Amount
|
|
|
Total
Loans
|
|
|
Amount
|
|
|
Total
Loans
|
|
|
Amount
|
|
|
Total
Loans
|
|
|
|
(dollars
in thousands)
|
|
Real
Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
$ |
194 |
|
|
|
1.58 |
% |
|
$ |
165 |
|
|
|
2.09 |
% |
|
$ |
331 |
|
|
|
2.11 |
% |
Multi-family
|
|
|
1,641 |
|
|
|
45.74 |
% |
|
|
1,438 |
|
|
|
54.46 |
% |
|
|
1,405 |
|
|
|
58.80 |
% |
Commercial
real estate
|
|
|
1,151 |
|
|
|
26.40 |
% |
|
|
1,129 |
|
|
|
23.54 |
% |
|
|
881 |
|
|
|
28.55 |
% |
Construction
|
|
|
65 |
|
|
|
0.41 |
% |
|
|
20 |
|
|
|
0.00 |
% |
|
|
- |
|
|
|
0.00 |
% |
Commercial
owner occupied
|
|
|
784 |
|
|
|
17.88 |
% |
|
|
248 |
|
|
|
9.19 |
% |
|
|
179 |
|
|
|
5.91 |
% |
Commercial
and industrial
|
|
|
941 |
|
|
|
6.87 |
% |
|
|
640 |
|
|
|
8.14 |
% |
|
|
478 |
|
|
|
3.75 |
% |
SBA
|
|
|
148 |
|
|
|
0.78 |
% |
|
|
207 |
|
|
|
2.23 |
% |
|
|
68 |
|
|
|
0.87 |
% |
Other
Loans
|
|
|
6 |
|
|
|
0.34 |
% |
|
|
1 |
|
|
|
0.35 |
% |
|
|
4 |
|
|
|
0.01 |
% |
Unallocated
|
|
|
951 |
|
|
|
-- |
|
|
|
750 |
|
|
|
-- |
|
|
|
197 |
|
|
|
-- |
|
Total
|
|
$ |
5,881 |
|
|
|
100.00 |
% |
|
$ |
4,598 |
|
|
|
100.00 |
% |
|
$ |
3,543 |
|
|
|
100.00 |
% |
|
|
As
of December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
%
of Loans
|
|
|
%
of Loans
|
|
Balance
at End of
|
|
|
|
|
in
Category to
|
|
|
in
Category to
|
|
Period
Applicable to
|
|
Amount
|
|
|
Total
Loans
|
|
|
Amount
|
|
|
Total
Loans
|
|
|
|
(dollars
in thousands)
|
|
Real
Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
$ |
554 |
|
|
|
2.74 |
% |
|
$ |
661 |
|
|
|
4.74 |
% |
Multi-family
|
|
|
1,746 |
|
|
|
75.99 |
% |
|
|
1,643 |
|
|
|
83.67 |
% |
Commercial
real estate
|
|
|
627 |
|
|
|
20.39 |
% |
|
|
271 |
|
|
|
11.44 |
% |
Construction
|
|
|
- |
|
|
|
0.00 |
% |
|
|
- |
|
|
|
0.00 |
% |
Commercial
owner occupied
|
|
|
10 |
|
|
|
0.34 |
% |
|
|
1 |
|
|
|
0.12 |
% |
Commercial
and industrial
|
|
|
110 |
|
|
|
0.54 |
% |
|
|
3 |
|
|
|
0.02 |
% |
SBA
|
|
|
- |
|
|
|
0.00 |
% |
|
|
- |
|
|
|
0.00 |
% |
Other
Loans
|
|
|
3 |
|
|
|
0.00 |
% |
|
|
11 |
|
|
|
0.01 |
% |
Unallocated
|
|
|
- |
|
|
|
-- |
|
|
|
36 |
|
|
|
-- |
|
Total
|
|
$ |
3,050 |
|
|
|
100.00 |
% |
|
$ |
2,626 |
|
|
|
100.00 |
% |
The
following table sets forth the allowance for loan losses amounts calculated by
the categories listed for the periods set forth in the table:
|
|
As
of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Balance
at End of Period Applicable to
|
|
Amount
|
|
|
%
of
Allowance
to
Total
|
|
|
Amount
|
|
|
%
of
Allowance
to
Total
|
|
|
Amount
|
|
|
%
of
Allowance
to
Total
|
|
|
|
(dollars
in thousands)
|
|
Formula
allowance
|
|
$ |
4,930 |
|
|
|
83.8 |
% |
|
$ |
3,848 |
|
|
|
83.7 |
% |
|
$ |
3,180 |
|
|
|
89.7 |
% |
Specific
allowance
|
|
|
- |
|
|
|
0.0 |
% |
|
|
- |
|
|
|
0.0 |
% |
|
|
166 |
|
|
|
4.7 |
% |
Unallocated
allowance
|
|
|
951 |
|
|
|
16.2 |
% |
|
|
750 |
|
|
|
16.3 |
% |
|
|
197 |
|
|
|
5.6 |
% |
Total
|
|
$ |
5,881 |
|
|
|
100.0 |
% |
|
$ |
4,598 |
|
|
|
100.0 |
% |
|
$ |
3,543 |
|
|
|
100.0 |
% |
|
|
As
of December 31,
|
|
|
|
2005
|
|
|
2004
|
|
Balance
of End of Period Applicable to
|
|
Amount
|
|
|
%
of Allowance
to
Total
|
|
|
Amount
|
|
|
%
of Allowance
to
Total
|
|
|
|
(dollars
in thousands)
|
|
Formula
allowance
|
|
$ |
2,759 |
|
|
|
90.5 |
% |
|
$ |
2,245 |
|
|
|
85.4 |
% |
Specific
allowance
|
|
|
291 |
|
|
|
9.5 |
% |
|
|
345 |
|
|
|
13.1 |
% |
Unallocated
allowance
|
|
|
- |
|
|
|
0.0 |
% |
|
|
36 |
|
|
|
1.4 |
% |
Total
|
|
$ |
3,050 |
|
|
|
100.0 |
% |
|
$ |
2,626 |
|
|
|
100.0 |
% |
Investment
Activities
Our
investment policy as established by our board of directors attempts to provide
and maintain liquidity, generate a favorable return on investments without
incurring undue interest rate and credit risk and complement our lending
activities. Specifically, our policies limit investments to U.S.
government securities, federal agency-backed securities, non-government
guaranteed mortgage-backed securities (“MBS”), municipal bonds, and corporate
bonds.
Our
investment securities portfolio amounted to $70.9 million at December 31, 2008,
as compared to $73.0 million at December 31, 2007. As of December 31,
2008, the portfolio consisted of $148,000 in U.S. Treasuries, $37.9 million in
government sponsor entities (“GSE”) MBS, $23.5 million of private label MBS,
$12.7 million of FHLB stock, and $1.6 million of Federal Reserve Bank
stock. In addition, $34.0 million of the GSE securities have been
pledged as collateral for the Bank’s $28.5 million of inverse putable reverse
repurchase agreements.
In June
2008, the Bank redeemed its shares in two AMF mutual funds it owned and received
a pro rata distribution in kind of the securities held by the mutual
funds. The managers of the mutual funds had limited redemptions to
payment-in-kind only and did not permit the owners of the funds to redeem their
shares for cash. In aggregate, the Bank received cash of $2.9 million and 160
securities with a market value totaling $21.3 million. The Bank’s redemption of
its shares in the mutual funds resulted in a charge to earnings of approximately
$3.6 million (pre-tax). The charge is the difference between the
total purchase price of $27.7 million, paid by the Bank for the mutual funds and
the market value of the cash and securities of $24.1 million at the close of
business on June 18, 2008. Additionally, in December 2008 the Bank took an
other-than-temporary impairment (“OTTI”) charge of $1.3 million on 19 of the
private-label MBSs that it received in the redemption of its shares in the
mutual funds.
Below is
a table of our securities by security type further separated by rating agency
grade as of December 31, 2008:
|
|
|
At
December 31, 2008
|
|
Security
Type
|
Ratings
|
|
Number
|
|
|
Face
Value
|
|
|
Book
Value
|
|
|
Market
Value
|
|
|
Unrealized
Gain/(Loss)
|
|
|
|
|
(dollars
in thousands)
|
|
US
Government
|
AAA
|
|
|
2 |
|
|
$ |
146 |
|
|
$ |
148 |
|
|
$ |
167 |
|
|
$ |
19 |
|
Government
Sponsored Agency
|
AAA
|
|
|
62 |
|
|
|
38,307 |
|
|
|
37,887 |
|
|
|
38,853 |
|
|
|
966 |
|
Private
Label
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Grade
|
AAA
|
|
|
39 |
|
|
|
15,002 |
|
|
|
14,871 |
|
|
|
12,415 |
|
|
|
(2,456 |
) |
Investment
Grade
|
AA/A
|
|
|
31 |
|
|
|
6,140 |
|
|
|
5,665 |
|
|
|
3,549 |
|
|
|
(2,116 |
) |
Non-investment
Grade *
|
Below
BBB
|
|
|
16 |
|
|
|
3,166 |
|
|
|
2,735 |
|
|
|
1,435 |
|
|
|
(1,300 |
) |
Permanently
Impaired
|
Below
BBB
|
|
|
19 |
|
|
|
2,546 |
|
|
|
187 |
|
|
|
187 |
|
|
|
- |
|
|
|
|
|
169 |
|
|
$ |
65,307 |
|
|
$ |
61,493 |
|
|
$ |
56,606 |
|
|
$ |
(4,887 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
Non-investment grade includes all ratings below BBB.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following
table sets forth certain information regarding the amortized costs and carrying
values of the Company's securities at the dates indicated:
|
|
2008
|
|
|
2007
|
|
|
|
Amortized
|
|
|
Carrying
|
|
|
Amortized
|
|
|
Carrying
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
(in
thousands)
|
|
Available
for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
US
Treasury Notes
|
|
$ |
148 |
|
|
$ |
167 |
|
|
$ |
- |
|
|
$ |
- |
|
Mortgage-backed
securities
|
|
|
61,345 |
|
|
|
56,439 |
|
|
|
29,719 |
|
|
|
29,753 |
|
Mutual
funds
|
|
|
- |
|
|
|
- |
|
|
|
27,719 |
|
|
|
26,485 |
|
Total
securities available for sale
|
|
|
61,493 |
|
|
|
56,606 |
|
|
|
57,438 |
|
|
|
56,238 |
|
FHLB
Stock
|
|
|
12,731 |
|
|
|
12,731 |
|
|
|
15,204 |
|
|
|
15,204 |
|
Federal
Reserve Bank Stock
|
|
|
1,599 |
|
|
|
1,599 |
|
|
|
1,600 |
|
|
|
1,600 |
|
Total
securities
|
|
$ |
75,823 |
|
|
$ |
70,936 |
|
|
$ |
74,242 |
|
|
$ |
73,042 |
|
The table
below sets forth certain information regarding the carrying value, weighted
average yields and contractual maturities of the Company's securities as of
December 31, 2008.
|
|
At
December 31, 2008
|
|
|
|
One
Year
|
|
|
More
than One
|
|
|
More
than Five Years
|
|
|
More
than
|
|
|
|
|
|
|
or
Less
|
|
|
to
Five Years
|
|
|
to
Ten Years
|
|
|
Ten
Years
|
|
|
Total
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Carrying
|
|
|
Average
|
|
|
Carrying
|
|
|
Average
|
|
|
Carrying
|
|
|
Average
|
|
|
Carrying
|
|
|
Average
|
|
|
Carrying
|
|
|
Average
|
|
|
|
Value
|
|
|
Yield
|
|
|
Value
|
|
|
Yield
|
|
|
Value
|
|
|
Yield
|
|
|
Value
|
|
|
Yield
|
|
|
Value
|
|
|
Yield
|
|
|
|
(dollars
in thousands)
|
|
Available
for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
Treasury Notes
|
|
$ |
- |
|
|
|
0.00 |
% |
|
$ |
81 |
|
|
|
3.53 |
% |
|
$ |
86 |
|
|
|
4.15 |
% |
|
$ |
- |
|
|
|
0.00 |
% |
|
$ |
167 |
|
|
|
3.85 |
% |
Mortgage-backed
securities
|
|
|
- |
|
|
|
0.00 |
% |
|
|
3 |
|
|
|
5.97 |
% |
|
|
1,869 |
|
|
|
5.38 |
% |
|
|
54,567 |
|
|
|
6.23 |
% |
|
$ |
56,439 |
|
|
|
6.20 |
% |
Total
available for sale
|
|
$ |
- |
|
|
|
0.00 |
% |
|
$ |
84 |
|
|
|
3.61 |
% |
|
$ |
1,955 |
|
|
|
5.33 |
% |
|
$ |
54,567 |
|
|
|
6.23 |
% |
|
$ |
56,606 |
|
|
|
6.19 |
% |
FHLB
Stock (a)
|
|
$ |
12,731 |
|
|
|
0.00 |
% |
|
$ |
- |
|
|
|
0.00 |
% |
|
$ |
- |
|
|
|
0.00 |
% |
|
$ |
- |
|
|
|
0.00 |
% |
|
$ |
12,731 |
|
|
|
0.00 |
% |
Federal
Reserve Bank Stock
|
|
$ |
1,599 |
|
|
|
6.00 |
% |
|
$ |
- |
|
|
|
0.00 |
% |
|
$ |
- |
|
|
|
0.00 |
% |
|
$ |
- |
|
|
|
0.00 |
% |
|
|
1,599 |
|
|
|
6.00 |
% |
Total
securities
|
|
$ |
14,330 |
|
|
|
0.67 |
% |
|
$ |
84 |
|
|
|
3.61 |
% |
|
$ |
1,955 |
|
|
|
5.33 |
% |
|
$ |
54,567 |
|
|
|
6.23 |
% |
|
$ |
70,936 |
|
|
|
5.08 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
FHLB of San Francisco has declared that it will not pay a dividend for
fourth quarter of 2008. The FHLB’s Board of Directors stated that they
will continue to monitor their OTTI issue, their overall financial
performance, and developments in the financial markets as the basis for
determining the status of dividends in future quarters.
|
|
Sources
of Funds
General. Deposits, loan
repayments and prepayments, and cash flows generated from operations and
borrowings are the primary sources of the Bank’s funds for use in lending,
investing and other general purposes.
Deposits. Deposits
represent our primary source of funds for our lending and investing
activities. The Bank offers a variety of deposit accounts with a
range of interest rates and terms. The deposit accounts are offered
through our six branch network in Southern California. The Bank’s
deposits consist of passbook savings, checking accounts, money market accounts
and certificates of deposit. Total deposits at December 31,
2008 were $457.1 million, as compared to $386.7 million at December 31,
2007. For the year ended December 31, 2008, certificates of deposit
constituted 76.3% of total average deposits. The terms of the
fixed-rate certificates of deposit offered by the Bank vary from three months to
five years. Specific terms of an individual account vary according to
the type of account, the minimum balance required, the time period funds must
remain on deposit and the interest rate, among other factors. The
flow of deposits is influenced significantly by general economic conditions,
changes in money market rates, prevailing interest rates and
competition. At December 31, 2008, the Bank had
$359.2 million of certificate of deposit accounts maturing in one
year or less.
The Bank
relies primarily on customer service, marketing efforts, business development,
cross-selling of deposit products to loan customers, and long-standing
relationships with customers to attract and retain local
deposits. However, market interest rates and rates offered by
competing financial institutions significantly affect the Bank’s ability to
attract and retain deposits. Additionally, the Bank will utilize both
wholesale and brokered deposits to supplement its generation of deposits from
businesses and consumers. During 2008, the Bank decreased the amount
of wholesale and broker deposits by $12.8 million to $27.1 million,
respectively.
The
following table presents the deposit activity of the Bank for the years ended
December 31:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
Net
(withdrawals) deposits
|
|
$ |
45,820 |
|
|
$ |
32,755 |
|
|
$ |
(613 |
) |
Interest
credited on deposit accounts
|
|
|
24,573 |
|
|
|
14,531 |
|
|
|
12,126 |
|
Total
increase in deposit accounts
|
|
$ |
70,393 |
|
|
$ |
47,286 |
|
|
$ |
11,513 |
|
At
December 31, 2008, the Bank had $181.0 million in certificate accounts in
amounts of $100,000 or more maturing as follows:
|
|
|
|
|
Weighted
|
|
Maturity
Period
|
|
Amount
|
|
|
Average
Rate
|
|
|
|
(dollars
in thousands)
|
|
Three
months or less
|
|
$ |
57,071 |
|
|
|
3.55 |
% |
Over
three months through 6 months
|
|
|
83,361 |
|
|
|
3.82 |
% |
Over
6 months through 12 months
|
|
|
35,121 |
|
|
|
3.90 |
% |
Over
12 months
|
|
|
5,474 |
|
|
|
3.72 |
% |
Total
|
|
$ |
181,027 |
|
|
|
3.75 |
% |
The
following table sets forth the distribution of the Company’s average deposit
accounts for the periods indicated and the weighted average interest rates on
each category of deposits presented:
|
|
For
the Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
%
of Total
|
|
|
Weighted
|
|
|
|
|
|
%
of Total
|
|
|
Weighted
|
|
|
|
|
|
%
of Total
|
|
|
Weighted
|
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
|
Balance
|
|
|
Deposits
|
|
|
Rate
|
|
|
Balance
|
|
|
Deposits
|
|
|
Rate
|
|
|
Balance
|
|
|
Deposits
|
|
|
Rate
|
|
|
|
(dollars
in thousands)
|
|
Passbook
accounts
|
|
$ |
14,847 |
|
|
|
3.61 |
% |
|
|
2.90 |
% |
|
$ |
3,336 |
|
|
|
0.91 |
% |
|
|
2.51 |
% |
|
$ |
2,600 |
|
|
|
0.81 |
% |
|
|
0.55 |
% |
Money
market accounts
|
|
|
30,532 |
|
|
|
7.42 |
% |
|
|
2.52 |
% |
|
|
39,782 |
|
|
|
10.86 |
% |
|
|
3.51 |
% |
|
|
39,128 |
|
|
|
12.13 |
% |
|
|
3.44 |
% |
Checking
accounts
|
|
|
51,538 |
|
|
|
12.52 |
% |
|
|
0.47 |
% |
|
|
51,102 |
|
|
|
13.94 |
% |
|
|
0.60 |
% |
|
|
49,441 |
|
|
|
15.32 |
% |
|
|
0.63 |
% |
Sub-total
|
|
|
96,917 |
|
|
|
23.55 |
% |
|
|
1.49 |
% |
|
|
94,220 |
|
|
|
25.72 |
% |
|
|
1.88 |
% |
|
|
91,169 |
|
|
|
28.26 |
% |
|
|
1.83 |
% |
Certificate
of deposit accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months or less
|
|
|
10,282 |
|
|
|
2.50 |
% |
|
|
3.91 |
% |
|
|
17,038 |
|
|
|
4.65 |
% |
|
|
5.15 |
% |
|
|
9,072 |
|
|
|
2.81 |
% |
|
|
4.89 |
% |
Four
through 12 months
|
|
|
266,415 |
|
|
|
64.74 |
% |
|
|
4.20 |
% |
|
|
226,834 |
|
|
|
61.92 |
% |
|
|
5.18 |
% |
|
|
163,802 |
|
|
|
50.79 |
% |
|
|
4.55 |
% |
13
through 36 months
|
|
|
30,955 |
|
|
|
7.52 |
% |
|
|
3.86 |
% |
|
|
16,693 |
|
|
|
4.56 |
% |
|
|
4.35 |
% |
|
|
43,093 |
|
|
|
13.36 |
% |
|
|
3.75 |
% |
37
months or greater
|
|
|
6,951 |
|
|
|
1.69 |
% |
|
|
3.98 |
% |
|
|
11,611 |
|
|
|
3.17 |
% |
|
|
4.28 |
% |
|
|
15,453 |
|
|
|
4.79 |
% |
|
|
4.39 |
% |
Total
certificate of deposit accounts
|
|
|
314,603 |
|
|
|
76.45 |
% |
|
|
4.15 |
% |
|
|
272,176 |
|
|
|
74.28 |
% |
|
|
5.09 |
% |
|
|
231,420 |
|
|
|
71.74 |
% |
|
|
4.40 |
% |
Total
average deposits
|
|
$ |
411,520 |
|
|
|
100.00 |
% |
|
|
3.52 |
% |
|
$ |
366,396 |
|
|
|
100.00 |
% |
|
|
4.26 |
% |
|
$ |
322,589 |
|
|
|
100.00 |
% |
|
|
3.67 |
% |
The
following table presents, by various rate categories, the amount of certificate
of deposit accounts outstanding at the date indicated and the periods to
maturity of the certificate of deposit accounts outstanding at December 31,
2008:
|
|
Period
to Maturity from December 31, 2008
|
|
|
|
Less
than
|
|
|
One
to
|
|
|
Two
to
|
|
|
Three
to
|
|
|
Four
to
|
|
|
More
than
|
|
|
|
|
|
|
One
Year
|
|
|
Two
Years
|
|
|
Three
Years
|
|
|
Four
Years
|
|
|
Five
Years
|
|
|
Five
Years
|
|
|
Total
|
|
|
|
(in
thousands)
|
|
Certificate
of deposit accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.50
to 2.00%
|
|
$ |
42 |
|
|
$ |
41 |
|
|
$ |
9 |
|
|
$ |
2 |
|
|
$ |
- |
|
|
$ |
34 |
|
|
$ |
128 |
|
2.01
to 3.00%
|
|
|
22,524 |
|
|
|
1,316 |
|
|
|
107 |
|
|
|
21 |
|
|
|
106 |
|
|
|
137 |
|
|
|
24,211 |
|
3.01
to 4.00%
|
|
|
231,619 |
|
|
|
1,258 |
|
|
|
192 |
|
|
|
2 |
|
|
|
22 |
|
|
|
14 |
|
|
|
233,107 |
|
4.01
to 5.00%
|
|
|
106,259 |
|
|
|
2,349 |
|
|
|
685 |
|
|
|
301 |
|
|
|
131 |
|
|
|
2 |
|
|
|
109,727 |
|
5.01
to 6.00%
|
|
|
359 |
|
|
|
160 |
|
|
|
180 |
|
|
|
157 |
|
|
|
163 |
|
|
|
442 |
|
|
|
1,461 |
|
6.01
to 7.00%
|
|
|
53 |
|
|
|
17 |
|
|
|
37 |
|
|
|
21 |
|
|
|
4 |
|
|
|
- |
|
|
|
132 |
|
7.01
to 8.00%
|
|
|
74 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
74 |
|
Total
|
|
$ |
360,930 |
|
|
$ |
5,141 |
|
|
$ |
1,210 |
|
|
$ |
504 |
|
|
$ |
426 |
|
|
$ |
629 |
|
|
$ |
368,840 |
|
FHLB Advances. The
FHLB system functions as a source of credit to financial institutions that are
members. Advances are secured by certain real estate loans,
investment securities, and the capital stock of the FHLB owned by the
Bank. Subject to the FHLB’s advance policies and requirements, these
advances can be requested for any business purpose in which the Bank is
authorized to engage. In granting advances, the FHLB considers a
member’s creditworthiness and other relevant factors. The Bank has a
line of credit with the FHLB which provides for advances totaling up to 45% of
its assets, equating to a credit line of $339.2 million as of December 31,
2008. At December 31, 2008, the Bank had FHLB advances outstanding
totaling $181.4 million with a weighted average interest rate of 3.92%, of which
$178.0 million were term advances with a weighted average remaining maturity of
0.9 years and a weighted average interest rate of 3.99%.
Borrowings. The
Bank maintains lines of credit totaling $35.0 million with five correspondent
banks to purchase federal funds as business needs dictate. Federal
funds purchased are short-term in nature and utilized to meet short-term funding
needs. As of December 31, 2008, we had no outstanding balance with any of our
correspondent banks. Additionally, in 2008 the Bank entered into three inverse
putable reverse repurchase agreements (the “repurchase agreements”) totaling
$28.5 million with a weighted average interest rate of 1.92% as of December 31,
2008 secured by GSE MBS totaling $34.0 million. The terms of each repurchase
agreements is for 10 years with the buyers of the repurchase agreements having
the option to terminate the repurchase agreements after the fixed interest rate
period has expired. The interest rates remain fixed for the first year on $20.0
million of the repurchase agreements and for two years on the remaining $8.5
million repurchase agreement. After the fixed interest period expires the
interest rates reset quarterly with the maximum reset rate being 2.89% on one
$10.0 million repurchase agreement, 3.47% on the other $10.0 million repurchase
agreement, and 3.45% on the $8.5 million repurchase agreement.
Debentures. On
March 25, 2004, the Corporation issued $10,310,000 of Floating Rate Junior
Subordinated Deferrable Interest Debentures (the “Debt Securities”) to PPBI
Trust I, a statutory trust created under the laws of the State of
Delaware. The Debt Securities are subordinated to effectively all
borrowings of the Corporation and are due and payable on April 7,
2034. Interest is payable quarterly on the Debt Securities at
three-month LIBOR plus 2.75% for an effective rate of 7.57% as of December 31,
2008.
The
following table sets forth certain information regarding the Company's borrowed
funds at or for the years ended on the dates indicated:
|
|
At
or For Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(dollars
in thousands)
|
|
FHLB
advances
|
|
|
|
|
|
|
|
|
|
Average
balance outstanding
|
|
$ |
236,494 |
|
|
$ |
285,577 |
|
|
$ |
297,441 |
|
Maximum
amount outstanding at any month-end during the year
|
|
|
303,500 |
|
|
|
310,700 |
|
|
|
319,200 |
|
Balance
outstanding at end of year
|
|
|
181,400 |
|
|
|
297,300 |
|
|
|
300,300 |
|
Weighted
average interest rate during the year
|
|
|
4.24 |
% |
|
|
5.06 |
% |
|
|
4.79 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Debentures
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
balance outstanding
|
|
$ |
10,310 |
|
|
$ |
10,310 |
|
|
$ |
10,310 |
|
Maximum
amount outstanding at any month-end during the year
|
|
|
10,310 |
|
|
|
10,310 |
|
|
|
10,310 |
|
Balance
outstanding at end of year
|
|
|
10,310 |
|
|
|
10,310 |
|
|
|
10,310 |
|
Weighted
average interest rate during the year
|
|
|
6.29 |
% |
|
|
7.97 |
% |
|
|
7.77 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
borrowings and lines of credit
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
balance outstanding
|
|
$ |
14,787 |
|
|
$ |
5,172 |
|
|
$ |
1,833 |
|
Maximum
amount outstanding at any month-end during the year
|
|
|
28,500 |
|
|
|
31,500 |
|
|
|
16,191 |
|
Balance
outstanding at end of year
|
|
|
28,500 |
|
|
|
665 |
|
|
|
16,191 |
|
Weighted
average interest rate during the year
|
|
|
1.80 |
% |
|
|
5.48 |
% |
|
|
5.86 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
balance outstanding
|
|
$ |
261,591 |
|
|
$ |
301,059 |
|
|
$ |
309,584 |
|
Maximum
amount outstanding at any month-end during the year
|
|
|
342,310 |
|
|
|
352,510 |
|
|
|
345,701 |
|
Balance
outstanding at end of year
|
|
|
220,210 |
|
|
|
308,275 |
|
|
|
326,801 |
|
Weighted
average interest rate during the year
|
|
|
4.19 |
% |
|
|
5.16 |
% |
|
|
4.89 |
% |
Subsidiaries
As of
December 31, 2008, we had two subsidiaries, the Bank, which did not have any
subsidiaries at December 31, 2008, and PPBI Trust I, which is not consolidated
for reporting purposes.
Personnel
As of
December 31, 2008, we had 91 full-time employees and three part-time
employees. The employees are not represented by a collective
bargaining unit and we consider our relationship with our employees to be
satisfactory.
Competition
The
banking business in California, in general, and specifically in our market
areas, is highly competitive with respect to virtually all products and
services. The industry continues to consolidate, and unregulated
competitors have entered banking markets with focused products targeted at
highly profitable customer segments. Many largely unregulated
competitors are able to compete across geographic boundaries, and provide
customers increasing access to meaningful alternatives to nearly all significant
banking services and products. These competitive trends are likely to
continue.
The
banking business is largely dominated by a relatively small number of major
banks with many offices operating over a wide geographical
area. These banks have, among other advantages, the ability to
finance wide-ranging and effective advertising campaigns and to allocate their
resources to regions of highest yield and demand. Many of the major
banks operating in the area offer certain services that we do not offer directly
but may offer indirectly through correspondent institutions. By
virtue of their greater total capitalization, such banks also have substantially
higher lending limits than the Bank’s.
In
addition to other local community banks, our competitors include commercial
banks, savings banks, credit unions, and numerous non-banking institutions, such
as finance companies, leasing companies, insurance companies, brokerage firms
and investment banking firms. In recent years, increased competition
has also developed from specialized finance and non-finance companies that offer
wholesale finance, credit card, and other consumer finance services, including
on-line banking services and personal financial software. Strong
competition for deposit and loan products affects the rates of those products,
as well as the terms on which they are offered to customers. Mergers
between financial institutions have placed additional pressure on banks within
the industry to streamline their operations, reduce expenses, and increase
revenues to remain competitive.
Technological
innovations have also resulted in increased competition in the financial
services market. Such innovation has, for example, made it possible
for non-depository institutions to offer customers automated transfer payment
services that previously were considered traditional banking
products. In addition, many customers now expect a choice of delivery
systems and channels, including telephone, mail, home computer, ATMs,
self-service branches, and/or in-store branches. The sources of
competition in such products include commercial banks, as well as credit unions,
brokerage firms, money market and other mutual funds, asset management groups,
finance and insurance companies, internet-only financial intermediaries and
mortgage banking firms.
In order
to compete with these other institutions, the Company primarily relies on local
promotional activities, personal relationships established by officers,
directors and employees of the Company and specialized services tailored to meet
the individual needs of the Company’s customers.
SUPERVISION
AND REGULATION
General
Bank
holding companies and banks are extensively regulated under state and federal
law. Various requirements and restrictions under state and federal
law affect our operations and regulations regulate many aspects of the Bank’s
operations, including reserves against deposits, ownership of deposit accounts,
interest rates payable on deposits, loans, investments, mergers and
acquisitions, borrowings, dividends, locations of branch offices and capital
requirements. Further, we are required to maintain certain levels of
capital. See “Capital Requirements” in this Section below. The
following is a summary of certain statutes and rules applicable to us. This
summary is qualified in its entirety by reference to the particular statute and
regulatory provisions referred to below and are not intended to be an exhaustive
description of all applicable statutes and regulations.
As a bank
holding company, the Corporation is subject to regulation and supervision by the
Federal Reserve. We are required to file with the Federal Reserve quarterly and
annual reports and such additional information as the Federal Reserve may
require pursuant to the BHCA. The Federal Reserve may conduct examinations of
bank holding companies and their subsidiaries. The Corporation is
also a bank holding company within the meaning of the California Financial Code
(the “Financial Code”). As such, the Corporation and its subsidiaries are
subject to examination by, and may be required to file reports with, the
DFI.
Under a
policy of the Federal Reserve, a bank holding company is required to serve as a
source of financial strength to its subsidiary depository institutions and to
commit resources to support such institutions in circumstances where it might
not do so absent such a policy. The Federal Reserve, under the BHCA, has the
authority to require a bank holding company to terminate any activity or to
relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a
bank) upon the Federal Reserve’s determination that such activity or control
constitutes a serious risk to the financial soundness and stability of any bank
subsidiary of the bank holding company.
As a
California state-chartered commercial bank, the Bank is subject to supervision,
periodic examination and regulation by the DFI and the Federal Reserve. The
Bank’s deposits are insured by the FDIC through the Deposit Insurance Fund
(“DIF”). In general terms, insurance coverage is currently unlimited
for non-interest bearing transaction accounts and up to $250,000 per owner for
all other accounts. Although this level of insurance is scheduled to
revert to $100,000 on January 1, 2010, there is pending legislation that would
make this increase permanent (although there can be no assurance the legislation
will indeed pass). As a result of this deposit insurance
function, the FDIC also has certain supervisory authority and powers over our
bank as well as all other FDIC insured institutions. If, as a result of an
examination of the Bank, the regulators should determine that the financial
condition, capital resources, asset quality, earnings prospects, management,
liquidity or other aspects of the Bank’s operations are unsatisfactory or that
the Bank or our management is violating or has violated any law or regulation,
various remedies are available to the regulators. Such remedies include the
power to enjoin unsafe or unsound practices, to require affirmative action to
correct any conditions resulting from any violation or practice, to issue an
administrative order that can be judicially enforced, to direct an increase in
capital, to restrict growth, to assess civil monetary penalties, to remove
officers and directors and ultimately to request the FDIC to terminate the
Bank’s deposit insurance. As a California-chartered commercial bank, the Bank is
also subject to certain provisions of California law.
Activities of Bank Holding
Companies. The activities of bank holding companies are
generally limited to the business of banking, managing or controlling banks, and
other activities that the Federal Reserve has determined to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto. Bank holding companies that qualify and register as “financial holding
companies” are also able to engage in certain additional financial activities,
such as merchant banking and securities and insurance underwriting, subject to
limitations set forth in federal law. We are not at this date a “financial
holding company.”
The BHCA
requires a bank holding company to obtain prior approval of the Federal Reserve
before: (1) taking any action that causes a bank to become a controlled
subsidiary of the bank holding company; (2) acquiring direct or indirect
ownership or control of voting shares of any bank or bank holding company, if
the acquisition results in the acquiring bank holding company having control of
more than 5% of the outstanding shares of any class of voting securities of such
bank or bank holding company, unless such bank or bank holding company is
majority-owned by the acquiring bank holding company before the acquisition; (3)
acquiring all or substantially all the assets of a bank; or (4) merging or
consolidating with another bank holding company.
Permissible Activities of the
Bank. Because California permits commercial banks
chartered by the state to engage in any activity permissible for national banks,
the Bank can form subsidiaries to engage in activates “closely related to
banking” or “nonbanking” activities and expanded financial activities. However,
to form a financial subsidiary, the Bank must be well capitalized and would be
subject to the same capital deduction, risk management and affiliate transaction
rules as applicable to national banks. Generally, a financial subsidiary is
permitted to engage in activities that are “financial in nature” or incidental
thereto, even though they are not permissible for the national bank to conduct
directly within the bank. The definition of “financial in nature” includes,
among other items, underwriting, dealing in or making a market in securities,
including, for example, distributing shares of mutual funds. The subsidiary may
not, however, engage as principal in underwriting insurance (other than credit
life insurance), issue annuities or engage in real estate development or
investment or merchant banking. Presently, the Bank does not have any
subsidiaries.
Capital
Requirements. The federal banking agencies have adopted
regulations establishing minimum capital adequacy requirements for banking
organizations. These agencies may establish higher minimum requirements if, for
example, a banking organization previously has received special attention or has
a high susceptibility to interest rate risk. Under Federal Reserve regulations,
the minimum ratio of total capital to risk-adjusted assets is 8%. At least half
of the total capital is required to be “Tier I capital,” principally consisting
of common stockholders’ equity, noncumulative perpetual preferred stock, and a
limited amount of cumulative perpetual preferred stock, less certain goodwill
items. The remainder (“Tier II capital”) may consist of a limited amount of
subordinated debt, certain hybrid capital instruments and other debt securities,
perpetual preferred stock, and a limited amount of the allowance for loan
loss.
In
addition to the risk-based guidelines, federal banking regulators require
banking organizations to maintain a minimum amount of Tier I capital to total
assets, referred to as the leverage ratio. For a banking organization rated in
the highest of the five categories used by regulators to rate banking
organizations, the minimum leverage ratio of Tier I capital to total assets is
3%. For all banking organizations not rated in the highest category, the minimum
leverage ratio must be at least 4%. In addition to these uniform risk-based
capital guidelines and leverage ratios 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. Future changes in regulations or practices could further reduce the
amount of capital recognized for purposes of capital adequacy. Such a change
could affect our ability to grow and could restrict the amount of profits, if
any, available for the payment of dividends.
The
regulatory capital requirements, as well as the actual capital ratios for the
Company as of December 31, 2008, are presented in detail in Note 2, Regulatory
Capital Requirements and Other Regulatory Matters in Item 8 hereof. See also
“Capital Resources” within Management’s Discussion and Analysis in Item 7
hereof. As of December 31, 2008, both the Bank and the Corporation were
considered well capitalized for regulatory purposes.
Under
applicable regulatory guidelines, the Corporation’s trust preferred securities
issued by our subsidiary capital trust qualify as Tier I capital up to a maximum
limit of 25% of total Tier I capital. Any additional portion of the trust
preferred securities would qualify as Tier II capital. As of December 31, 2008,
the subsidiary trust had $10.3 million in trust preferred securities
outstanding, of which $10.0 million qualifies as Tier I capital.
Prompt Corrective Action
Regulations. The federal banking regulators are required to take “prompt
corrective action” with respect to capital-deficient institutions. Federal
banking regulations define, for each capital category, the levels at which
institutions are “well capitalized,” “adequately capitalized,”
“undercapitalized,” “significantly undercapitalized” and “critically
undercapitalized.” A “well capitalized” bank has a total risk-based capital
ratio of 10.0% or higher; a Tier I risk-based capital ratio of 6.0% or higher; a
leverage ratio of 5.0% or higher; and is not subject to any written agreement,
order or directive requiring it to maintain a specific capital level for any
capital measure. An “adequately capitalized” bank has a total risk-based capital
ratio of 8.0% or higher; a Tier I risk-based capital ratio of 4.0% or
higher; a leverage ratio of 4.0% or higher (3.0% or higher if the bank was rated
a composite 1 in its most recent examination report and is not experiencing
significant growth); and does not meet the criteria for a well capitalized bank.
A bank is “undercapitalized” if it fails to meet any one of the ratios required
to be adequately capitalized.
In the
event an institution becomes “undercapitalized,” it must submit a capital
restoration plan. The capital restoration plan will not be accepted
by the regulators unless each company having control of the undercapitalized
institution guarantees the subsidiary’s compliance with the capital restoration
plan up to a certain specified amount. Any such guarantee from a depository
institution’s holding company is entitled to a priority of payment in
bankruptcy. The aggregate liability of the holding company of an
undercapitalized bank is limited to the lesser of 5% of the institution’s assets
at the time it became undercapitalized or the amount necessary to cause the
institution to be “adequately capitalized.” The bank regulators have greater
power in situations where an institution becomes “significantly” or “critically”
undercapitalized or fails to submit a capital restoration plan. In
addition to requiring undercapitalized institutions to submit a capital
restoration plan, bank regulations contain broad restrictions on certain
activities of undercapitalized institutions including asset growth,
acquisitions, branch establishment and expansion into new lines of business.
With certain exceptions, an insured depository institution is prohibited from
making capital distributions, including dividends, and is prohibited from paying
management fees to control persons if the institution would be undercapitalized
after any such distribution or payment.
As an
institution’s capital decreases, the regulators’ enforcement powers become more
severe. A significantly undercapitalized institution is subject to mandated
capital raising activities, restrictions on interest rates paid and transactions
with affiliates, removal of management, and other restrictions. A regulator has
limited discretion in dealing with a critically undercapitalized institution and
is virtually required to appoint a receiver or conservator.
Banks
with risk-based capital and leverage ratios below the required minimums may also
be subject to certain administrative actions, including the termination of
deposit insurance upon notice and hearing, or a temporary suspension of
insurance without a hearing in the event the institution has no tangible
capital.
In
addition, the DFI has authority to take possession of the business and
properties of a bank in the event that the tangible shareholders’ equity of a
bank is less than the greater of (i) 4% of the bank’s total assets or (ii) $1.0
million.
As of
December 31, 2008, the Bank was “well capitalized” according to the guidelines
as generally discussed above.
Dividends. Dividends
from the Bank will constitute the principal source of income to the Corporation.
The Bank is subject to various statutory and regulatory restrictions on its
ability to pay dividends. In addition, the banking regulators have
the authority to prohibit the Bank from paying dividends, depending upon the
Bank’s financial condition, if such payment is deemed to constitute an unsafe or
unsound practice.
FDIC Insurance of Certain Accounts
and Regulation by the FDIC. The Bank’s deposits are insured by
the FDIC through the DIF. In general terms, insurance coverage is
currently unlimited for non-interest bearing transaction accounts and up to
$250,000 per owner for all other accounts. Although this level of
insurance is scheduled to revert to $100,000 on January 1, 2010, there is
pending legislation that would make this increase permanent (although there can
be no assurance the legislation will indeed pass). As an insured
depository institution, the Bank is required to pay risk-based deposit insurance
premiums imposed by the FDIC based upon a risk classification system established
by the FDIC. In general, banks with higher levels of regulatory
capital and a lower degree of supervisory concern, as determined by the FDIC,
are assessed lower rates than banks with lower levels of regulatory capital or a
higher degree of supervisory concern.
On
December 16, 2008, the FDIC approved a final rule to raise the risk-based
deposit insurance assessment rates uniformly by seven basis points for the first
quarter of 2009 assessment period beginning on January 1, 2009. On February 26, 2009,
the FDIC approved a final rule to raise the assessment rates for the second
quarter of 2009 assessment period beginning on April 1, 2009 and subsequent
assessment periods. This scheme will require institutions determined
to be riskier to pay higher assessment rates based on classification into one of
four risk categories. Institutions that are rated in the category
with the lowest risk will see their initial base rates increase to between
12 and 16 basis points.
Based
upon currently proposed but not yet enacted FDIC rules, the Bank will be
required to pay additional deposit insurance premiums (which will be applicable
to all insured deposit institutions) in addition to the risk-based deposit
insurance premiums. On February 26, 2009, the FDIC adopted an interim
rule to impose a one-time 20 basis point emergency special assessment effective
on June 30, 2009 and to be collected on September 30, 2009. Based on
our most recent deposit insurance assessment base, the emergency special
assessment of 20 basis points, if implemented, would increase our deposit
insurance premiums by approximately $1.0 million in 2009. The FDIC
has indicated in recent press reports that it may consider reducing the
emergency special assessment by half to 10 basis points if, among other factors,
Congress enacts legislation to expand the FDIC’s line of credit with the
Department of the Treasury (the “Treasury”) to $100 billion. In
addition, the FDIC has indicated in a press release on March 17, 2009, although
no formal rule has been proposed, that it should be able to “meaningfully
reduce” the emergency special assessment in connection with its approval to
extend the debt guarantee portion of the Temporary Liquidity Guarantee Program
and impose certain surcharges thereunder. Also on February 26, 2009,
the FDIC adopted another interim rule to have the option to impose a further
special assessment of up to 10 basis points on an institution’s deposit
insurance assessment base on the last day of any calendar quarter after June 30,
2009 to be collected at the same time the risk-based assessments are
collected. This assessment will be imposed if the FDIC determines the
DIF reserve ratio will fall to a level that would adversely affect public
confidence or to a level close to zero or negative, among other
factors. These interim rules are subject to change and may or may not
be enacted.
The
ultimate goal of the increase in assessment rates and the proposed special
assessments is to restore the DIF ratio to a minimum of 1.15 percent within the
next seven years. Given the enacted increases in and proposed
additional assessments applicable to insured depository institutions in 2009, we
anticipate that our FDIC insurance premiums will be significantly higher in 2009
compared to 2008 and could materially affect our financial condition and cash
flows.
Under the
Federal Deposit Insurance Reform Act of 2005, the Bank received a one-time
initial assessment credit to recognize its past contributions to the insurance
fund. The Bank’s one-time assessment credit was approximately
$122,000. During 2007, the Bank used the entire amount of the credit
as an offset to its regular quarterly assessment. The FDIC has
authority to increase insurance assessments. A significant increase in insurance
premiums could have an adverse effect on the operating expenses and results of
operations of the Company. Management cannot predict what insurance assessment
rates will be in the future.
In
addition to the assessment for deposit insurance, the Bank, as a former member
of the Savings Association Insurance Fund, also pays assessments towards the
retirement of the Financing Corporation Bonds issued in the 1980s to assist in
the recovery of the savings and loan industry. These assessments will
continue until these bonds mature in 2017. This payment is
established quarterly and during the year ending December 31, 2008, averaged
1.12 basis points of assessable deposits.
The FDIC
is authorized to terminate a depository institution’s deposit insurance upon a
finding by the FDIC that the institution’s financial condition is unsafe or
unsound or that the institution has engaged in unsafe or unsound practices or
has violated any applicable rule, regulation, order or condition enacted or
imposed by the institution’s regulators.
Loans-to-One
Borrower. Under California law, our ability to make aggregate
secured and unsecured loans-to-one-borrower is limited to 25% and 15%,
respectively, of unimpaired capital and surplus. At December 31, 2008, the
Bank’s limit on aggregate secured and unsecured loans-to-one-borrower was $17.0
million and $10.0 million, respectively. At December 31, 2008, the Bank’s
largest aggregate outstanding balance of loans-to-one borrower, in secured
loans, was $15.7 million.
Transactions with Related
Parties. Depository institutions are subject to the
restrictions contained in Section 22(h) of the Federal Reserve Act (the “FRA”)
with respect to loans to directors, executive officers and principal
stockholders. Under Section 22(h), loans to directors, executive officers and
stockholders who own more than 10% of a depository institution and certain
affiliated entities of any of the foregoing, may not exceed, together with all
other outstanding loans to such person and affiliated entities, the
institution’s loans-to-one-borrower limit (as discussed above). Section 22(h)
also prohibits loans above amounts prescribed by the appropriate federal banking
agency to directors, executive officers, and stockholders who own more than 10%
of an institution, and their respective affiliates, unless such loans are
approved in advance by a majority of the board of directors of the institution.
Any “interested” director may not participate in the voting. The prescribed loan
amount (which includes all other outstanding loans to such person), as to which
such prior board of director approval is required, is the greater of $25,000 or
5% of capital and surplus (up to $500,000). Further, pursuant to Section 22(h),
the Federal Reserve requires that loans to directors, executive officers, and
principal stockholders be made on terms substantially the same as offered
in comparable transactions to non-executive employees of the bank and must not
involve more than the normal risk of repayment. There are additional
limits on the amount a bank can loan to an executive officer.
Transactions
between a bank and its “affiliates” are quantitatively and qualitatively
restricted under Sections 23A and 23B of the FRA. Section 23A restricts the
aggregate amount of covered transactions with any individual affiliate to 10% of
the capital and surplus of the financial institution. The aggregate amount of
covered transactions with all affiliates is limited to 20% of the institution’s
capital and surplus. Certain transactions with affiliates are
required to be secured by collateral in an amount and of a type described in
Section 23A and the purchase of low quality assets from affiliates are generally
prohibited. Section 23B generally provides that certain transactions with
affiliates, including loans and asset purchases, must be on terms and under
circumstances, including credit standards, that are substantially the same or at
least as favorable to the institution as those prevailing at the time for
comparable transactions with non-affiliated companies. The Federal
Reserve Board has promulgated Regulation W, which codifies prior interpretations
under Sections 23A and 23B of the FRA and provides interpretive guidance with
respect to affiliate transactions. Affiliates of a bank include,
among other entities, a bank’s holding company and companies that are under
common control with the bank. We are considered to be an affiliate of
the Bank.
Standards for Safety and
Soundness. The Federal Deposit Insurance Corporation Improvement Act (the
“FDICIA”) imposes certain specific restrictions on transactions and requires
federal banking regulators to adopt overall safety and soundness standards for
depository institutions related to internal control, loan underwriting and
documentation and asset growth. Among other things, the FDICIA limits the
interest rates paid on deposits by undercapitalized institutions, restricts the
use of brokered deposits, limits the aggregate extensions of credit by a
depository institution to an executive officer, director, principal shareholder
or related interest and reduces deposit insurance coverage for deposits offered
by undercapitalized institutions for deposits by certain employee benefits
accounts. The federal banking regulators may require an institution to submit to
an acceptable compliance plan as well as have the flexibility to pursue other
more appropriate or effective courses of action given the specific circumstances
and severity of an institution’s noncompliance with one or more
standards.
Federal Reserve
System. Federal Reserve regulations require banks to maintain
noninterest earning reserves against their transaction accounts (primarily NOW
and regular checking accounts). At December 31, 2008, the Bank
maintained compliance with the foregoing requirements.
Cross-Guarantee
Provisions. Insured depository institutions under common
control are required to reimburse the FDIC for any loss suffered by its deposit
insurance funds as a result of the default of a commonly controlled depository
institution or for any assistance provided by the FDIC to a commonly controlled
insured depository institution in danger of default. The FDIC may decline to
enforce the cross-guarantee provisions if it determines that a waiver is in the
best interest of the deposit insurance funds. The FDIC’s claim for damages is
superior to claims of stockholders of the insured depository institution or its
holding company but is subordinate to claims of depositors, secured creditors
and holders of subordinated debt (other than affiliates) of the commonly
controlled insured depository institutions.
Community Reinvestment Act and the
Fair Lending Laws. The Bank is subject to certain fair lending
requirements and reporting obligations involving home mortgage lending
operations and Community Reinvestment Act (“CRA”) activities. The CRA generally
requires the federal banking regulators to evaluate the record of a financial
institution in meeting the credit needs of their local communities, including
low and moderate income neighborhoods. In addition to substantial penalties and
corrective measures that may be required for a violation of certain fair lending
laws, the federal banking agencies may take compliance with such laws and CRA
into account when regulating and supervising other activities. A bank’s
compliance with its CRA obligations is based on a performance-based evaluation
system which bases CRA ratings on an institution’s lending service and
investment performance, resulting in a rating by the appropriate bank regulator
of “outstanding,” “satisfactory,” “needs to improve” or “substantial
noncompliance.” Based on its last CRA examination, the Bank received a
“satisfactory” rating.
Bank Secrecy Act and Money Laundering
Control Act. In 1970,
Congress passed the Currency and Foreign Transactions Reporting Act, otherwise
known as the Bank Secrecy Act (the “BSA”), which established requirements for
recordkeeping and reporting by banks and other financial institutions. The BSA
was designed to help identify the source, volume and movement of currency and
other monetary instruments into and out of the U.S. in order to help detect and
prevent money laundering connected with drug trafficking, terrorism and other
criminal activities. The primary tool used to implement BSA requirements is the
filing of Suspicious Activity Reports. Today, the BSA requires that all banking
institutions develop and provide for the continued administration of a program
reasonably designed to assure and monitor compliance with certain recordkeeping
and reporting requirements regarding both domestic and international currency
transactions. These programs must, at a minimum, provide for a system of
internal controls to assure ongoing compliance, provide for independent testing
of such systems and compliance, designate individuals responsible for such
compliance and provide appropriate personnel training.
USA Patriot Act of
2001. On October 26, 2001, President Bush signed the USA
Patriot Act of 2001 (the “Patriot Act”). Enacted in response to the
terrorist attacks in New York, Pennsylvania and Washington, D.C. on September
11, 2001, the Patriot Act is intended to strengthen U.S. law enforcement’s and
the intelligence communities’ ability to work cohesively to combat terrorism on
a variety of fronts. The potential impact of the Act on financial
institutions of all kinds is significant and wide ranging. The
Patriot Act contains sweeping anti-money laundering and financial transparency
laws and requires various regulations, including:
·
|
due
diligence requirements for financial institutions that administer,
maintain, or manage private bank accounts or correspondent accounts for
non-U.S. persons;
|
·
|
standards
for verifying customer identification at account opening;
and
|
·
|
rules
to promote cooperation among financial institutions, regulators, and law
enforcement entities in identifying parties that may be involved in
terrorism or money laundering.
|
Sarbanes-Oxley Act of
2002. The Sarbanes-Oxley Act of 2002 (the “SOA”) was enacted
to increase corporate responsibility, to provide for enhanced penalties for
accounting and auditing improprieties at publicly traded companies and to
protect investors by improving the accuracy and reliability of corporate
disclosures pursuant to the securities laws. The SOA generally
applies to all companies, both U.S. and non-U.S., that file or are required to
file periodic reports with the SEC under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), including us.
The SOA
includes additional disclosure requirements and new corporate governance rules,
requires the SEC and securities exchanges to adopt extensive additional
disclosure, corporate governance and other related rules and mandates further
studies of specified issues by the SEC and the Comptroller
General. The SEC has promulgated regulations to implement various
provisions of the SOA, including additional disclosure requirements and
certifications in periodic filings under the Exchange Act. We have
revised our internal policies and Exchange Act disclosures to comply with these
new requirements.
Emergency Economic Stabilization Act
of 2008. On October 3, 2008, the President signed into
law the Emergency
Economic Stabilization Act of 2008 (“EESA”), which, among other measures,
authorized the Secretary of the Treasury to establish TARP. Pursuant to
TARP, the Treasury has the authority to, among other things, purchase up to $700
billion of mortgages, MBS and certain other financial instruments from financial
institutions for the purpose of stabilizing and providing liquidity to the U.S.
financial markets. In addition, under TARP, the Treasury created the
Capital Purchase Plan, pursuant to which it provides access to capital that will
serve as Tier 1 capital to financial institutions through a standardized program
to acquire preferred stock (accompanied by warrants) from eligible financial
institutions.
American Recovery and Reinvestment
Act of
2009. On February 17, 2009, President Obama signed into law
the American Recovery and Reinvestment Act of 2009 (“ARRA”), which is intended,
among other things, to provide a stimulus to the U.S. economy in the wake of the
economic downturn brought about by the subprime mortgage crisis and the
resulting dislocations in the financial markets. ARRA also includes
numerous non-economic recovery related items, including a limitation on
executive compensation of certain of the most highly-compensated employees and
executive officers of financial institutions that participate in TARP
programs.
Comprehensive Financial Stability
Plan of 2009. On February 10, 2009, the
Secretary of the Treasury announced a new comprehensive financial stability plan
(the “Financial Stability Plan”), which builds upon existing programs and
earmarks the second $350 billion of unused funds originally authorized under the
EESA. Elements of the Financial Stability Plan include: (i) a
capital assistance program that will invest in convertible preferred stock of
certain qualifying institutions, (ii) a consumer and business lending
initiative to fund new consumer loans, small business loans and commercial
mortgage asset-backed securities issuances, (iii) a new public-private
investment fund that will leverage public and private capital with public
financing to purchase legacy “toxic assets” from financial institutions, and
(iv) assistance for homeowners to reduce mortgage payments and interest
rates and establishing loan modification guidelines for government and private
programs. In addition, all banking institutions with assets over $100
billion will be required to undergo a comprehensive “stress test” to determine
if they have sufficient capital to continue lending and to absorb losses that
could result from a more severe decline in the economy than
projected. The Company is not subject to this comprehensive stress
test. Institutions receiving assistance under the Financial Stability
Plan going forward will be subject to higher transparency and accountability
standards, including restrictions on dividends, acquisitions and executive
compensation and additional disclosure requirements.
Federal
and State Taxation
The
Corporation and the Bank report their income on a consolidated basis using the
accrual method of accounting, and are subject to federal income taxation in the
same manner as other corporations with some exceptions. The Bank has not been
audited by the IRS. For its 2008 taxable year, the Bank is subject to a maximum
federal and state income tax rate of 34% and 10.84%, respectively.
Risk
Factors
Ownership
of our common stock involves risk. You should carefully consider the following
risk factors and all other information contained in this Annual Report on Form
10-K. The risks and uncertainties described below are not the only
ones we face. Additional risks and uncertainties not presently known
to us or that we currently believe are immaterial also may impair our
business. If any of the events described in the following risk
factors occur, our business, results of operations and financial condition could
be materially adversely affected.
The
current economic environment poses significant challenges for the Company and
could adversely affect our financial condition and results of
operations.
The
Company is operating in a challenging and uncertain economic environment,
including generally uncertain national and local
conditions. Financial institutions continue to be affected by sharp
declines in the real estate market and constrained financial markets. Dramatic
declines in the housing market over the past year, with falling home prices and
increasing foreclosures and unemployment, have resulted in significant
write-downs of asset values by financial institutions. Continued
declines in real estate values, home sales volumes and financial stress on
borrowers as a result of the uncertain economic environment could have an
adverse effect on the Company’s borrowers or their customers, which could
adversely affect the Company’s financial condition and results of
operations. A worsening of these conditions would likely exacerbate
the adverse effects on the Company and others in the financial institutions
industry. For example, further deterioration in economic conditions in the
Company’s markets could drive losses beyond that which is provided for in our
allowance for loan losses. The Company may also face the following
risks in connection with these events:
·
|
Economic
conditions that negatively affect real estate values and the job market
have resulted, and may continue to result, in a deterioration in credit
quality of the Company’s loan portfolio, and such deterioration in credit
quality has had, and could continue to have, a negative impact on the
Company’s business.
|
·
|
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 the Company uses 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.
|
·
|
The
Company’s ability to assess the creditworthiness of its customers may be
impaired if the models and approaches it uses to select, manage, and
underwrite its customers become less predictive of future
charge-offs.
|
·
|
The
Company expects to face increased regulation of its industry, and
compliance with such regulation may increase our costs, limit our ability
to pursue business opportunities and increase compliance
challenges.
|
As these
conditions or similar ones continue to exist or worsen, the Company could
experience continuing or increased adverse effects on its financial
condition.
Deteriorating
economic conditions in California may cause us to suffer higher default rates on
our loans and reduce the value of the assets we hold as
collateral.
Our
business activities and credit exposure are concentrated in Southern
California. As a result, the continued deterioration in economic
conditions in Southern California may cause us to incur losses associated with
higher default rates and decreased collateral values in our loan
portfolio. In addition, demand for our products and services may
decline. The significant decline in the Southern California real
estate market could hurt our business because the vast majority of our loans are
secured by real estate located within Southern California. As of
December 31, 2008, approximately 89.6% of our loan portfolio consisted of loans
secured by real estate located in Southern California. As real estate
values continue to decline, especially in Southern California, the collateral
for our loans provide less security. As a result, our ability to
recover on defaulted loans by selling the underlying real estate would be
diminished, and we would be more likely to suffer losses on defaulted
loans.
We
may be unable to successfully compete in our industry.
We face
direct competition from a significant number of financial institutions, many
with a state-wide or regional presence, and in some cases, a national presence,
in both originating loans and attracting deposits. Competition in
originating loans comes primarily from other banks and mortgage companies that
make loans in our primary market areas. We also face substantial
competition in attracting deposits from other banking institutions, money market
and mutual funds, credit unions and other investment vehicles. In
addition banks with larger capitalizations and non-bank financial institutions
that are not governed by bank regulatory restrictions have large lending limits
and are better able to serve the needs of larger customers. Many of
these financial institutions are also significantly larger and have greater
financial resources than we have, and have established customer bases and name
recognition. We compete for loans principally on the basis of
interest rates and loan fees, the types of loans that we originate and the
quality of service that we provide to our borrowers. Our ability to
attract and retain deposits requires that we provide customers with competitive
investment opportunities with respect to rate of return, liquidity, risk and
other factors. To effectively compete, we may have to pay higher
rates of interest to attract deposits, resulting in reduced
profitability. In addition, we rely upon local promotional
activities, personal relationships established by our officers, directors and
employees and specialized services tailored to meet the individual needs of our
customers in order to compete. If we are not able to effectively
compete in our market area, our profitability may be negatively
affected.
Interest
rate fluctuations, which are out of our control, could harm
profitability.
Our
profitability depends to a large extent upon net interest income, which is the
difference between interest income on interest-earning assets, such as loans and
investments, and interest expense on interest-bearing liabilities, such as
deposits and borrowings. Any change in general market interest rates,
whether as a result of changes in the monetary policy of the Federal Reserve
Board or otherwise, may have a significant effect on net interest
income. The assets and liabilities may react differently to changes
in overall market rates or conditions. Moreover, in periods of rising
interest rates, financial institutions typically originate fewer mortgage loans
adversely affecting our interest income on loans. Further, if
interest rates decline, our loans may be refinanced at lower rates or paid off
and our investments may be prepaid earlier than expected. If that
occurs, we may have to redeploy the loan or investment proceeds into lower
yielding assets, which might also decrease our income.
We
may experience loan losses in excess of our allowance for loan
losses.
We try to
limit the risk that borrowers will fail to repay loans by carefully underwriting
the loans, nevertheless losses can and do occur. We create an
allowance for estimated loan losses in our accounting records, based on
estimates of the following:
·
|
industry
historical losses as reported by the
FDIC;
|
·
|
historical
experience with our loans;
|
·
|
evaluation
of economic conditions;
|
·
|
regular
reviews of the quality mix and size of the overall loan
portfolio;
|
·
|
regular
reviews of delinquencies; and
|
·
|
the
quality of the collateral underlying our
loans.
|
We maintain
an allowance for loan losses at a level that we believe is adequate to absorb
any specifically identified losses, as well as, any other losses inherent in our
loan portfolio. However, changes in economic, operating and other
conditions, including the sharp decline in real estate values and changes in
interest rates, which are beyond our control, may cause our actual loan losses
to exceed our current allowance estimates. If the actual loan losses
exceed the amount reserved, it will adversely affect our financial condition and
results of operations. In addition, the Federal Reserve and the DFI,
as part of their supervisory function, periodically review our allowance for
loan losses. Either agency may require us to increase our provision
for loan losses or to recognize further loan losses, based on their judgments,
which may be different from those of our management. Any increase in
the allowance required by them could also adversely affect our financial
condition and results of operations.
Upon
exercise of warrants for our common stock shareholders will experience
significant dilution in their shares of common stock.
We have
warrants representing the right to purchase 1,166,400 shares of our common stock
at an exercise price of $0.75 per share were outstanding as of December 31,
2008. The aggregate number of shares of our common stock subject to
these warrants represents approximately 19.2% of our issued and outstanding
shares as of December 31, 2008. The trading price of our common stock
has been significantly higher than $0.75 per share for the last three fiscal
years and at December 31, 2008, the closing price of our common stock was $4.00
per share. Upon exercise of the Warrant, existing shareholders will
experience significant dilution of the shares of our common stock that they
hold.
Adverse
outcomes of litigation against us could harm our business and results of
operations.
We are
currently involved in litigation involving the prior management’s origination
and sale of subprime mortgages, as well as other actions arising in the ordinary
course of our business. A significant judgment against us in
connection with any pending or future litigation could harm our business and
results of operations.
We
do not expect to pay cash dividends in the foreseeable future.
We do not
intend to pay cash dividends on our common stock in the foreseeable
future. Instead, we intend to reinvest our earnings in our
business. In addition, in order to pay cash dividends to our
shareholders, we would most likely need to obtain funds from the
Bank. The Bank’s ability, in turn, to pay dividends to us is subject
to restrictions set forth in the Financial Code. The Financial Code provides
that a bank may not make a cash distribution to its shareholders in excess of
the lesser of (a) bank’s retained earnings; or (b) bank’s net income for its
last three fiscal years, less the amount of any distributions made by the bank
or by any majority-owned subsidiary of the bank to the shareholders of the bank
during such period. However, a bank may, with the approval of the DFI, make a
distribution to its shareholders in an amount not exceeding the greatest of (x)
its retained earnings; (y) its net income for its last fiscal year; or (z) its
net income for its current fiscal year. In the event that the DFI determines
that the shareholders’ equity of a bank is inadequate or that the making of a
distribution by the bank would be unsafe or unsound, the DFI may order the bank
to refrain from making a proposed distribution. Additionally, while the Federal
Reserve has no general restriction with respect to the payment of cash dividends
by an adequately capitalized bank to its parent holding company, the Federal
Reserve might, under certain circumstances, place restrictions on the ability of
a particular bank to pay dividends based upon peer group averages and the
performance and maturity of the particular bank, or object to management fees to
be paid by a subsidiary bank to its holding company on the basis that such fees
cannot be supported by the value of the services rendered or are not the result
of an arm’s length transaction. Under these provisions, the amount available for
distribution from the Bank to the Corporation was approximately $9.4 million at
December 31, 2008.
Changes
in laws, government regulation and monetary policy may have a material effect on
our results of operations.
Financial
institutions have been the subject of substantial legislative and regulatory
changes and may be the subject of further legislation or regulation in the
future, none of which is within our control. Significant new laws or
regulations or changes in, or repeals of, existing laws or regulations may cause
our results of operations to differ materially. In addition, the cost
and burden of compliance with applicable laws and regulations have significantly
increased and could adversely affect our ability to operate
profitably. Further, federal monetary policy significantly affects
credit conditions for us, as well as for our borrowers, particularly as
implemented through the Federal Reserve System, primarily through open market
operations in U.S. government securities, the discount rate for bank borrowings
and reserve requirements. A material change in any of these
conditions could have a material impact on us or our borrowers, and therefore on
our results of operations.
On
October 3, 2008, the Emergency Economic Stabilization Act of 2008 (the
"EESA") was signed into law. Pursuant to the EESA, the Treasury was
granted the authority to take a range of actions for the purpose of stabilizing
and providing liquidity to the U.S. financial markets and has proposed several
programs, including the purchase by the Treasury of certain troubled assets from
financial institutions and the direct purchase by the Treasury of equity of
financial institutions. There can be no assurance, however, as to the
actual impact that the foregoing or any other governmental program will have on
the financial markets. The failure of the financial markets to
stabilize and a continuation or worsening of current financial market conditions
could materially and adversely affect the Company’s business, financial
condition, results of operations, access to credit or the trading price of its
Common Stock. In addition, current initiatives of President Obama’s
Administration and the possible enactment of recently proposed bankruptcy
legislation may adversely affect the Company’s financial condition and results
of operations.
There can
be no assurance, however, as to the actual impact that the foregoing or any
other governmental program will have on the financial markets. The
failure of the financial markets to stabilize and a continuation or worsening of
current financial market conditions could materially and adversely affect our
business, financial condition, results of operations, access to credit or the
trading price of our common stock. In addition, current initiatives
of President Obama’s Administration, the possible enactment of recently proposed
bankruptcy legislation, and the current level of foreclosure activities, may
result in increased charge-offs which could materially and adversely affect our
financial condition and results of operations.
We expect
to face increased regulation and supervision of our industry as a result of the
existing financial crisis, and there will be additional requirements and
conditions imposed on us to the extent that we participate in any of the
programs established or to be established by the Treasury or by the federal bank
regulatory agencies. Such additional regulation and supervision may
increase our costs and limit our ability to pursue business
opportunities.
Such
additional regulation and supervision may increase the Company’s costs and limit
its ability to pursue business opportunities. The affects of such
recently enacted, and proposed, legislation and regulatory programs on the
Company cannot reliably be determined at this time.
Anti-takeover
defenses may delay or prevent future transactions
Our
Certificate of Incorporation and Bylaws, among other things:
·
|
divide
the board of directors into three classes with directors of each class
serving for a staggered three year
period;
|
·
|
provides
that our directors must fill vacancies on the
board;
|
·
|
permit
the issuance, without shareholder approval, of shares of preferred stock
having rights and preferences determined by the board of
directors;
|
·
|
provide
that stockholders holding 80% of our issued and outstanding shares must
vote to approve certain business combinations and other transactions
involving holders of more than 10% of our common stock or our
affiliates;
|
·
|
provide
that stockholders holding 80% of our issued and outstanding shares must
vote to remove directors for cause;
and
|
·
|
provide
that record holders of our common stock who beneficially own in excess of
10% of our common stock are not entitled to vote shares held by them in
excess of 10% of our common stock.
|
These
provisions in our Certificate of Incorporation and Bylaws could make the removal
of incumbent directors more difficult and time-consuming and may have the effect
of discouraging a tender offer or other takeover attempts not previously
approved by our board of directors.
We
are dependent on our key personnel
Our
future operating results depend in large part on the continued services of our
key personnel, including Steven R. Gardner, our President and Chief Executive
Officer, who developed and implemented our new business strategy. The
loss of Mr. Gardner could have a negative impact on the success of our new
business strategy. In addition, we rely upon the services of John
Shindler, our Executive Vice President and Chief Financial Officer, Eddie
Wilcox, our Executive Vice President and Chief Banking Officer, and our ability
to attract and retain highly skilled personnel. On December 19, 2007,
we entered into a three year employment agreement with Mr. Gardner and the
Bank entered into three-year employment agreements with each of Messrs. Shindler
and Wilcox. We do not maintain key-man life insurance on any employee other than
Messrs Gardner and Shindler. We cannot assure you that we will be
able to continue to attract and retain the qualified personnel necessary for the
development of our business.
Potential
acquisitions may disrupt our business and dilute stockholder value.
We have
evaluated merger and acquisition opportunities and conduct due diligence
activities related to possible transactions with other financial institutions.
As a result, merger or acquisition discussions and, in some cases, negotiations
may take place and future mergers or acquisitions involving cash, debt or equity
securities may occur at any time. Acquisitions typically involve the payment of
a premium over book and market values, and, therefore, some dilution of our
stock’s tangible book value and net income per common share may occur in
connection with any future transaction. Furthermore, failure to realize the
expected revenue increases, cost savings, increases in geographic or product
presence, and/or other projected benefits from an acquisition could have a
material adverse effect on our financial condition and results of
operations.
We may
seek merger or acquisition partners that are culturally similar and have
experienced management and possess either significant market presence or have
potential for improved profitability through financial management, economies of
scale or expanded services. We do not currently have any specific plans,
arrangements or understandings regarding such expansion. We cannot say with any
certainty that we will be able to consummate, or if consummated, successfully
integrate future acquisitions or that we will not incur disruptions or
unexpected expenses in integrating such acquisitions. In attempting to make such
acquisitions, we anticipate competing with other financial institutions, many of
which have greater financial and operational resources. Acquiring other banks,
businesses, or branches involves various risks commonly associated with
acquisitions, including, among other things:
·
|
Potential
exposure to unknown or contingent liabilities of the target
company;
|
·
|
Exposure
to potential asset quality issues of the target
company;
|
·
|
Difficulty
and expense of integrating the operations and personnel of the target
company;
|
·
|
Potential
disruption to our business;
|
·
|
Potential
diversion of management’s time and
attention;
|
·
|
The
possible loss of key employees and customers of the target
company;
|
·
|
Difficulty
in estimating the value of the target company;
and
|
·
|
Potential
changes in banking or tax laws or regulations that may affect the target
company.
|
None.
Location
|
Leased
or
Owned
|
Original
Year
Leased
or Acquired
|
Date
of Lease Expiration
|
|
Net
Book Value of Property or Leasehold Improvements at December 31,
2008
|
|
|
|
|
|
|
|
|
Corporate
Headquarters:
|
|
|
|
|
|
|
1600
Sunflower Ave
|
|
|
|
|
|
|
Costa
Mesa, CA 92626
|
Owned
(a)
|
2002
|
N.A.
|
|
$ |
3,352,000 |
|
|
|
|
|
|
|
|
|
Branch
Office:
|
|
|
|
|
|
|
|
1598
E Highland Avenue
|
|
|
|
|
|
|
|
San
Bernardino, CA 92404
|
Leased
|
1986
|
2015
|
|
$ |
395,000 |
|
|
|
|
|
|
|
|
|
Branch
Office:
|
|
|
|
|
|
|
|
19011
Magnolia Avenue
|
|
|
|
|
|
|
|
Huntington
Beach, CA 92646
|
Owned
(b) (c)
|
2005
|
2023
|
|
$ |
1,429,000 |
|
|
|
|
|
|
|
|
|
Branch
Office:
|
|
|
|
|
|
|
|
13928
Seal Beach Blvd.
|
|
|
|
|
|
|
|
Seal
Beach, CA 90740
|
Leased
|
1999
|
2012
|
|
$ |
24,000 |
|
|
|
|
|
|
|
|
|
Branch
Office:
|
|
|
|
|
|
|
|
4957
Katella Avenue, Suite B
|
|
|
|
|
|
|
|
Los
Alamitos, CA 90720
|
Leased
|
2005
|
2015
|
|
$ |
298,000 |
|
|
|
|
|
|
|
|
|
Branch
Office:
|
|
|
|
|
|
|
|
4667
MacArthur Blvd.
|
|
|
|
|
|
|
|
Newport
Beach, CA 92660
|
Leased
|
2005
|
2016
|
|
$ |
746,000 |
|
|
|
|
|
|
|
|
|
(a)
We lease to three tenants approximately 11,050 square feet of the 36,159
square feet of our corporate headquarters for $20,115 per
month.
|
|
(b)
The building is owned, but the land is leased on a long-term
basis.
|
|
(c)
We lease to two tenants approximately 2,724 square feet of the 9,937
square feet of our Huntington Beach branch for $8,784 per
month.
|
|
All of
our existing facilities are considered to be adequate for our present and
anticipated future use. In the opinion of management, all properties
are adequately covered by insurance.
In
February 2004, the Bank was named in a class action lawsuit titled “James Baker
v. Century Financial, et al”, alleging various violations of Missouri’s Second
Mortgage Loans Act by charging and receiving fees and costs that were either
wholly prohibited by or in excess of that allowed by the Act relating to
origination fees, interest rates, and other charges. The class action lawsuit
was filed in the Circuit Court of Clay County, Missouri. The
complaint seeks restitution of all improperly collected charges, interest
thereon, the right to rescind the mortgage loans or a right to offset any
illegal collected charges and interest against the principal amounts due on the
loans and punitive damages. In March 2005, the Bank’s motion for
dismissal due to limitations was denied by the trial court without
comment. The Bank’s “preemption” motion was denied in August 2006.
The Bank has answered the plaintiffs’ complaint and the parties have exchanged
and answered initial discovery requests. When the record is more
fully developed, the Bank intends to raise the limitations issue again in the
form of a motion for summary judgment.
The
Company is not involved in any other pending legal proceedings other than legal
proceedings occurring in the ordinary course of business. 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.
None.
PRICE
RANGE BY QUARTERS
The
common stock of the Corporation has been publicly traded since 1997 and is
currently traded on the NASDAQ Global Market under the symbol
PPBI. However, until recently, trading in the common stock has not
been extensive and such trades cannot be characterized as constituting an active
trading market.
As of
March 26, 2009, there were approximately 1,100 holders of record of the common
stock. The following table summarizes the range of the high and low
closing sale prices per share of our common stock as quoted by the Nasdaq Global
Market for the periods indicated.
|
|
Sale
Price of Common Stock
|
|
|
|
High
|
|
|
Low
|
|
2007
|
|
|
|
|
|
|
First
Quarter
|
|
$ |
12.35 |
|
|
$ |
10.80 |
|
Second
Quarter
|
|
$ |
10.88 |
|
|
$ |
9.80 |
|
Third
Quarter
|
|
$ |
10.99 |
|
|
$ |
10.02 |
|
Fourth
Quarter
|
|
$ |
11.73 |
|
|
$ |
6.91 |
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$ |
8.55 |
|
|
$ |
5.97 |
|
Second
Quarter
|
|
$ |
8.37 |
|
|
$ |
5.11 |
|
Third
Quarter
|
|
$ |
6.21 |
|
|
$ |
3.61 |
|
Fourth
Quarter
|
|
$ |
5.25 |
|
|
$ |
3.40 |
|
Stock Performance
Graph. The graph below compares the performance of our common
stock with that of the Nasdaq Composite Index (U.S. companies) and the Nasdaq
Bank Stocks Index from December 31, 2003 through December 31,
2008. The graph is based on an investment of $100 in our common stock
at its closing price on December 31, 2003. The Corporation has not
paid any dividends on its common stock.
Total
Return Analysis
|
|
12/31/2003
|
|
|
12/3/2004
|
|
|
12/31/2005
|
|
|
12/31/2006
|
|
|
12/30/2007
|
|
|
12/29/2008
|
|
Pacific
Premier Bancorp, Inc.
|
|
$ |
100.00 |
|
|
$ |
119.57 |
|
|
$ |
106.40 |
|
|
$ |
109.83 |
|
|
$ |
62.31 |
|
|
$ |
36.07 |
|
Nasdaq
Bank Stocks Index
|
|
$ |
100.00 |
|
|
$ |
114.44 |
|
|
$ |
111.80 |
|
|
$ |
125.47 |
|
|
$ |
99.45 |
|
|
$ |
72.51 |
|
Nasdaq
Composite Index
|
|
$ |
100.00 |
|
|
$ |
108.84 |
|
|
$ |
111.16 |
|
|
$ |
122.11 |
|
|
$ |
132.42 |
|
|
$ |
63.80 |
|
DIVIDENDS
It is our
policy to retain earnings, if any, to provide funds for use in our
business. We have never declared or paid dividends on our common
stock and do not anticipate declaring or paying any cash dividends in the
foreseeable future.
Our
ability to pay a dividend on the common stock is dependent on the Bank’s ability
to pay dividends to the Company. Various statutory provisions restricted the
amount of dividends that the Bank can pay without regulatory
approval.
ISSUER
PURCHASES OF EQUITY SECURITIES
In
February 2007, our board of directors authorized the management of the
Corporation to repurchase up to 600,000 shares of the Corporation’s issued and
outstanding common stock on a negotiated, non-open market basis by dealing
directly with investment bankers representing shareholders of larger blocks of
the stock. At December 31, 2008, the Corporation had purchased
332,837 shares pursuant to that authorization. The following table
summarizes purchase activity for the year of 2008:
Month
of Purchase
|
|
Total
Number
of
shares purchased/
returned
|
|
|
Average
price paid
per
share
|
|
|
Total
number of shares repurchased as part of the publicly announced
program
|
|
|
Maximum
number of shares that may yet be purchased under the program
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan-08
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
527,200 |
|
Feb-08
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
527,200 |
|
Mar-08
|
|
|
234,704 |
|
|
|
8.00 |
|
|
|
234,704 |
|
|
|
292,496 |
|
Apr-08
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
292,496 |
|
May-08
|
|
|
25,000 |
|
|
|
7.54 |
|
|
|
25,000 |
|
|
|
267,496 |
|
Jun-08
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
267,496 |
|
Jul-08
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
267,496 |
|
Aug-08
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
267,496 |
|
Sep-08
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
267,496 |
|
Oct-08
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
267,496 |
|
Nov-08
|
|
|
333 |
|
|
|
4.28 |
|
|
|
333 |
|
|
|
267,163 |
|
Dec-08
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
267,163 |
|
Total/Average
|
|
|
260,037 |
|
|
$ |
7.95 |
|
|
|
260,037 |
|
|
|
267,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
As of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
selected financial data presented below is derived from the audited consolidated
financial statements of the Company and should be read in conjunction with the
Consolidated Financial Statements presented elsewhere herein (dollars in
thousands, except ratios and per share data):
|
|
As
of and For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Operating
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$ |
46,522 |
|
|
$ |
49,432 |
|
|
$ |
44,128 |
|
|
$ |
33,707 |
|
|
$ |
23,223 |
|
Interest
expense
|
|
|
25,404 |
|
|
|
31,166 |
|
|
|
27,003 |
|
|
|
16,571 |
|
|
|
7,817 |
|
Net
interest income
|
|
|
21,118 |
|
|
|
18,266 |
|
|
|
17,125 |
|
|
|
17,136 |
|
|
|
15,406 |
|
Provision
for loan losses
|
|
|
2,241 |
|
|
|
1,651 |
|
|
|
531 |
|
|
|
349 |
|
|
|
705 |
|
Net
interest income after provision for loans losses
|
|
|
18,877 |
|
|
|
16,615 |
|
|
|
16,594 |
|
|
|
16,787 |
|
|
|
14,701 |
|
Net
gains from loan sales
|
|
|
92 |
|
|
|
3,720 |
|
|
|
3,697 |
|
|
|
590 |
|
|
|
105 |
|
Other
noninterest income
|
|
|
(2,264 |
) |
|
|
2,639 |
|
|
|
2,818 |
|
|
|
3,540 |
|
|
|
4,141 |
|
Noninterest
expense
|
|
|
15,964 |
|
|
|
17,248 |
|
|
|
15,231 |
|
|
|
12,260 |
|
|
|
11,234 |
|
Income
before income tax provision
|
|
|
741 |
|
|
|
5,726 |
|
|
|
7,878 |
|
|
|
8,657 |
|
|
|
7,713 |
|
Income
tax provision (1)
|
|
|
33 |
|
|
|
2,107 |
|
|
|
450 |
|
|
|
1,436 |
|
|
|
972 |
|
Net
income
|
|
$ |
708 |
|
|
$ |
3,619 |
|
|
$ |
7,428 |
|
|
$ |
7,221 |
|
|
$ |
6,741 |
|
Share
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.14 |
|
|
$ |
0.70 |
|
|
$ |
1.41 |
|
|
$ |
1.37 |
|
|
$ |
1.28 |
|
Diluted
|
|
$ |
0.11 |
|
|
$ |
0.55 |
|
|
$ |
1.11 |
|
|
$ |
1.08 |
|
|
$ |
1.02 |
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
4,948,359 |
|
|
|
5,189,104 |
|
|
|
5,261,897 |
|
|
|
5,256,906 |
|
|
|
5,256,334 |
|
Diluted
|
|
|
6,210,387 |
|
|
|
6,524,753 |
|
|
|
6,684,915 |
|
|
|
6,658,240 |
|
|
|
6,622,735 |
|
Book
value per share (basic)
|
|
$ |
11.74 |
|
|
$ |
11.77 |
|
|
$ |
11.03 |
|
|
$ |
9.67 |
|
|
$ |
8.37 |
|
Book
value per share (diluted)
|
|
$ |
9.60 |
|
|
$ |
9.69 |
|
|
$ |
9.16 |
|
|
$ |
8.09 |
|
|
$ |
7.08 |
|
Selected Balance Sheet
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
739,956 |
|
|
$ |
763,420 |
|
|
$ |
730,874 |
|
|
$ |
702,696 |
|
|
$ |
543,124 |
|
Securities
and FHLB stock
|
|
|
70,936 |
|
|
|
73,042 |
|
|
|
77,144 |
|
|
|
49,795 |
|
|
|
44,844 |
|
Loans
held for sale, net (2)
|
|
|
668 |
|
|
|
749 |
|
|
|
795 |
|
|
|
456 |
|
|
|
532 |
|
Loans
held for investment, net (2)
|
|
|
622,470 |
|
|
|
622,114 |
|
|
|
604,304 |
|
|
|
602,937 |
|
|
|
469,822 |
|
Allowance
for loan losses
|
|
|
5,881 |
|
|
|
4,598 |
|
|
|
3,543 |
|
|
|
3,050 |
|
|
|
2,626 |
|
Mortgage
servicing rights
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
12 |
|
Total
deposits
|
|
|
457,128 |
|
|
|
386,735 |
|
|
|
339,449 |
|
|
|
327,936 |
|
|
|
288,887 |
|
Borrowings
|
|
|
209,900 |
|
|
|
297,965 |
|
|
|
316,491 |
|
|
|
318,145 |
|
|
|
206,710 |
|
Total
stockholders' equity
|
|
|
57,548 |
|
|
|
60,750 |
|
|
|
58,038 |
|
|
|
50,542 |
|
|
|
44,028 |
|
Performance
Ratios: (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets (4)
|
|
|
0.09 |
% |
|
|
0.50 |
% |
|
|
1.07 |
% |
|
|
1.18 |
% |
|
|
1.61 |
% |
Return
on average equity (5)
|
|
|
1.19 |
% |
|
|
6.03 |
% |
|
|
13.47 |
% |
|
|
15.17 |
% |
|
|
16.37 |
% |
Average
equity to average assets
|
|
|
7.96 |
% |
|
|
8.16 |
% |
|
|
7.94 |
% |
|
|
7.78 |
% |
|
|
9.86 |
% |
Equity
to total assets at end of period
|
|
|
7.78 |
% |
|
|
7.96 |
% |
|
|
7.94 |
% |
|
|
7.19 |
% |
|
|
8.11 |
% |
Average
interest rate spread (6)
|
|
|
2.81 |
% |
|
|
2.44 |
% |
|
|
2.39 |
% |
|
|
2.70 |
% |
|
|
3.66 |
% |
Net
interest margin (7)
|
|
|
2.99 |
% |
|
|
2.63 |
% |
|
|
2.58 |
% |
|
|
2.88 |
% |
|
|
3.82 |
% |
Efficiency
ratio (8)
|
|
|
83.70 |
% |
|
|
69.87 |
% |
|
|
64.26 |
% |
|
|
57.72 |
% |
|
|
57.21 |
% |
Average
interest-earning assets to average interest-bearing
liabilities
|
|
|
105.01 |
% |
|
|
104.20 |
% |
|
|
104.83 |
% |
|
|
106.41 |
% |
|
|
108.02 |
% |
Capital
Ratios (9):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 capital to adjusted total assets
|
|
|
8.71 |
% |
|
|
8.81 |
% |
|
|
8.38 |
% |
|
|
7.79 |
% |
|
|
9.09 |
% |
Tier
1 capital to total risk-weighted assets
|
|
|
10.71 |
% |
|
|
10.68 |
% |
|
|
10.94 |
% |
|
|
11.21 |
% |
|
|
13.00 |
% |
Total
capital to total risk-weighted assets
|
|
|
11.68 |
% |
|
|
11.27 |
% |
|
|
11.55 |
% |
|
|
11.78 |
% |
|
|
13.59 |
% |
Capital
Ratios (10):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 capital to adjusted total assets
|
|
|
8.99 |
% |
|
|
9.51 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Tier
1 capital to total risk-weighted assets
|
|
|
11.11 |
% |
|
|
11.54 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Total
capital to total risk-weighted assets
|
|
|
12.07 |
% |
|
|
12.29 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Asset
Quality Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming
loans, net, to total loans (11)
|
|
|
0.83 |
% |
|
|
0.67 |
% |
|
|
0.09 |
% |
|
|
0.25 |
% |
|
|
0.45 |
% |
Nonperforming
assets, net as a percent of total assets (12)
|
|
|
0.71 |
% |
|
|
0.64 |
% |
|
|
0.10 |
% |
|
|
0.24 |
% |
|
|
0.46 |
% |
Net
charge-offs to average total loans
|
|
|
0.34 |
% |
|
|
0.37 |
% |
|
|
0.01 |
% |
|
|
(0.01 |
)% |
|
|
0.02 |
% |
Allowance
for loan losses to total loans at period end
|
|
|
0.94 |
% |
|
|
0.73 |
% |
|
|
0.58 |
% |
|
|
0.50 |
% |
|
|
0.56 |
% |
Allowance
for loan losses as a percent of nonperforming loans at period end
(11)
|
|
|
113.10 |
% |
|
|
109.48 |
% |
|
|
558.83 |
% |
|
|
180.79 |
% |
|
|
110.77 |
% |
----------------------------------
(1)
|
In
the years ended December 31, 2006 and December 31, 2005, we reversed $2.4
million and $1.6 million, respectively, of our deferred tax valuation
allowance due to our improved financial
outlook.
|
(2)
|
Loans
are net of the allowance for loan losses and deferred
fees.
|
(3)
|
All
average balances consist of average daily
balances.
|
(4)
|
Net
income divided by total average
assets.
|
(5)
|
Net
income divided by average stockholders'
equity.
|
(6)
|
Represents
the weighted average yield on interest-earning assets less the weighted
average cost of interest-bearing
liabilities.
|
(7)
|
Represents
net interest income as a percent of average interest-earning
assets.
|
(8)
|
Represents
the ratio of noninterest expense less (gain) loss on foreclosed real
estate to the sum of net interest income before provision for loan losses
and total noninterest income.
|
(9)
|
Calculated
with respect to the Bank.
|
(10)
|
Calculated
with respect to the Company. Years prior to 2007 are not
applicable due to change in the Bank’s charter to that of a commercial
bank in 2007.
|
(11)
|
Nonperforming
loans consist of loans past due 90 days or more or on loans where, in the
opinion of management, there is reasonable doubt as to the
collectability.
|
(12)
|
Nonperforming
assets consist of nonperforming loans (see footnote 11 above) and
foreclosed other real estate owned.
|
Summary
Our
principal business is attracting deposits from small businesses and consumers
and investing those deposits together with funds generated from operations and
borrowings, primarily in commercial business loans and various types of
commercial real estate loans. In 2009, the Bank expects to fund
substantially all of the loans that it originates or purchases through deposits,
FHLB advances and internally generated funds. Deposit flows and cost
of funds are influenced by prevailing market rates of interest primarily on
competing investments, account maturities and the levels of savings in the
Bank’s market area. The Bank’s ability to originate and purchase
loans is influenced by the general level of product available. The
Bank’s results of operations are also affected by the Bank’s provision for loan
losses and the level of operating expenses. The Bank’s operating expenses
primarily consist of employee compensation and benefits, premises and occupancy
expenses, and other general expenses. The Company's results
of operations are also affected by prevailing economic conditions, competition,
government policies and other actions of regulatory agencies.
Critical
Accounting Policies
We have
established various accounting policies that govern the application of
accounting principles generally accepted in the United States of America in the
preparation of the Company’s financial statements in Item 8 hereof. The
Company’s significant accounting policies are described in the Note 1 to the
Consolidated Financial Statements. Certain accounting policies require
management to make estimates and assumptions that 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.
We
believe 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 are most susceptible to significant change. For
further information, see “Business—Allowances for Loan Losses” and Note 1
to the Consolidated Financial Statements in Item 8 hereof.
Average
Balance Sheet
The
following tables set forth certain information relating to the Company for the
years ended December 31, 2008, 2007, and 2006. 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, which are
considered adjustments to yields.
|
|
For
the Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Yield/Cost
|
|
|
Balance
|
|
|
Interest
|
|
|
Yield/Cost
|
|
|
Balance
|
|
|
Interest
|
|
|
Yield/Cost
|
|
|
|
(dollars
in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents (1)
|
|
$ |
7,288 |
|
|
$ |
34 |
|
|
|
0.47 |
% |
|
$ |
432 |
|
|
$ |
78 |
|
|
|
18.06 |
% |
|
$ |
602 |
|
|
$ |
126 |
|
|
|
20.93 |
% |
Federal
funds sold
|
|
|
1,081 |
|
|
|
22 |
|
|
|
2.04 |
% |
|
|
1,448 |
|
|
|
72 |
|
|
|
4.97 |
% |
|
|
1,123 |
|
|
|
54 |
|
|
|
4.81 |
% |
Investment
securities (2)
|
|
|
80,906 |
|
|
|
4,365 |
|
|
|
5.40 |
% |
|
|
76,080 |
|
|
|
4,010 |
|
|
|
5.27 |
% |
|
|
53,519 |
|
|
|
2,654 |
|
|
|
4.96 |
% |
Loans
receivable, net (3)
|
|
|
617,569 |
|
|
|
42,101 |
|
|
|
6.82 |
% |
|
|
617,528 |
|
|
|
45,272 |
|
|
|
7.33 |
% |
|
|
607,439 |
|
|
|
41,294 |
|
|
|
6.80 |
% |
Total
interest-earning assets
|
|
|
706,844 |
|
|
|
46,522 |
|
|
|
6.58 |
% |
|
|
695,488 |
|
|
|
49,432 |
|
|
|
7.11 |
% |
|
|
662,683 |
|
|
|
44,128 |
|
|
|
6.66 |
% |
Noninterest-earning
assets
|
|
|
32,612 |
|
|
|
|
|
|
|
|
|
|
|
39,326 |
|
|
|
|
|
|
|
|
|
|
|
31,893 |
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
739,456 |
|
|
|
|
|
|
|
|
|
|
$ |
734,814 |
|
|
|
|
|
|
|
|
|
|
$ |
694,576 |
|
|
|
|
|
|
|
|
|
Liabilities
and Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
accounts
|
|
$ |
96,917 |
|
|
|
1,448 |
|
|
|
1.49 |
% |
|
$ |
94,220 |
|
|
|
1,773 |
|
|
|
1.88 |
% |
|
$ |
91,169 |
|
|
|
1,669 |
|
|
|
1.83 |
% |
Certificate
accounts
|
|
|
314,603 |
|
|
|
13,005 |
|
|
|
4.13 |
% |
|
|
272,176 |
|
|
|
13,848 |
|
|
|
5.09 |
% |
|
|
231,420 |
|
|
|
10,185 |
|
|
|
4.40 |
% |
Total
interest-bearing deposits
|
|
|
411,520 |
|
|
|
14,453 |
|
|
|
3.51 |
% |
|
|
366,396 |
|
|
|
15,621 |
|
|
|
4.26 |
% |
|
|
322,589 |
|
|
|
11,854 |
|
|
|
3.67 |
% |
FHLB
advances and other borrowings
|
|
|
251,281 |
|
|
|
10,302 |
|
|
|
4.10 |
% |
|
|
290,749 |
|
|
|
14,723 |
|
|
|
5.06 |
% |
|
|
299,274 |
|
|
|
14,348 |
|
|
|
4.79 |
% |
Subordinated
debentures
|
|
|
10,310 |
|
|
|
649 |
|
|
|
6.29 |
% |
|
|
10,310 |
|
|
|
822 |
|
|
|
7.97 |
% |
|
|
10,310 |
|
|
|
801 |
|
|
|
7.77 |
% |
Total
interest-bearing liabilities
|
|
|
673,111 |
|
|
|
25,404 |
|
|
|
3.77 |
% |
|
|
667,455 |
|
|
|
31,166 |
|
|
|
4.67 |
% |
|
|
632,173 |
|
|
|
27,003 |
|
|
|
4.27 |
% |
Noninterest-bearing
liabilities
|
|
|
7,495 |
|
|
|
|
|
|
|
|
|
|
|
7,363 |
|
|
|
|
|
|
|
|
|
|
|
7,253 |
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
680,606 |
|
|
|
|
|
|
|
|
|
|
|
674,818 |
|
|
|
|
|
|
|
|
|
|
|
639,426 |
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
58,850 |
|
|
|
|
|
|
|
|
|
|
|
59,996 |
|
|
|
|
|
|
|
|
|
|
|
55,150 |
|
|
|
|
|
|
|
|
|
Total
liabilities and equity
|
|
$ |
739,456 |
|
|
|
|
|
|
|
|
|
|
$ |
734,814 |
|
|
|
|
|
|
|
|
|
|
$ |
694,576 |
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
|
$ |
21,118 |
|
|
|
|
|
|
|
|
|
|
$ |
18,266 |
|
|
|
|
|
|
|
|
|
|
$ |
17,125 |
|
|
|
|
|
Net
interest rate spread (4)
|
|
|
|
|
|
|
|
|
|
|
2.81 |
% |
|
|
|
|
|
|
|
|
|
|
2.44 |
% |
|
|
|
|
|
|
|
|
|
|
2.39 |
% |
Net
interest margin (5)
|
|
|
|
|
|
|
|
|
|
|
2.99 |
% |
|
|
|
|
|
|
|
|
|
|
2.63 |
% |
|
|
|
|
|
|
|
|
|
|
2.58 |
% |
Ratio
of interest-earning assets to interest-bearing liabilities
|
|
|
|
|
|
|
|
105.01 |
% |
|
|
|
|
|
|
|
|
|
|
104.20 |
% |
|
|
|
|
|
|
|
|
|
|
104.83 |
% |
----------
(1)
|
Includes
interest on float from cash
disbursements.
|
(2)
|
Includes
unamortized discounts and premiums.
|
(3)
|
Amount
is net of deferred loan origination fees, unamortized discounts, premiums
and allowance for estimated loan losses and includes loans held for sale
and nonperforming loans. Loan fees were approximately $929,000,
$847,000, and $1.1 million, for the years ended December 31, 2008, 2007,
and 2006, respectively.
|
(4)
|
Net
interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing
liabilities.
|
(5)
|
Net
interest margin represents net interest income divided by average
interest-earning assets.
|
Rate Volume
Analysis. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected our interest income and interest
expense during the periods indicated. Information is provided in each category
with respect to: (i) changes attributable to changes in volume (changes in
volume multiplied by prior rate); (ii) changes attributable to changes in
interest rates (changes in interest rates multiplied by prior volume); and (iii)
the net change. The changes attributable to the combined impact of
volume and rate have been allocated proportionately to the changes due to volume
and the changes due to interest rates.
|
|
Year
Ended December 31, 2008
|
|
|
Year
Ended December 31, 2007
|
|
|
|
Compared
to
|
|
|
Compared
to
|
|
|
|
Year
Ended December 31, 2007
|
|
|
Year
Ended December 31, 2006
|
|
|
|
Increase
(decrease) due to
|
|
|
Increase
(decrease) due to
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
|
|
|
|
(in
thousands)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
102 |
|
|
$ |
(146 |
) |
|
$ |
(44 |
) |
|
$ |
(32 |
) |
|
$ |
(16 |
) |
|
$ |
(48 |
) |
Federal
funds sold
|
|
|
(14 |
) |
|
|
(36 |
) |
|
|
(50 |
) |
|
|
17 |
|
|
|
1 |
|
|
|
18 |
|
Investment
securities
|
|
|
259 |
|
|
|
96 |
|
|
|
355 |
|
|
|
1,180 |
|
|
|
176 |
|
|
|
1,356 |
|
Loans
receivable, net
|
|
|
3 |
|
|
|
(3,174 |
) |
|
|
(3,171 |
) |
|
|
695 |
|
|
|
3,283 |
|
|
|
3,978 |
|
Total
interest-earning assets
|
|
|
350 |
|
|
|
(3,260 |
) |
|
|
(2,910 |
) |
|
|
1,860 |
|
|
|
3,444 |
|
|
|
5,304 |
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
deposits
|
|
|
49 |
|
|
|
(374 |
) |
|
|
(325 |
) |
|
|
57 |
|
|
|
47 |
|
|
|
104 |
|
Retail
certificates of deposit
|
|
|
1,847 |
|
|
|
(2,140 |
) |
|
|
(293 |
) |
|
|
1,942 |
|
|
|
1,721 |
|
|
|
3,663 |
|
Wholesale/brokered
certificates of deposit
|
|
|
132 |
|
|
|
(682 |
) |
|
|
(550 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
(1,840 |
) |
|
|
(2,581 |
) |
|
|
(4,421 |
) |
|
|
(416 |
) |
|
|
791 |
|
|
|
375 |
|
Subordinated
debentures
|
|
|
- |
|
|
|
(173 |
) |
|
|
(173 |
) |
|
|
- |
|
|
|
21 |
|
|
|
21 |
|
Total
interest-bearing liabilities
|
|
|
188 |
|
|
|
(5,950 |
) |
|
|
(5,762 |
) |
|
|
1,583 |
|
|
|
2,580 |
|
|
|
4,163 |
|
Changes
in net interest income
|
|
$ |
162 |
|
|
$ |
2,690 |
|
|
$ |
2,852 |
|
|
$ |
277 |
|
|
$ |
864 |
|
|
$ |
1,141 |
|
Comparison
of Operating Results for the Year Ended December 31, 2008 and December 31,
2007
General. For the year ended
December 31, 2008, the Company reported net income of $701,000 or $0.11 per
diluted share, compared with net income of $3.6 million or $0.55 per diluted
share for the same period in 2007. The $2.9 million, or 80.6%,
decrease in net income in 2008 compared to 2007 was primarily the result of a
charge of $3.6 million (pre-tax), or $0.34 per diluted shares (after-tax),
associated with the termination of the mutual funds investment held by the Bank
and of an other-than-temporary impairment (“OTTI”) charge of $1.3 million, or
$0.13 per diluted share (after-tax), that was recorded on private label MBSs
that the Bank received when it redeemed its shares in the mutual funds in the
second quarter of 2008.
Interest Income. Interest
income for the year ended December 31, 2008 was $46.5 million, compared to $49.4
million for the year ended December 31, 2007. The decrease of $2.9 million, or
5.9%, is primarily due to interest income on loans receivable decreasing $3.1
million to $42.1 million for the year ended December 31, 2008 from $45.3 million
for the year ended December 31, 2007. The decrease in interest income on loans
was primarily the result of a decrease in the average yield of 0.51% from 7.33%
in 2007 to 6.82% in 2008. The decrease in loan yield is primarily due
to the re-pricing of our short-term adjustable-rate income property loans as
general market interest rates in the marketplace have declined during
2008.
Interest Expense. Interest
expense for the year ended December 31, 2008 was $25.4 million, compared to
$31.2 million for the year ended December 31, 2007. The $5.8 million, or 18.5%,
decrease was primarily due to a decrease of 93 basis points in the average cost
of interest-bearing liabilities resulting from the lower interest rate
environment during 2008.
Net Interest
Income. Our primary source of revenue is net interest income,
which is the difference between interest income on earning assets and interest
expense on interest-bearing liabilities. Net interest income and net
interest margin are affected by several factors including: (1) the level
of, and the relationship between, the dollar amount of interest-earning assets
and interest-bearing liabilities, (2) the relationship between repricing or
maturity of our variable-rate and fixed-rate loans and securities, and our
deposits and borrowings, and (3) the magnitude of our non-interest earning
assets, including non-accrual loans and foreclosed real estate.
Net
interest income before provision for loan losses was $21.1 million and $18.3
million for the years ended December 31, 2008 and 2007,
respectively.
Provision for Loan
Losses. The provision for loan losses increased to $2.2
million for the year ended December 31, 2008 from $1.7 million for the year
ended December 31, 2007. The increase in the current year provision
of $590,000 million, or 35.7%, for loan losses was primarily due to increases in
the Bank’s net charge-off of $370,000 and its unallocated allowance of
$201,000. Net charge-offs in 2008 were $966,000 compared to $596,000
for 2007. The increase in the unallocated allowance is attributable to
management’s expectation that, with the weakening economy and the constraints on
the financial markets, our borrowers and their businesses and/or the collateral
securing our loans could be adversely impacted and this may affect our
borrowers’ ability to repay their loans.
Noninterest
Income. Noninterest income was a loss $2.2 million for the
year ended December 31, 2008, compared to income of $6.4 million for the year
ended December 31, 2007. The decrease of $8.5 million, or 134.2%, was
primarily due to the aforementioned $1.3 million OTTI charge, the loss of $3.6
million from the sale of the mutual fund investments and a decrease in income
generated by loan sales of $3.6 million, compared to the same period in
2007.
Noninterest Expense.
Noninterest expense for the year ended December 31, 2008 was $16.0 million
compared to $17.2 million for the year ended December 31, 2007. The
$1.2 million, or 7.4%, decrease in noninterest expense was principally due to
decreases in compensation and benefits of $1.5 million and legal and audit
expenses of $204,000 in 2008 compared to 2007. The decrease in
compensation and benefits for the year is attributable primarily to management’s
staff reductions, which occurred during the fourth quarter of 2007 and in the
first quarter of 2008. The reductions in staff were in connection
with the Bank’s overall lower loan production levels in 2008 as compared to
2007. The number of full-time equivalent employees at the Bank at
December 31, 2008 was 93 compared to 105 at December 31, 2007. The decrease in
legal 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 year
of 2007, with no such expense in 2008.
Income Taxes. The
provision for income taxes decreased to $33,000 for the year ended December 31,
2008 compared to $2.1 million for the year ended December 31,
2007. The Company had income before income taxes of $734,000 for the
year ended December 31, 2008 compared to income before income taxes of $5.7
million for the year ended December 31, 2007.
Comparison
of Operating Results for the Year Ended December 31, 2007 and December 31,
2006
General. For the year ended
December 31, 2007, the Company reported net income of $3.6 million or $0.55 per
diluted share, compared with net income of $7.4 million or $1.11 per diluted
share for the same period in 2006. The $3.8 million, or 51.3%,
decrease in net income in 2007 compared to 2006 was primarily the result of
increases in the provision for loan losses and compensation and benefit expense
of $1.1 million and $1.2 million, respectively, as well as the reversal of the
valuation allowance for deferred taxes in 2006 of $2.4 million.
For both
the years ended December 31, 2007 and 2006 the Bank’s gain on loan sales was
$3.7 million. During 2007 and 2006, the Bank sold loans secured by multi-family
properties totaling $232.2 million and $196.6 million, respectively, for a gain
on sale of $3.6 million and $3.4 million, respectively. During the
third quarter of 2007 there were changes in the secondary market for
multi-family loans which have required the Bank to adjust its pricing on these
product types. Additionally, the Southern California apartment market is seeing
a significant slowdown in sales activity as a gap between buyer and seller
expectations has created a “wait and see” market. Due to
the above changes in the multi-family loan market, we expect that future gains
on loan sales to be substantially reduced or eliminated.
Interest Income. Interest
income for the year ended December 31, 2007 was $49.4 million, compared to $44.1
million for the year ended December 31, 2006. The increase of $5.3 million, or
12.0%, is primarily due to interest income on loans receivable increasing $4.0
million to $45.3 million for the year ended December 31, 2007 from $41.3 million
for the year ended December 31, 2006. The increase in interest income on loans
was primarily the result of an increase in the average loan balance of $10.1
million from $607.4 million in 2006 to $617.5 million in 2007 combined with an
increase of 53 basis points in the average yield on these loans from 6.80% for
2006 to 7.33% for 2007. The increase in loan yield is primarily due to the
re-pricing of our short-term adjustable-rate income property loans and the
origination of higher yielding loans during 2007.
Interest Expense. Interest
expense for the year ended December 31, 2007 was $31.2 million, compared to
$27.0 million for the year ended December 31, 2006. The $4.2 million, or 15.4%,
increase primarily reflects an increase in the average balance of deposits of
$43.8 million, during the year, combined with a 40 basis point increase in the
average cost of interest-bearing liabilities that was due to a higher interest
rate environment.
Net Interest
Income. Our primary source of revenue is net interest income,
which is the difference between interest income on earning assets and interest
expense on interest-bearing liabilities. Net interest income and net
interest margin are affected by several factors including: (1) the level
of, and the relationship between, the dollar amount of interest-earning assets
and interest-bearing liabilities, (2) the relationship between repricing or
maturity of our variable-rate and fixed-rate loans and securities, and our
deposits and borrowings, and (3) the magnitude of our non-interest earning
assets, including non-accrual loans and foreclosed real estate.
Net
interest income before provision for loan losses was $18.3 million and $17.1
million for the years ended December 31, 2007 and 2006,
respectively.
Provision for Loan
Losses. The provision for loan losses increased to $1.7
million for the year ended December 31, 2007 from $531,000 for the year ended
December 31, 2006. The increase in the current year provision of $1.1
million, or 210.9%, for loan losses was primarily due to an increase in the
Bank’s net charge-off of $558,000, as well as an increase in the unallocated
allowance of $553,000. Net charge-offs in 2007 were $596,000 compared
to $38,000 for 2006. In the fourth quarter of 2007, the Bank charged-off the
unsecured portion of six SBA loans totaling $600,000 due to the deterioration of
the clients’ businesses. The increase in the unallocated allowance is
due to the Bank’s management belief that the overall national economy is
weakening and may affect our borrowers’ ability to repay their
loans.
Noninterest
Income. Noninterest income was $6.4 million for the year ended
December 31, 2007, compared to $6.5 million for the year ended December 31,
2006. The decrease of $156,000, or 2.3%, was primarily due to a
decrease in loan servicing income of $459,000 due to fewer prepayment penalties
collected in 2007 compared to 2006. Partially offsetting the decrease
from loan servicing income was an increase in other income and bank fee income
of $175,000 and $105,000, respectively.
Noninterest Expense.
Noninterest expense for the year ended December 31, 2007 was $17.2 million
compared to $15.2 million for the year ended December 31, 2006. The
$2.0 million, or 13.2%, increase in noninterest expense was principally due to
increases in compensation and benefits of $1.2 million, legal and audit expenses
of $184,000, and other expenses of $343,000 in 2007 compared to
2006. The increase in compensation and benefits for the year is
attributable primarily to the Bank’s branch expansion and the hiring of
additional business bankers during the latter part of 2006 and the early part of
2007. During the fourth quarter of 2007, the Bank laid-off 10 employees due to
the reduction in our loan volume. The number of employees at the Bank at
December 31, 2007 was 105, compared to 106 at December 31, 2006.
Income Taxes. The
provision for income taxes increased to $2.1 million for the year ended December
31, 2007 compared to $450,000 for the year ended December 31,
2006. The Company had income before income taxes of $5.7 million for
the year ended December 31, 2007 compared to income before income taxes of $7.9
million for the year ended December 31, 2006. In 2006, the Company
eliminated its remaining valuation allowance for deferred taxes which reduced
its provision by $2.4 million. The elimination of the deferred tax valuation
allowance is due to management’s forecast of taxable earnings, based on
assumptions regarding the Company’s growth in the near future.
Comparison
of Financial Condition at December 31, 2008 and December 31,
2007
Total
assets of the Company were $740.0 million as of December 31, 2008, compared to
$763.4 million as of December 31, 2007. The $23.4 million, or 3.1%,
decrease in total assets is primarily due to a decrease in federal funds sold of
$24.2 million.
Total
liabilities of the Company were $682.4 million at December 31, 2008 compared to
$702.7 million at December 31, 2007. The $20.3 million, or 2.9%,
decrease was primarily due to a decrease of $88.1 million in borrowings, which
was partially offset by an increase in deposits of $70.4
million. Total deposits at December 31, 2008 were $457.1 million
compared to $386.7 million at December 31, 2007.
At
December 31, 2008 and 2007, our stockholders’ equity amounted to $57.5
million and $60.7 million, respectively. The decrease of $3.2 million, or 5.3%,
in stockholders’ equity is primarily due to the repurchase and retirement of
260,037 shares of common stock at a cost of $2.1 million, or at an average cost
of $7.95 per share, and the decrease in accumulated adjustment to stockholder’s
equity of $2.1 million due to the temporary decrease in value of our investment
portfolio.
Liquidity
Our
primary sources of funds are principal and interest payments on loans, deposits,
FHLB advances and other 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. We seek to maintain a level of liquid assets to ensure a
safe and sound operation. Our liquid assets are comprised of cash and
unpledged investments. Our average liquidity ratios were
10.86%, 9.98% and 7.20% for the years ended December 31, 2008, 2007, and
2006, respectively. The liquidity ratio is calculated by dividing the
sum of cash balances plus unpledged securities by the sum of deposits that
mature in one year or less plus transaction accounts and FHLB
advances. Our liquidity is monitored daily.
We
believe the level of liquid assets is sufficient to meet current and anticipated
funding needs. Liquid assets of the Bank represented approximately
8.5%, 9.0% and 9.2%of total assets at December 31, 2008, 2007 and 2006,
respectively. At December 31, 2008, the Bank had five unsecured lines
of credit with other correspondent banks totaling $35.0 million to purchase
federal funds as business needs dictate. We also have a line of
credit with the FHLB allowing us to borrow up to 45% of the Bank’s total assets
as of September 30, 2008 or $339.2 million, $181.4 million of which
was outstanding as of December 31, 2008. The FHLB advance line is
collateralized by eligible loan collateral and FHLB stock. At
December 31, 2008, we had approximately $508.4 million of loans pledged to
secure FHLB borrowings.
At
December 31, 2008, we had zero in outstanding commitments to originate or
purchase loans compared to zero and $685,000 at December 31, 2007 and 2006,
respectively.
The
Bank’s loan to deposit and borrowing ratio was 93.3%, 90.9% and 91.9% as of
December 31, 2008, 2007 and 2006, respectively. Certificates of
deposit, which are scheduled to mature in one year or less from December 31,
2008, totaled $360.9 million. We expect to retain a substantial
portion of the maturing certificates of deposit at maturity.
The Bank has a policy in place that
permits the purchase of brokered funds, in an amount not to exceed 20% of total
assets, as a secondary source for funding. At December 31, 2008, the
balance of brokered time deposits was approximately $19.2 million.
The
Corporation is a company separate and apart from the Bank that must provide for
its own liquidity. The Corporation’s primary sources of liquidity are
dividends upstreamed from the Bank. There are statutory and regulatory
provisions that limit the ability of the Bank to pay dividends to the
Corporation. Management believes that such restrictions will not have
a material impact on the ability of the Corporation to meet its ongoing cash
obligations.
The
Financial Code provides that a bank may not make a cash distribution to its
shareholders in excess of the lesser of a (a) bank’s retained earnings; or (b)
bank’s net income for its last three fiscal years, less the amount of any
distributions made by the bank or by any majority-owned subsidiary of the bank
to the shareholders of the bank during such period. However, a bank may, with
the approval of the DFI, make a distribution to its shareholders in an amount
not exceeding the greatest of (x) its retained earnings; (y) its net income for
its last fiscal year; or (z) its net income for its current fiscal year. In the
event that the DFI determines that the shareholders’ equity of a bank is
inadequate or that the making of a distribution by the bank would be unsafe or
unsound, the DFI may order the bank to refrain from making a proposed
distribution. The amount available for distribution from the
Bank to the Corporation was approximately $9.4 million at December 31,
2008.
Capital
Resources
The
Company and the Bank are subject to various regulatory capital requirements
administered by federal banking agencies. Failure to meet minimum capital
requirements can trigger certain mandatory and possibly additional discretionary
actions by regulators that, if undertaken, could have a direct material effect
on our financial condition and results of operations. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank’s assets, liabilities and certain off-balance sheet items as calculated
under regulatory accounting practices. The Bank’s capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
At
December 31, 2008 and 2007, the Bank’s leverage capital amounted to $64.9
million and $65.3 million, respectively, and its risk-based capital amounted to
$70.8 million and $69.9 million, respectively. As a result, the Bank
exceeded the capital levels required to be considered ‘‘well capitalized’’ at
that date. Pursuant to regulatory guidelines under prompt corrective
action rules, a bank must have total risk-based capital of 10% or greater, Tier
1 risk-based capital of 6% or greater and a leverage ratio of 5% or greater to
be considered ‘‘well capitalized.’’ At December 31, 2008, the Bank’s
total risk-based capital, Tier 1 risk-based capital and leverage ratios were
11.68%, 10.71%, and 8.71%, respectively.
Contractual
Obligations and Commitments
The Company enters into contractual
obligations in the normal course of business as a source of funds for its asset
growth and to meet required capital needs. The following schedule
summarizes our contractual obligations as of December 31, 2008:
|
|
|
|
|
Payment
Due by Period
|
|
|
|
Total
|
|
|
Less
than
1
year
|
|
|
1
-3
years
|
|
|
3
- 5
years
|
|
|
More
than
5
years
|
|
|
|
(in
thousands)
|
|
Contractual
Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB
borrowings
|
|
$ |
181,400 |
|
|
$ |
118,400 |
|
|
$ |
63,000 |
|
|
$ |
- |
|
|
$ |
- |
|
Other
borrowings
|
|
|
28,500 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
28,500 |
|
Subordinated
debentures
|
|
|
10,310 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10,310 |
|
Certificates
of deposit
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Operating
leases
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
contractual cash obligations
|
|
$ |
220,210 |
|
|
$ |
118,400 |
|
|
$ |
63,000 |
|
|
$ |
- |
|
|
$ |
38,810 |
|
The
following table summarizes our contractual commitments with off-balance sheet
risk as of December 31, 2008:
|
|
2008
|
|
|
|
(in
thousands)
|
|
Other
unused commitments:
|
|
|
|
Home
equity lines of credit
|
|
$ |
479 |
|
Commercial
lines of credit
|
|
|
13,859 |
|
Other
lines of credit
|
|
|
48 |
|
Standby
letters of credit
|
|
|
2,162 |
|
Undisbursed
construction funds
|
|
|
- |
|
Total
commitments
|
|
$ |
16,548 |
|
Impact
of Inflation and Changing Prices
Our
consolidated financial statements and related data presented in this annual
report on Form 10-K have been prepared in accordance with accounting principles
generally accepted in the United States which require the measurement of
financial position and operating results in terms of historical dollar amounts
(except with respect to securities classified as available for sale which are
carried at market value) without considering the changes in the relative
purchasing power of money over time due to inflation. The impact of inflation is
reflected in the increased cost of our operations. Unlike most industrial
companies, substantially all of our assets and liabilities are monetary in
nature. As a result, interest rates have a greater impact on our performance
than do the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same magnitude as the price of
goods and services.
Impact
of New Accounting Standards
See Note
1 to the Consolidated Financial Statements included in Item 8 hereof for a
listing of recently issued accounting pronouncements and the impact of them on
the Company.
Interest
Rate Risk
Interest Rate Risk
Management. The principal objective of the Company’s interest
rate risk management function is to evaluate the interest rate risk included in
certain balance sheet accounts, determine the level of appropriate risk given
the Company’s business focus, operating environment, capital and liquidity
requirements and performance objectives and manage the risk consistent with
guidelines approved by our board of directors through the establishment of
prudent asset and liability concentration guidelines. Through such activities,
management seeks to reduce the vulnerability of the Company’s operations to
changes in interest rates. Management monitors its interest rate risk
as such risk relates to its operational strategies. The Bank’s board
of directors reviews on a quarterly basis the Bank’s asset/liability position,
including simulations of the effect on the Bank’s capital in various interest
rate scenarios. The extent of the movement of interest rates, higher
or lower, is an uncertainty that could have a negative impact on the earnings of
the Company.
Economic Value of
Equity. The Bank’s interest rate sensitivity is monitored by
management through the use of a model that estimates the change in the Bank’s
economic value of equity (“EVE”) under alternative interest rate scenarios. The
model computes the net present value of capital by discounting all expected cash
flows from assets, liabilities and off-balance sheet contracts under each rate
scenario. An EVE ratio, in any interest rate scenario, is defined as the EVE in
that scenario divided by the market value of assets in the same scenario. The
sensitivity measure is the decline in the EVE ratio, in basis points, caused by
an increase or decrease in rates; whichever produces a larger decline
(“Sensitivity Measure”). The higher an institution’s Sensitivity Measure is, the
greater its exposure to interest rate risk is considered to be.
The
following table shows the EVE and projected change in the EVE of the Bank at
December 31, 2008, assuming an instantaneous and sustained change in market
interest rates of 100, 200, and 300 basis points ("BP"):
As
of December 31, 2008
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EVE
as % of Portfolio
|
|
Economic
Value of Equity
|
|
|
|
|
|
Value
of Assets
|
|
Change
in Rates
|
|
$
Amount
|
|
|
$
Change
|
|
|
%
Change
|
|
|
EVE
Ratio
|
|
|
%
Change (BP)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+300
BP
|
|
$ |
52,498 |
|
|
$ |
4,625 |
|
|
|
9.7 |
% |
|
|
7.31 |
% |
|
76
BP
|
|
+200
BP
|
|
|
50,517 |
|
|
|
2,644 |
|
|
|
5.5 |
% |
|
|
7.00 |
% |
|
45
BP
|
|
+100
BP
|
|
|
48,923 |
|
|
|
1,050 |
|
|
|
2.2 |
% |
|
|
6.74 |
% |
|
19
BP
|
|
Static
|
|
|
47,873 |
|
|
|
-- |
|
|
|
-- |
|
|
|
6.55 |
% |
|
|
--
|
|
-100
BP
|
|
|
46,432 |
|
|
|
(1,441 |
) |
|
|
(3.0 |
)% |
|
|
6.31 |
% |
|
-24
BP
|
|
-200
BP
|
|
|
44,534 |
|
|
|
(3,339 |
) |
|
|
(7.0 |
)% |
|
|
6.02 |
% |
|
-53
BP
|
|
-300
BP
|
|
|
46,745 |
|
|
|
(1,128 |
) |
|
|
(2.4 |
)% |
|
|
6.28 |
% |
|
-27
BP
|
|
Certain
shortcomings are inherent in the methodology used in the above interest rate
risk measurements. Modeling changes in EVE requires the making of certain
assumptions that may tend to oversimplify the manner in which actual yields and
costs respond to changes in market interest rates. First, the models assume that
the composition of the Bank’s interest sensitive assets and liabilities existing
at the beginning of a period remains constant over the period being measured.
Second, the models assume that a particular change in interest rates is
reflected uniformly across the yield curve regardless of the duration to
maturity or repricing of specific assets and liabilities. Third, the model does
not take into account the impact of the Bank’s business or strategic plans on
the structure of interest-earning assets and interest- bearing liabilities.
Although the EVE measurement provides an indication of the Bank’s interest rate
risk exposure at a particular point in time, such measurement is not intended
to, does not provide a precise forecast of the effect of changes in market
interest rates on the Bank’s net interest income, and will differ from actual
results.
Selected Assets and Liabilities which
are Interest Rate Sensitive. The following table provides information
regarding the Bank’s primary categories of assets and liabilities that are
sensitive to changes in interest rates for the year ended December 31, 2008. The
information presented reflects the expected cash flows of the primary categories
by year, including the related weighted average interest rate. The cash flows
for loans are based on maturity and re-pricing date. The loans and MBSs that
have adjustable rate features are presented in accordance with their next
interest-repricing date. Cash flow information on interest-bearing liabilities,
such as passbooks, NOW accounts and money market accounts is also adjusted for
expected decay rates, which are based on historical information. In addition,
for purposes of cash flow presentation, premiums or discounts on purchased
assets and mark-to-market adjustments are excluded from the amounts
presented. All certificates of deposit and borrowings are presented
by maturity date.
Maturities
and Repricing
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
|
|
At
December 31, 2008
|
|
Year
1
|
|
|
Year
2
|
|
|
Year
3
|
|
|
Year
4
|
|
|
Year
5
|
|
|
Thereafter
|
|
|
|
(dollars
in thousands)
|
|
Selected
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments,other
than MBS, and Federal Funds
|
|
$ |
15,856 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
82 |
|
|
$ |
85 |
|
Average
Interest Rate
|
|
|
0.67 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
3.53 |
% |
|
|
4.15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
- Backed Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Rate
|
|
$ |
- |
|
|
$ |
3 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
40,404 |
|
Average
Interest Rate
|
|
|
0.00 |
% |
|
|
5.97 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
6.40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
- Backed Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable
Rate
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
16,032 |
|
Average
Interest Rate
|
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
5.74 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
- Fixed Rate
|
|
$ |
4,508 |
|
|
$ |
12 |
|
|
$ |
3,273 |
|
|
$ |
2,563 |
|
|
$ |
1,579 |
|
|
$ |
61,187 |
|
Average
Interest Rate
|
|
|
9.47 |
% |
|
|
8.00 |
% |
|
|
8.05 |
% |
|
|
7.18 |
% |
|
|
8.35 |
% |
|
|
7.09 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
- Adjustable Rate
|
|
$ |
202,936 |
|
|
$ |
92,732 |
|
|
$ |
61,745 |
|
|
$ |
94,704 |
|
|
$ |
60,253 |
|
|
$ |
43,275 |
|
Average
Interest Rate
|
|
|
6.36 |
% |
|
|
6.67 |
% |
|
|
6.81 |
% |
|
|
6.73 |
% |
|
|
6.75 |
% |
|
|
6.82 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
transaction accounts
|
|
$ |
88,288 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Average
Interest Rate
|
|
|
1.18 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates
of Deposits
|
|
$ |
360,930 |
|
|
$ |
5,141 |
|
|
$ |
1,210 |
|
|
$ |
504 |
|
|
$ |
426 |
|
|
$ |
629 |
|
Average
Interest Rate
|
|
|
3.78 |
% |
|
|
3.66 |
% |
|
|
4.32 |
% |
|
|
4.60 |
% |
|
|
4.18 |
% |
|
|
4.35 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB
Advances
|
|
$ |
118,400 |
|
|
$ |
63,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Average
Interest Rate
|
|
|
3.40 |
% |
|
|
4.90 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Borrowings and Subordinated Debentures
|
|
$ |
30,310 |
|
|
$ |
8,500 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Average
Interest Rate
|
|
|
3.63 |
% |
|
|
2.70 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
The
Company does not have any foreign exchange exposure or any commodity exposure
and therefore does not have any direct market risk exposure for these
issues.
Report of
Independent Registered Public Accounting Firm
Board of
Directors and Stockholders
Pacific
Premier Bancorp, Inc. and Subsidiaries
Costa
Mesa, California
We have
audited the accompanying consolidated statements of financial condition of
Pacific Premier Bancorp, Inc. and Subsidiaries (the “Company”) as of December
31, 2008 and 2007, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2008. These consolidated financial statements are
the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as, evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects,
the financial position of the Company as of December 31, 2008 and 2007, and the
results of its operations, changes in its stockholders' equity, and its cash
flows for each of the three years in the period ended December 31, 2008, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Vavrinek, Trine, Day
& Co.,
LLP
Vavrinek,
Trine, Day & Co., LLP
Certified
Public Accountants
Rancho
Cucamonga, California
March 26,
2009
PACIFIC
PREMIER BANCORP, INC. AND SUBSIDIARIES
|
|
CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
|
|
(dollars
in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
At
December 31,
|
|
ASSETS
|
|
2008
|
|
|
2007
|
|
Cash
and due from banks
|
|
$ |
8,181 |
|
|
$ |
8,307 |
|
Federal
funds sold
|
|
|
1,526 |
|
|
|
25,714 |
|
Cash
and cash equivalents
|
|
|
9,707 |
|
|
|
34,021 |
|
Investment
securities available for sale
|
|
|
56,606 |
|
|
|
56,238 |
|
FHLB
Stock/Federal Reserve Stock, at cost
|
|
|
14,330 |
|
|
|
16,804 |
|
Loans
held for sale, net
|
|
|
668 |
|
|
|
749 |
|
Loans
held for investment, net of allowance for loan losses of $5,881 (2008) and
$4,598 (2007)
|
|
|
622,470 |
|
|
|
622,114 |
|
Accrued
interest receivable
|
|
|
3,627 |
|
|
|
3,995 |
|
Foreclosed
real estate
|
|
|
37 |
|
|
|
711 |
|
Premises
and equipment
|
|
|
9,588 |
|
|
|
9,470 |
|
Current
income taxes
|
|
|
- |
|
|
|
524 |
|
Deferred
income taxes
|
|
|
10,504 |
|
|
|
6,754 |
|
Bank
owned life insurance
|
|
|
11,395 |
|
|
|
10,869 |
|
Other
assets
|
|
|
1,024 |
|
|
|
1,171 |
|
TOTAL
ASSETS
|
|
$ |
739,956 |
|
|
$ |
763,420 |
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
Deposit
accounts
|
|
|
|
|
|
|
|
|
Noninterest
bearing
|
|
$ |
29,435 |
|
|
$ |
25,322 |
|
Interest
bearing
|
|
|
427,693 |
|
|
|
361,413 |
|
Total
Deposits
|
|
|
457,128 |
|
|
|
386,735 |
|
Borrowings
|
|
|
209,900 |
|
|
|
297,965 |
|
Subordinated
debentures
|
|
|
10,310 |
|
|
|
10,310 |
|
Accrued
expenses and other liabilities
|
|
|
5,070 |
|
|
|
7,660 |
|
TOTAL
LIABILITIES
|
|
|
682,408 |
|
|
|
702,670 |
|
COMMITMENTS
AND CONTINGENCIES (Note 11)
|
|
|
- |
|
|
|
- |
|
STOCKHOLDERS’
EQUITY:
|
|
|
|
|
|
|
|
|
Preferred
Stock, $.01 par value; 1,000,000 shares authorized; no shares
outstanding
|
|
|
- |
|
|
|
- |
|
Common
stock, $.01 par value; 15,000,000 shares authorized; 4,903,451 (2008) and
5,163,488 (2007) shares issued and outstanding
|
|
|
48 |
|
|
|
53 |
|
Additional
paid-in capital
|
|
|
64,680 |
|
|
|
66,417 |
|
Accumulated
deficit
|
|
|
(4,304 |
) |
|
|
(5,012 |
) |
Accumulated
other comprehensive loss, net of tax of $2,011 (2008) and $494
(2007)
|
|
|
(2,876 |
) |
|
|
(708 |
) |
TOTAL
STOCKHOLDERS’ EQUITY
|
|
|
57,548 |
|
|
|
60,750 |
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$ |
739,956 |
|
|
$ |
763,420 |
|
|
|
|
|
|
|
|
|
|
See
Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
PACIFIC
PREMIER BANCORP, INC. AND SUBSIDIARIES
|
|
CONSOLIDATED
STATEMENTS OF INCOME
|
|
(dollars
in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Years ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
INTEREST
INCOME:
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
42,101 |
|
|
$ |
45,272 |
|
|
$ |
41,294 |
|
Investment
securities and other interest-earning assets
|
|
|
4,421 |
|
|
|
4,160 |
|
|
|
2,834 |
|
Total
interest income
|
|
|
46,522 |
|
|
|
49,432 |
|
|
|
44,128 |
|
INTEREST
EXPENSE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
deposits
|
|
|
14,453 |
|
|
|
15,621 |
|
|
|
11,854 |
|
Borrowings
|
|
|
10,302 |
|
|
|
14,723 |
|
|
|
14,348 |
|
Subordinated
debentures
|
|
|
649 |
|
|
|
822 |
|
|
|
801 |
|
Total
interest expense
|
|
|
25,404 |
|
|
|
31,166 |
|
|
|
27,003 |
|
NET
INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES
|
|
|
21,118 |
|
|
|
18,266 |
|
|
|
17,125 |
|
PROVISION
FOR LOAN LOSSES
|
|
|
2,241 |
|
|
|
1,651 |
|
|
|
531 |
|
NET
INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
|
|
|
18,877 |
|
|
|
16,615 |
|
|
|
16,594 |
|
NONINTEREST
INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
servicing fee income
|
|
|
989 |
|
|
|
1,056 |
|
|
|
1,515 |
|
Deposit
fee income
|
|
|
601 |
|
|
|
619 |
|
|
|
514 |
|
Net
gain from sale of loans
|
|
|
92 |
|
|
|
3,720 |
|
|
|
3,697 |
|
Net
(loss) from investment securities
|
|
|
(4,886 |
) |
|
|
- |
|
|
|
- |
|
Other
income
|
|
|
1,032 |
|
|
|
964 |
|
|
|
789 |
|
Total
noninterest (loss)/income
|
|
|
(2,172 |
) |
|
|
6,359 |
|
|
|
6,515 |
|
NONINTEREST
EXPENSE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
8,986 |
|
|
|
10,479 |
|
|
|
9,231 |
|
Premises
and occupancy
|
|
|
2,529 |
|
|
|
2,407 |
|
|
|
2,327 |
|
Data
processing and communications
|
|
|
570 |
|
|
|
512 |
|
|
|
385 |
|
Net
loss on foreclosed real estate
|
|
|
114 |
|
|
|
42 |
|
|
|
39 |
|
Legal
and audit
|
|
|
602 |
|
|
|
806 |
|
|
|
622 |
|
Marketing
expenses
|
|
|
781 |
|
|
|
713 |
|
|
|
693 |
|
Office
and postage expense
|
|
|
344 |
|
|
|
384 |
|
|
|
372 |
|
Other
expense
|
|
|
2,038 |
|
|
|
1,905 |
|
|
|
1,562 |
|
Total
noninterest expense
|
|
|
15,964 |
|
|
|
17,248 |
|
|
|
15,231 |
|
INCOME
BEFORE INCOME TAX PROVISION
|
|
|
741 |
|
|
|
5,726 |
|
|
|
7,878 |
|
INCOME
TAX PROVISION
|
|
|
33 |
|
|
|
2,107 |
|
|
|
450 |
|
NET
INCOME
|
|
$ |
708 |
|
|
$ |
3,619 |
|
|
$ |
7,428 |
|
EARNINGS
PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
0.14 |
|
|
$ |
0.70 |
|
|
$ |
1.41 |
|
Diluted
earnings per share
|
|
$ |
0.11 |
|
|
$ |
0.55 |
|
|
$ |
1.11 |
|
WEIGHTED
AVERAGE SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
4,948,359 |
|
|
|
5,189,104 |
|
|
|
5,261,897 |
|
Diluted
|
|
|
6,210,387 |
|
|
|
6,524,753 |
|
|
|
6,684,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
PACIFIC
PREMIER BANCORP, INC. AND SUBSIDIARIES
|
|
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY AND OTHER COMPREHENSIVE
INCOME
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Common
Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Comprehensive
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income
(loss)
|
|
|
Income
(Loss)
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
|
5,228,438 |
|
|
$ |
53 |
|
|
$ |
67,161 |
|
|
$ |
(16,059 |
) |
|
$ |
(613 |
) |
|
|
|
|
$ |
50,542 |
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,428 |
|
|
|
|
|
|
$ |
7,428 |
|
|
|
7,428 |
|
Unrealized
loss on investments, net
of tax benefit of $55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78 |
) |
|
|
(78 |
) |
|
|
(78 |
) |
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,350 |
|
|
|
|
|
Exercise
of stock options
|
|
|
6,500 |
|
|
|
|
|
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57 |
|
Issuance
of restricted stock
|
|
|
35,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Share-based
compensation expense
|
|
|
|
|
|
|
|
|
|
|
122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122 |
|
Restricted
stock vested
|
|
|
|
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Forfeit
of restricted stock
|
|
|
(750 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Retirement
of common stock repurchased
|
|
|
(3,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Repurchase
of common stock
|
|
|
(2,750 |
) |
|
|
|
|
|
|
(33 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33 |
) |
Balance
at December 31, 2006
|
|
|
5,263,488 |
|
|
$ |
54 |
|
|
$ |
67,306 |
|
|
$ |
(8,631 |
) |
|
$ |
(691 |
) |
|
|
|
|
|
$ |
58,038 |
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,619 |
|
|
|
|
|
|
$ |
3,619 |
|
|
|
3,619 |
|
Unrealized
loss on investments, net
of tax benefit of $9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17 |
) |
|
|
(17 |
) |
|
|
(17 |
) |
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,602 |
|
|
|
|
|
Share-based
compensation expense
|
|
|
|
|
|
|
|
|
|
|
202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
202 |
|
Repurchase
of common stock
|
|
|
(100,000 |
) |
|
|
(1 |
) |
|
|
(1,091 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,092 |
) |
Balance
at December 31, 2007
|
|
|
5,163,488 |
|
|
$ |
53 |
|
|
$ |
66,417 |
|
|
$ |
(5,012 |
) |
|
$ |
(708 |
) |
|
|
|
|
|
$ |
60,750 |
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
708 |
|
|
|
|
|
|
$ |
708 |
|
|
|
708 |
|
Unrealized
loss on investments, net
of tax benefit of $1,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,168 |
) |
|
|
(2,168 |
) |
|
|
(2,168 |
) |
Total
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1,460 |
) |
|
|
|
|
Share-based
compensation expense
|
|
|
|
|
|
|
|
|
|
|
326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
326 |
|
Restricted
stock expense adjustment
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
Repurchase
of common stock
|
|
|
(260,037 |
) |
|
|
(5 |
) |
|
|
(2,069 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,074 |
) |
Balance
at December 31, 2008
|
|
|
4,903,451 |
|
|
$ |
48 |
|
|
$ |
64,680 |
|
|
$ |
(4,304 |
) |
|
$ |
(2,876 |
) |
|
|
|
|
|
$ |
57,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
Notes to Consolidated Financial Statements.
|
|
PACIFIC
PREMIER BANCORP, INC. AND SUBSIDIARIES
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Years ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net
in come
|
|
$ |
708 |
|
|
$ |
3,619 |
|
|
$ |
7,428 |
|
Adjustments
to net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization expense
|
|
|
967 |
|
|
|
812 |
|
|
|
532 |
|
Provision
for loan losses
|
|
|
2,241 |
|
|
|
1,651 |
|
|
|
531 |
|
Share-based
compensation expense
|
|
|
326 |
|
|
|
202 |
|
|
|
122 |
|
Loss
on sale, provision, and write-down of foreclosed real
estate
|
|
|
57 |
|
|
|
72 |
|
|
|
57 |
|
Loss
on sale and disposal on premises and equipment
|
|
|
3 |
|
|
|
(200 |
) |
|
|
8 |
|
Amortization
of premium/discounts on securities held for sale, net
|
|
|
(150 |
) |
|
|
(151 |
) |
|
|
126 |
|
Gain
on sale of loans held for sale
|
|
|
(25 |
) |
|
|
(40 |
) |
|
|
(77 |
) |
Loss
on sale or write down of investment securities available for
sale
|
|
|
4,886 |
|
|
|
- |
|
|
|
- |
|
Purchase
and origination of loans held for sale
|
|
|
(408 |
) |
|
|
(2,924 |
) |
|
|
(1,083 |
) |
Proceeds
from the sales of and principal payments from loans held for
sale
|
|
|
514 |
|
|
|
3,010 |
|
|
|
1,749 |
|
Gain
on sale of loans held for investment
|
|
|
(67 |
) |
|
|
(3,680 |
) |
|
|
(3,620 |
) |
Change
in current and deferred income tax receivable
|
|
|
(3,226 |
) |
|
|
(156 |
) |
|
|
(1,801 |
) |
(Decrease)
increase in accrued expenses and other liabilities
|
|
|
(2,590 |
) |
|
|
1,074 |
|
|
|
513 |
|
Federal
Home Loan Bank stock dividend
|
|
|
(568 |
) |
|
|
(813 |
) |
|
|
(734 |
) |
Income
from bank owned life insurance
|
|
|
(526 |
) |
|
|
(525 |
) |
|
|
(344 |
) |
Decrease
(increase) in accrued interest receivable and other assets
|
|
|
515 |
|
|
|
199 |
|
|
|
(1,428 |
) |
Net
cash provided by operating activities
|
|
|
2,657 |
|
|
|
2,150 |
|
|
|
1,979 |
|
CASH
FLOW FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale and principal payments on loans held for
investment
|
|
|
157,385 |
|
|
|
390,034 |
|
|
|
345,015 |
|
Purchase
and origination of loans held for investment
|
|
|
(160,075 |
) |
|
|
(406,574 |
) |
|
|
(344,730 |
) |
Proceeds
from sale of foreclosed real estate
|
|
|
710 |
|
|
|
115 |
|
|
|
525 |
|
Principal
payments on securities available for sale
|
|
|
11,811 |
|
|
|
5,711 |
|
|
|
638 |
|
Purchase
of securities available for sale
|
|
|
(33,401 |
) |
|
|
(39,980 |
) |
|
|
(26,808 |
) |
Proceeds
from sale or maturity of securities available for sale
|
|
|
14,179 |
|
|
|
39,980 |
|
|
|
- |
|
Increase
in premises and equipment
|
|
|
(1,102 |
) |
|
|
(1,660 |
) |
|
|
(3,180 |
) |
Proceeds
from sale and disposal of premises and equipment
|
|
|
20 |
|
|
|
200 |
|
|
|
2 |
|
Purchase
of bank owned life insurance
|
|
|
- |
|
|
|
- |
|
|
|
(10,000 |
) |
(Purchase)
and redemption of FHLB and FRB stock
|
|
|
3,248 |
|
|
|
(663 |
) |
|
|
(649 |
) |
Net
cash used in investing activities
|
|
|
(7,225 |
) |
|
|
(12,837 |
) |
|
|
(39,187 |
) |
CASH
FLOW FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in deposit accounts
|
|
|
70,393 |
|
|
|
47,286 |
|
|
|
11,513 |
|
(Payment)
proceeds from other borrowings
|
|
|
(115,900 |
) |
|
|
(15,691 |
) |
|
|
15,191 |
|
(Payment)
proceeds from FHLB advances
|
|
|
27,835 |
|
|
|
(2,835 |
) |
|
|
(6,535 |
) |
Repurchase
of common stock
|
|
|
(2,074 |
) |
|
|
(1,092 |
) |
|
|
(33 |
) |
Proceeds
from exercise of stock options
|
|
|
- |
|
|
|
- |
|
|
|
57 |
|
Net
cash (used in) provided by financing activities
|
|
|
(19,746 |
) |
|
|
27,668 |
|
|
|
20,193 |
|
NET
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(24,314 |
) |
|
|
16,981 |
|
|
|
(17,015 |
) |
CASH
AND CASH EQUIVALENTS, beginning of year
|
|
|
34,021 |
|
|
|
17,040 |
|
|
|
34,055 |
|
CASH
AND CASH EQUIVALENTS, end of year
|
|
$ |
9,707 |
|
|
$ |
34,021 |
|
|
$ |
17,040 |
|
SUPPLEMENTAL
CASH FLOW DISCLOSURES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
25,540 |
|
|
$ |
32,114 |
|
|
$ |
26,918 |
|
Income
taxes paid
|
|
$ |
2,765 |
|
|
$ |
2,379 |
|
|
$ |
2,076 |
|
NONCASH
OPERATING ACTIVITIES DURING THE PERIOD:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock vested
|
|
$ |
112 |
|
|
$ |
127 |
|
|
$ |
1 |
|
NONCASH
INVESTING ACTIVITIES DURING THE PERIOD:
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers
from loans to foreclosed real estate
|
|
$ |
93 |
|
|
$ |
760 |
|
|
$ |
509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
PACIFIC
PREMIER BANCORP, INC., AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Description of Business and Summary of Significant Accounting
Policies
Basis of Presentation and
Description of Business — 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.
The
Corporation, a Delaware corporation organized in 1997, is a California-based
bank holding company that owns 100% of the capital stock of the Bank, the
Corporation’s principal operating subsidiary. The Bank was incorporated and
commenced operations in 1983.
The Company accounts for its
investments in its wholly-owned special purpose entities, PPBI Statutory Trust
I, ( the “Trust”) using the equity method under which the subsidiaries’ net
earnings are recognized in the Company’s Statement of Income and the investment
in the Trust is included in Other Assets on the Company’s Balance
Sheet.
The principal business of the Bank is
attracting deposits from the general public and investing those deposits,
together with funds generated from operations and borrowings, primarily in
multi-family (apartment buildings of five units or more) and commercial real
estate property loans. At December 31, 2008, the Bank had six
depository branches located in the cities of Costa Mesa, Huntington
Beach, Los Alamitos, Newport Beach, San Bernardino, and Seal
Beach.
Cash and cash
equivalents—Cash and cash equivalents include cash on hand and due from
banks. At December 31, 2008, $742,000 was allocated to cash reserves required by
the Federal Reserve Board for depository institutions based on the amount of
deposits held. The Bank maintains amounts due from banks that exceed federally
insured limits. The Bank has not experienced any losses in such
accounts.
Securities Available for
Sale—Investments in debt securities that management has no immediate plan
to sell, but which may be sold in the future, are valued at fair value. Realized
gains and losses, based on the amortized cost of the specific security, are
included in noninterest income as net gain (loss) on investment securities.
Unrealized holding gains and losses, net of tax, on available-for-sale
securities are reported as a net amount in a separate component of capital until
realized.
Securities Held to
Maturity—Investments in debt securities that management has the positive
intent and ability to hold to maturity are reported at cost and adjusted for
premiums and discounts that are recognized in interest income using the interest
method over the period to maturity.
Impairment of
Investments—Declines in the fair value of individual held-to-maturity and
available-for-sale securities below their cost that are other-than-temporary
result in write-downs of the individual securities to their fair value. The
related write-downs are included in earnings as realized losses. In estimating
other-than-temporary impairment losses, management considers: (i) the length of
time and the extent to which the market value has been less than cost; (ii) the
financial condition and near-term prospects of the issuer; (iii) the intent and
ability of the Company to retain its investment in a security for a period of
time sufficient to allow for any anticipated recovery in market value; and (iv)
general market conditions which reflect prospects for the economy as a whole,
including interest rates and sector credit spreads.
Loans Held for Sale—Loans
held for sale, consisted of the guarantee portion of our SBA loans at December
31, 2008 and 2007 and are carried at the lower of cost or
market. Premiums paid and discounts obtained on such loans held for
sale are deferred as an adjustment to the carrying value of the loans until the
loans are sold. Interest is recognized as revenue when earned
according to the terms of the loans and when, in the opinion of management, it
is collectible. Loans are evaluated for collectability, and if
appropriate, previously accrued interest is reversed.
Loans Held for
Investment—Loans held for investment are carried at amortized cost and
net of deferred loan origination fees and costs and allowance for loan losses.
Net deferred loan origination fees and costs on loans are amortized or accreted
using the interest method over the expected lives of the loans. Amortization of
deferred loan fees is discontinued for nonperforming loans. Loans held for
investment are not adjusted to the lower of cost or estimated market value
because it is management's intention, and the Bank has the ability, to hold
these loans to maturity.
Interest
on loans is credited to income as earned. Interest receivable is accrued only if
deemed collectible.
Loans on
which the accrual of interest has been discontinued are designated as
non-accrual loans. The accrual of interest on loans is discontinued when
principal or interest is past due 90 days based on contractual terms of the loan
or when, in the opinion of management, there is reasonable doubt as to
collectability. When loans are placed on non-accrual status, all interest
previously accrued but not collected is reversed against current period interest
income. Interest income generally is not recognized on specific impaired loans
unless the likelihood of further loss is remote. Interest payments received on
such loans are applied as a reduction to the loan principal balance. Interest
accruals are resumed on such loans only when they are brought current with
respect to interest and principal and when, in the judgment of management, the
loans are estimated to be fully collectible as to all principal and
interest.
The Bank
considers a loan to be impaired when it is probable that the Bank will be unable
to collect all amounts due (principal and interest) according to the contractual
terms of the loan agreement. Measurement of impairment is based on the expected
future cash flows of an impaired loan which are to be discounted at the loan’s
effective interest rate, or measured by reference to an observable market value,
if one exists, or the fair value of the collateral for a collateral-dependent
loan. The Bank selects the measurement method on a loan-by-loan basis except
that collateral-dependent loans for which foreclosure is probable are measured
at the fair value of the collateral. The Bank recognizes interest income on
impaired loans based on its existing methods of recognizing interest income on
non-accrual loans. All loans are generally charged-off at such time the loan is
classified as a loss.
Allowance for Loan Losses—It
is the policy of the Bank to maintain an allowance for loan losses at a level
deemed appropriate by management to provide for known or inherent risks in the
portfolio. Management’s determination of the adequacy of the loan
loss allowance is based on an evaluation of the composition of the portfolio,
actual loss experience, current economic conditions, industry charge-off
experience on income property loans and other relevant factors in the area in
which the Bank’s lending and real estate activities are based. These
factors may affect the borrowers’ ability to pay and the value of the underlying
collateral. The Bank’s methodology for assessing the appropriateness
of the allowance consists of several key elements, which include the formula
allowance. The formula allowance is calculated by applying loss
factors to loans held for investment. The loss factors are applied according to
loan program type and loan classification. The loss factors for each
program type and loan classification are evaluated on a quarterly basis and are
established based primarily upon the Bank’s historical loss experience and the
industry charge-off experience. The unallocated allowance is based upon
management’s evaluation of various conditions, the effect of which is not
directly measured in the determination of the formula. The evaluation of the
inherent loss with respect to these conditions is subject to a higher degree of
uncertainty because they are not identified with specific problem credits or
portfolio segments. The conditions evaluated in connection with the
unallocated allowance include the following conditions that existed as of the
balance sheet date: (1) general economic and business conditions
affecting the key lending areas of the Bank, (2) credit quality trends, (3) loan
volumes and concentrations, (4) recent loss experience in particular segments of
the portfolio, and (5) regulatory examination results. Various
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 additions to the allowance based on
judgments different from those of management.
Although
management uses the best information available to make these estimates, future
adjustments to the allowance may be necessary due to economic, operating,
regulatory and other conditions that may be beyond the Bank’s
control.
Foreclosed Real Estate—Real
estate properties acquired through, or in lieu of, loan foreclosure are
initially recorded at the lesser of fair value less cost to sell or the balance
of the loan at the date of foreclosure. If the property is recorded at its fair
value less cost to sell, the excess loan balance is charged to the allowance for
estimated loan losses. It is the policy of the Bank to obtain an appraisal
and/or market valuation on all other real estate owned at the time of
possession. After foreclosure, valuations are periodically performed
by management and additional write downs are charged to operations if the
carrying value of a property exceeds its fair value less estimated costs to
sell. Revenue and expenses from operations and changes in the valuation
allowance are included in net loss on foreclosed real estate in the consolidated
statement of operations.
Premises and
Equipment—Premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are computed using
the straight-line method over the estimated useful lives of the assets, which
range from 40 years for buildings, the remaining term of the lease for leasehold
improvements, seven years for furniture, fixtures and equipment, and three years
for computer and telecommunication equipment.
The
Company periodically evaluates the recoverability of long-lived assets, such as
premises and equipment, to ensure the carrying value has not been
impaired.
Income Taxes—Deferred tax
assets and liabilities are recorded for the expected future tax consequences of
events that have been recognized in the Company’s financial statements or tax
returns using the asset liability method. In estimating future tax consequences,
all expected future events other than enactments of changes in the tax law or
rates are considered. As of December 31, 2008, the valuation
allowance was zero.
The
Company adopted FASB Interpretation 48, Accounting for Uncertainty in Income
Taxes (“Fin 48”), as of January 1, 2007. A tax position is recognized as a
benefit only if it is “more likely than not” that the tax position would be
sustained in a tax examination. The amount recognized is the largest amount of
tax benefit that is greater than 50% likely of being realized on examination.
For tax positions not meeting the “more likely than not: test, no tax benefit is
recorded. The adoption had no effect on the Company’s consolidated financial
statements.
Bank owned life
insurance—Bank owned life insurance is accounted for using the cash
surrender value method and is recorded at its realizable value. The change in
the net asset value is included in other assets and other non-interest
income.
Presentation of Cash
Flows—For purposes of reporting cash flows, cash and cash equivalents
include cash on hand and due from banks and federal funds sold.
Advertising Costs—The Company
expenses the costs of advertising in the period incurred.
Use of Estimates—The
preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates. Material estimates that are
particularly susceptible to significant change in the near term relate to the
determination of the allowance for loan losses, the valuation of foreclosed real
estate and deferred tax assets.
Comprehensive Income—In
accordance with Statement of Financial Accounting Standards (“SFAS”) No. 130,
“Reporting Comprehensive
Income,” the Company classifies items of other comprehensive income by
their nature in the financial statements and displays the accumulated other
comprehensive income separately from retained earnings in the equity section of
the Balance Sheet.
Changes in unrealized gain (loss) on available-for-sale securities net of
income taxes is the only component of accumulated other comprehensive income for
the Company.
Fair Value of Financial
Instruments—SFAS No. 107, “Disclosures About Fair Value of
Financial Instruments” specifies the disclosure of the estimated fair
value of financial instruments. The Company’s estimated fair value amounts have
been determined by the Company using available market information and
appropriate valuation methodologies.
However, considerable judgment is
required to develop the estimates of fair value. Accordingly, the estimates are
not necessarily indicative of the amounts the Company could have realized in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
Although management is not aware of
any factors that would significantly affect the estimated fair value amounts,
such amounts have not been comprehensively revalued for purposes of these
financial statements since the balance sheet date and, therefore, current
estimates of fair value may differ significantly from the amounts presented in
the accompanying notes.
Share-Based Compensation
Effective January 1, 2006, the Company adopted the provisions
of SFAS No. 123(R), “Share-Based Payments,” a
revision to the previously issued guidance on accounting for stock options and
other forms of equity-based compensation. SFAS No. 123(R) requires
companies to recognize in the income statement the grant-date fair value of
stock options and other equity-based forms of compensation issued to employees
over the employees’ requisite service period (generally the vesting
period).
Recent
Accounting Pronouncements
During 2008, 2007 and 2006, the
following accounting guidance relevant to the Company has been issued by the
Financial Accounting Standards Board (the “FASB”), and/or became
effective.
In September 2006, the FASB ratified
the consensus the Emerging Issues Task Force (“EITF”) reached regarding EITF No.
06-5, “Accounting for
Purchases of Life Insurance - Determining the Amount That Could Be Realized in
Accordance with FASB Technical Bulletin No. 85-4.” The EITF concluded
that a policy holder should consider any additional amounts included in the
contractual terms of the life insurance policy in determining the amount that
could be realized under the issuance contract. For group policies with multiple
certificates or multiple policies with a group rider, the EITF also tentatively
concluded that the amount that could be realized should be determined at the
individual policy or certificate level, i.e., amounts that would be realized
only upon surrendering all of the policies or certificates would not be included
in measuring the assets. This interpretation is effective for fiscal years
beginning after December 15, 2006. The adoption of EITF No. 06-5 has not had a
material impact on the Company’s financial position, results of operations, or
cash flows.
In
February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
Financial Instruments—an amendment of FASB Statements No. 133 and 140.”
SFAS No. 155 simplifies accounting for certain hybrid instruments currently
governed by SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” by allowing fair value
re-measurement of hybrid instruments that contain an embedded derivative that
otherwise would require bifurcation. SFAS No. 155 also eliminates the guidance
in SFAS No.133 Implementation Issue No. D1, “Application of Statement 133 to
Beneficial Interests in Securitized Financial Assets,” which provides
such beneficial interests are not subject to SFAS No.133. SFAS No. 155 amends
SFAS No. 140, “Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities—a
Replacement of FASB Statement No. 125,” by eliminating the restriction on
passive derivative instruments that a qualifying special-purpose entity may
hold. This statement is effective for financial instruments acquired or issued
after the beginning of the Company’s 2007 fiscal year. The Company adopted SFAS
No. 155 effective January 1, 2007. The adoption of this statement did not have a
material impact on the Company’s financial position, results of operations or
cash flows.
In March
2006, the FASB issued SFAS No. 156, “Accounting for Servicing of
Financial Asset— an amendment of FASB Statement No. 140.” SFAS No.156 requires an
entity to recognize a servicing asset or servicing liability each time it
undertakes an obligation to service a financial asset by entering into a
servicing contract in specific situations. Additionally, the servicing asset or
servicing liability shall be initially measured at fair value; however, an
entity may elect the “amortization method” or “fair value method” for subsequent
balance sheet reporting periods. SFAS No.156 is effective as of an entity’s
first fiscal year beginning after September 15, 2006. The Company adopted SFAS
No. 156 effective January 1, 2007. The adoption of this statement did not have a
material impact on the Company’s financial position, results of operations or
cash flows.
In July
2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109 (“FIN 48”) which
clarifies the accounting and disclosure for uncertainty in tax positions, as
defined. FIN 48 seeks to reduce the diversity in practice associated with
certain aspects of the recognition and measurement related to accounting for
income taxes and provides that the tax effects from an uncertain tax position be
recognized in the financial statements only if, based on its merits, the
position is more likely than not to be sustained in audit by the taxing
authorities. This interpretation is effective for fiscal years beginning after
December 15, 2006. Effective January 1, 2007, the Company adopted FIN 48.
Management believes that all tax positions taken as of December 31, 2008 are
highly certain and, accordingly, no accounting adjustments have been made to the
financial statements.
In
September 2006, FASB issued SFAS No. 157, “Fair Value Measurements.”
SFAS No. 157 enhances existing guidance for measuring assets and liabilities
using fair value. Prior to the issuance of SFAS No. 157, guidance for applying
fair value was incorporated in several accounting pronouncements. SFAS No. 157
provides a single definition of fair value, together with a framework for
measuring it, and requires additional disclosures about the use of fair value to
measure assets and liabilities. SFAS No. 157 also emphasizes that fair value is
a market-based measurement, not an entity-specific measurement, and sets out a
fair value hierarchy with the highest priority being quoted prices in active
markets. Under SFAS No. 157, fair value measurements are disclosed by level
within that hierarchy. While SFAS No. 157 does not add any new fair value
measurements, it does change current practice. Changes to practice include:
(1) a requirement for an entity to include its own credit standing in the
measurement of its liabilities; (2) a modification of the transaction price
presumption; (3) a prohibition on the use of block discounts when valuing
large blocks of securities for broker-dealers and investment companies; and
(4) a requirement to adjust the value of restricted stock for the effect of
the restriction even if the restriction lapses within one year. SFAS No. 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. The
adoption of this statement did not have a material impact on the Company’s
financial position, results of operations or cash flows.
In
September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans (an amendment of FASB
Statements No. 87, 88, 106, and 132R).” SFAS No. 158, requires an employer
to: (1) Recognize in its statement of financial position an asset for a
plan’s over funded status or a liability for a plan’s underfunded status;
(2) measure a plan’s assets and its obligations that determine its funded
status as of the end of the employer’s fiscal year (with limited exceptions);
and (3) recognize changes in the funded status of a defined benefit
postretirement plan in the year in which the changes occur. Those changes will
be reported in comprehensive income of a business entity and in changes in net
assets of a not-for-profit organization. The requirement by SFAS No. 158 to
recognize the funded status of a benefit plan and the disclosure requirements of
SFAS No. 158 are effective as of the end of the fiscal year ending after
December 15, 2006 for entities with publicly traded equity securities. The
requirement to measure plan assets and benefit obligations as of the date of the
employer’s fiscal year-end statement of financial position is effective for
fiscal years ending after December 15, 2008. The adoption of SFAS No. 158
did not have a material effect on the financial position of the
company.
In
February 2007, the FASB issued SFAS No. 159, “Establishing the Fair Value Option
for Financial Assets and Liabilities.” The FASB has issued
SFAS No. 159 to permit all entities to choose to elect, at specified election
dates, to measure eligible financial instruments at fair value. An entity shall
report unrealized gains and losses on items for which the fair value option has
been elected in earnings at each subsequent reporting date, and recognize
upfront costs and fees related to those items in earnings as incurred and not
deferred. SFAS No. 159 applies to fiscal years beginning after November 15,
2007, with early adoption permitted for an entity that has also elected to apply
the provisions of SFAS No. 157, “Fair Value
Measurements.” An entity is prohibited from retrospectively
applying SFAS No. 159, unless it chooses early adoption. SFAS No. 159 also
applies to eligible items existing at November 15, 2007 (or early adoption
date). The Company adopted SFAS No. 159 on January 1, 2008 and elected not to
measure certain eligible financial instruments at their fair values and as a
result the adoption of SFAS No. 159 did not have a material impact on its
financial position, results of operations or cash flows.
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” SFAS
No. 141(R) changes the accounting for business combinations, including the
measurement of acquirer shares issued in consideration for a business
combination, the recognition of contingent consideration, the accounting for
pre-acquisition gain and loss contingencies, the recognition of capitalized
in-process research and development, the accounting for acquisition-related
restructuring cost accruals, the treatment of acquisition related transaction
costs and the recognition of changes in the acquirer’s income tax valuation
allowance. The Company has adopted SFAS No. 141(R). The adoption of SFAS No.
141(R) did not have a material effect on the financial position of the
company.
In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51.” SFAS
No. 160 changes the accounting for non-controlling (minority) interests in
consolidated financial statements including the requirements to classify
non-controlling interests as a component of consolidated stockholders’ equity,
and the elimination of “minority interest” accounting in results of operations
with earnings attributable to non-controlling interests reported as part of
consolidated earnings. Additionally, SFAS No. 160 revises the accounting for
both increases and decreases in a parent’s controlling ownership interest. The
Company has adopted SFAS No. 160. The adoption of SFAS No. 160 did not have a
material effect on the financial position of the company.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative and
Hedging Activities, an amendment of FASB Statement No.
133”. SFAS No. 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 No. 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 No.
161.
In May
2008, FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” 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 United States generally accepted accounting
principles for nongovernmental entities. SFAS No. 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 No. 162 to have a material impact of
its financial position, results of operations or cash flow.
On
October 10, 2008, the FASB issued Financial Accounting Standards Board Staff
Position FSP FAS 157-3,
“Determining the Fair
Value of a Financial Asset When the Market for That Asset Is Not
Active.” The
FSP clarifies the application of SFAS No. 157, “Fair Value Measurements,” in a market that is not
active and provides an example to illustrate key considerations in determining
the fair value of a financial asset when the market for that financial asset is
not active. The FSP is effective immediately, and includes prior periods for
which financial statements have not been issued, and therefore the Company is
subject to the provisions under the FSP effective September 30, 2008. The
implementation of FSP FAS 157-3 did not affect the Company’s fair value
measurements as of December 31, 2008.
Reclassifications –Certain
amounts reflected in the 2007 and 2006 consolidated financial statements have
been reclassified where practicable, to conform to the presentation for
2008. These classifications are of a normal recurring
nature.
2.
Regulatory Capital Requirements and Other Regulatory Matters
The
Company and the Bank are subject to various regulatory capital requirements
administered by federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Company’s and the Bank’s financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company and the Bank must meet specific capital guidelines that
involve quantitative measures of the Company’s and the Bank’s assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The Company’s and the Bank’s capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
Quantitative
measures established by regulation to ensure capital adequacy require the
Company and the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the applicable
regulations) to risk-weighted assets (as defined in the applicable regulations)
and of Tier I capital (as defined in the applicable regulations) to average
assets (as defined in the applicable regulations). Management believes, as of
December 31, 2008, that the Company and the Bank meet all capital adequacy
requirements to which they are subject.
As of the
most recent formal notification from the Federal Reserve, the Bank was
categorized as well capitalized under the regulatory framework for prompt
corrective action. There are no conditions or events since that notification
that management believes have changed the Bank’s categorization. The Company’s
and Bank’s actual capital amounts and ratios are presented in the table
below:
|
|
Actual
|
|
|
To
be Adequately Capitalized
|
|
|
To
be Well Capitalized
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(dollars
in thousands)
|
|
At December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
|
70,761 |
|
|
|
11.68 |
% |
|
$ |
48,457 |
|
|
|
8.00 |
% |
|
$ |
60,571 |
|
|
|
10.00 |
% |
Consolidated
|
|
|
73,741 |
|
|
|
12.07 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Tier
1 Capital (to adjusted tangible assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
|
64,880 |
|
|
|
8.71 |
% |
|
|
29,808 |
|
|
|
4.00 |
% |
|
|
37,261 |
|
|
|
5.00 |
% |
Consolidated
|
|
|
67,859 |
|
|
|
8.99 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Tier
1 Risk-Based Capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
|
64,880 |
|
|
|
10.71 |
% |
|
|
24,229 |
|
|
|
4.00 |
% |
|
|
36,343 |
|
|
|
6.00 |
% |
Consolidated
|
|
|
67,859 |
|
|
|
11.11 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
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 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
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 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
3.
Investment Securities
The
amortized cost and estimated fair value of securities were as follows at
December 31:
|
|
December 31,
2008
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Fair
Value
|
|
|
|
(in
thousands)
|
|
Securities
available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury Notes
|
|
$ |
148 |
|
|
$ |
19 |
|
|
$ |
- |
|
|
$ |
167 |
|
Mortgage-backed
securities
|
|
|
61,345 |
|
|
|
997 |
|
|
|
(5,903 |
) |
|
|
56,439 |
|
Total
securities available for sale
|
|
$ |
61,493 |
|
|
$ |
1,016 |
|
|
$ |
(5,903 |
) |
|
$ |
56,606 |
|
FHLB
stock
|
|
$ |
12,731 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
12,731 |
|
Federal
Reserve Bank stock
|
|
|
1,599 |
|
|
|
- |
|
|
|
- |
|
|
|
1,599 |
|
Total
equities held at cost
|
|
$ |
14,330 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
14,330 |
|
Total
securities
|
|
$ |
75,823 |
|
|
$ |
1,016 |
|
|
$ |
(5,903 |
) |
|
$ |
70,936 |
|
|
|
December 31,
2007
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Fair
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 |
|
FHLB
stock
|
|
$ |
15,204 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
15,204 |
|
Federal
Reserve Bank stock
|
|
|
1,600 |
|
|
|
- |
|
|
|
- |
|
|
|
1,600 |
|
Total
equities held at cost
|
|
$ |
16,804 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
16,804 |
|
Total
securities
|
|
$ |
74,242 |
|
|
$ |
35 |
|
|
$ |
(1,235 |
) |
|
$ |
73,042 |
|
The
weighted average interest rates on total investment securities were 5.78% and
5.27% at December 31, 2008 and 2007, respectively.
At
December 31, 2008, $54.2 million in MBS mature in excess of 10 years, $2.0
million in MBS and U.S. Treasury Notes mature in five to 10 years, $425,000 in
MBS and U.S. Treasury Notes mature in less than five years, and the FHLB stock
is redeemable five years after FHLB receives written notice from the Bank and
only if the Bank has excess stock at the time of redemption. At
December 31, 2008, a total of $34.0 million in MBS were pledged as collateral
for the Bank’s three inverse putable reverse repurchases totaling $28.5 million.
At December 31, 2007, the mutual funds totaling $27.7 million were pledged as
collateral for the Bank’s credit facility with Pershing LLC which was closed in
2008.
The
tables below shows the Company’s investment securities’ gross unrealized losses
and fair value by investment category and length of time that individual
securities have been in a continuous loss position, at December 31, 2008 and
2007. 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. In 2008, the Bank had
determined that 19 of the private label MBS with a book value of $1.5 million
were other-than-temporary impaired and the Company realized a loss of $1.3
million.
|
|
December
31, 2008
|
|
|
|
Less
than 12 months
|
|
|
12
months or Longer
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Fair
|
|
|
Holding
|
|
|
|
|
|
Fair
|
|
|
Holding
|
|
|
|
|
|
Fair
|
|
|
Holding
|
|
|
|
Number
|
|
|
Value
|
|
|
Losses
|
|
|
Number
|
|
|
Value
|
|
|
Losses
|
|
|
Number
|
|
|
Value
|
|
|
Losses
|
|
|
|
(dollars
in thousands)
|
|
Mortgage-backed
securities
|
|
|
107 |
|
|
$ |
16,905 |
|
|
$ |
(5,882 |
) |
|
|
1 |
|
|
$ |
1,573 |
|
|
$ |
(21 |
) |
|
|
108 |
|
|
$ |
18,478 |
|
|
$ |
(5,903 |
) |
Total
|
|
|
107 |
|
|
$ |
16,905 |
|
|
$ |
(5,882 |
) |
|
|
1 |
|
|
$ |
1,573 |
|
|
$ |
(21 |
) |
|
|
108 |
|
|
$ |
18,478 |
|
|
$ |
(5,903 |
) |
|
|
December
31, 2007
|
|
|
|
Less
than 12 months
|
|
|
12
months or Longer
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Fair
|
|
|
Holding
|
|
|
|
|
|
Fair
|
|
|
Holding
|
|
|
|
|
|
Fair
|
|
|
Holding
|
|
|
|
Number
|
|
|
Value
|
|
|
Losses
|
|
|
Number
|
|
|
Value
|
|
|
Losses
|
|
|
Number
|
|
|
Value
|
|
|
Losses
|
|
|
|
(dollars
in thousands)
|
|
Mortgage-backed
securities
|
|
|
3 |
|
|
$ |
1,839 |
|
|
$ |
(1 |
) |
|
|
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
3 |
|
|
$ |
1,839 |
|
|
$ |
(1 |
) |
Mutual
Funds
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
|
|
26,485 |
|
|
|
(1,234 |
) |
|
|
2 |
|
|
|
26,485 |
|
|
|
(1,234 |
) |
Total
|
|
|
3 |
|
|
$ |
1,839 |
|
|
$ |
(1 |
) |
|
|
2 |
|
|
$ |
26,485 |
|
|
$ |
(1,234 |
) |
|
|
5 |
|
|
$ |
28,324 |
|
|
$ |
(1,235 |
) |
4.
Loans Held for Investment
Loans
held for investment consisted of the following at December 31:
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
Real
estate:
|
|
|
|
|
|
|
Multi-family
|
|
$ |
287,592 |
|
|
$ |
341,263 |
|
Commercial
real estate
|
|
|
165,978 |
|
|
|
147,523 |
|
One-to-four
family
|
|
|
9,925 |
|
|
|
13,080 |
|
Construction
|
|
|
2,733 |
|
|
|
2,750 |
|
Other
loans:
|
|
|
|
|
|
|
|
|
Commercial
owner occupied
|
|
|
112,406 |
|
|
|
57,614 |
|
Commercial
and industrial
|
|
|
43,235 |
|
|
|
50,993 |
|
SBA
|
|
|
4,274 |
|
|
|
13,246 |
|
Unsecured
consumer loans
|
|
|
228 |
|
|
|
176 |
|
Loans
secured by deposit accounts
|
|
|
1,728 |
|
|
|
- |
|
Total
gross loans held for investment
|
|
|
628,099 |
|
|
|
626,645 |
|
Plus
(less):
|
|
|
|
|
|
|
|
|
Undisbursed
construction loan funds
|
|
|
- |
|
|
|
(702 |
) |
Deferred
loan origination costs-net
|
|
|
252 |
|
|
|
847 |
|
Discounts
|
|
|
- |
|
|
|
(78 |
) |
Allowance
for estimated loan losses
|
|
|
(5,881 |
) |
|
|
(4,598 |
) |
Loans
held for investment, net
|
|
$ |
622,470 |
|
|
$ |
622,114 |
|
From time
to time, the Bank may purchase or sell loans in order to manage concentrations,
maximize interest income, change risk profiles, improve returns and generate
liquidity.
The Bank
grants residential and commercial loans held for investment to customers located
primarily in Southern California. Consequently, a borrower’s ability to repay
may be impacted by economic factors in the region.
The
following summarizes activity in the allowance for loan losses for the years
ended December 31:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
Balance,
beginning of year
|
|
$ |
4,598 |
|
|
$ |
3,543 |
|
|
$ |
3,050 |
|
ALLL
Transfer In *
|
|
|
8 |
|
|
|
- |
|
|
|
- |
|
Provision
for loan losses
|
|
|
2,241 |
|
|
|
1,651 |
|
|
|
531 |
|
Recoveries
|
|
|
208 |
|
|
|
105 |
|
|
|
228 |
|
Charge-offs
|
|
|
(1,174 |
) |
|
|
(701 |
) |
|
|
(266 |
) |
Balance,
end of year
|
|
$ |
5,881 |
|
|
$ |
4,598 |
|
|
$ |
3,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Note: Represents
the addition of valuation reserves for overdrafts that were previously
held outside of the General Allowance.
|
|
It is the
Bank’s policy not to accrue interest on loans 90 days or more past due or when,
in the opinion of management, there is reasonable doubt as to
collectability. The Company had nonaccrual and nonperforming loans at
December 31, 2008, 2007, and 2006 of $5.2 million, $4.2 million, and $634,000,
respectively. If such loans had been performing in accordance
with their original terms, for the years ended December 31, 2008, 2007, and
2006, the Company would have recorded additional loan interest income of
$491,000, $315,000 and $106,000, respectively, for a total of $42.6 million,
$45.6 million, and $41.4 million, respectively, instead of loan interest income
actually recognized of $42.1 million, $45.3 million, and $41.3 million,
respectively.
The
following summarizes information related to the Bank’s impaired loans at
December 31:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
Total
impaired loans
|
|
$ |
5,200 |
|
|
$ |
7,396 |
|
|
$ |
659 |
|
Related
general reserves on impaired loans
|
|
|
18 |
|
|
|
534 |
|
|
|
73 |
|
Related
specific reserves on impaired loans
|
|
|
- |
|
|
|
- |
|
|
|
60 |
|
Average
impaired loans for the year
|
|
|
5,353 |
|
|
|
3,963 |
|
|
|
889 |
|
Total
interest income recognized on impaired loans
|
|
|
212 |
|
|
|
611 |
|
|
|
43 |
|
The Bank is
not committed to lend additional funds to debtors whose loans have been modified
or impaired.
The Bank
is subject to numerous lending-related regulations. Under applicable laws and
regulations, the Bank may not make secured and unsecured loans-to-one borrower
in excess of 25% and 15%, respectively, of its unimpaired capital and surplus.
These loans-to-one-borrower limitations result in a dollar limitation of $17.0
million and $10.2 million for secured and unsecured loans, respectively, at
December 31, 2008. At December 31, 2008, the Bank’s largest aggregate
outstanding balance of loans-to-one borrower was $15.7 million.
Total
loans and participations serviced for others were $33.7 million and $53.6
million as of December 31, 2008 and 2007, respectively.
5.
Premises and Equipment
Premises
and equipment consisted of the following at December 31:
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
Land
|
|
$ |
1,410 |
|
|
$ |
1,410 |
|
Premises
|
|
|
5,617 |
|
|
|
5,600 |
|
Leasehold
improvements
|
|
|
2,434 |
|
|
|
2,249 |
|
Furniture,
fixtures and equipment
|
|
|
4,575 |
|
|
|
4,062 |
|
Automobiles
|
|
|
83 |
|
|
|
83 |
|
Subtotal
|
|
|
14,119 |
|
|
|
13,404 |
|
Less:
accumulated depreciation
|
|
|
(4,531 |
) |
|
|
(3,934 |
) |
Total
|
|
$ |
9,588 |
|
|
$ |
9,470 |
|
Depreciation
expense was $967,000, $812,000, and $532,000 for the years ended December 31,
2008, 2007 and 2006, respectively.
6.
Foreclosed Real Estate
The
following summarizes the activity in the other real estate owned for the years
ended December 31:
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
Balance,
beginning of year
|
|
$ |
711 |
|
|
$ |
138 |
|
Additions
– foreclosures
|
|
|
93 |
|
|
|
760 |
|
Sales
|
|
|
(708 |
) |
|
|
(115 |
) |
Write
downs
|
|
|
(59 |
) |
|
|
(72 |
) |
Balance,
end of year
|
|
$ |
37 |
|
|
$ |
711 |
|
7.
Deposit Accounts
Deposit
accounts and weighted average interest rates consisted of the following at
December 31:
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
2008
|
|
|
Average
|
|
|
2007
|
|
|
Average
|
|
|
|
Balance
|
|
|
Interest
Rate
|
|
|
Balance
|
|
|
Interest
Rate
|
|
|
|
(dollars
in thousands) |
|
Transaction
accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking
accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
|
|
$ |
29,435 |
|
|
|
0.00 |
% |
|
$ |
25,322 |
|
|
|
0.00 |
% |
Interest-bearing
|
|
|
20,989 |
|
|
|
0.97 |
% |
|
|
19,204 |
|
|
|
1.33 |
% |
Passbook
accounts
|
|
|
14,401 |
|
|
|
2.56 |
% |
|
|
9,254 |
|
|
|
4.02 |
% |
Money
market accounts
|
|
|
23,463 |
|
|
|
2.00 |
% |
|
|
35,531 |
|
|
|
3.14 |
% |
Total
transaction accounts
|
|
|
88,288 |
|
|
|
1.18 |
% |
|
|
89,311 |
|
|
|
1.88 |
% |
Certificate
accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under
$100,000
|
|
|
187,813 |
|
|
|
3.82 |
% |
|
|
148,200 |
|
|
|
5.03 |
% |
$100,000
and over
|
|
|
181,027 |
|
|
|
3.75 |
% |
|
|
149,224 |
|
|
|
5.02 |
% |
Total
certificate accounts
|
|
|
368,840 |
|
|
|
3.79 |
% |
|
|
297,424 |
|
|
|
5.02 |
% |
Total
Deposits
|
|
$ |
457,128 |
|
|
|
3.28 |
% |
|
$ |
386,735 |
|
|
|
4.32 |
% |
The aggregate
annual maturities of certificate accounts at December 31, 2008 are approximately
as follows:
|
|
2008
|
|
|
|
(in
thousands)
|
|
Within
one year
|
|
$ |
360,930 |
|
One
to two years
|
|
|
5,141 |
|
Two
to three years
|
|
|
1,210 |
|
Three
to four years
|
|
|
504 |
|
Four
to five years
|
|
|
426 |
|
Thereafter
|
|
|
629 |
|
Total
|
|
$ |
368,840 |
|
Interest
expense on deposit accounts for the years ended December 31 is summarized as
follows:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
Checking
accounts
|
|
$ |
246 |
|
|
$ |
313 |
|
|
$ |
241 |
|
Passbook
accounts
|
|
|
431 |
|
|
|
84 |
|
|
|
14 |
|
Money
market accounts
|
|
|
771 |
|
|
|
1,376 |
|
|
|
1,415 |
|
Certificate
accounts
|
|
|
13,005 |
|
|
|
13,848 |
|
|
|
10,184 |
|
Total
|
|
$ |
14,453 |
|
|
$ |
15,621 |
|
|
$ |
11,854 |
|
8.
Advances from Federal Home Loan Bank and Other Borrowings
The Bank
had $181.4 million and $297.3 million borrowings with the FHLB at of December
31, 2008 and 2007, respectively. At December 31, 2008 and 2007,
advances from the FHLB were collateralized by real estate loans with an
aggregate principal balance of $508.4 million and $460.8 million, respectively,
and FHLB stock of $12.7 million and $15.2 million,
respectively.
The
following table summarizes activities in advances from the FHLB for the periods
indicated:
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(dollars
in thousands)
|
|
Average
balance outstanding
|
|
$ |
236,494 |
|
|
$ |
285,577 |
|
|
$ |
297,441 |
|
Maximum
amount outstanding at any month-end during the year
|
|
|
303,500 |
|
|
|
310,700 |
|
|
|
319,200 |
|
Balance
outstanding at end of year
|
|
|
181,400 |
|
|
|
297,300 |
|
|
|
300,300 |
|
Weighted
average interest rate during the year
|
|
|
4.24 |
% |
|
|
5.06 |
% |
|
|
4.79 |
% |
The
maturities of FHLB advances are as follows:
|
|
December
31, 2008
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Amount
|
|
|
Interest
Rate
|
|
|
|
(dollars
in thousands)
|
|
Due
in one year
|
|
$ |
118,400 |
|
|
|
3.40 |
% |
Due
in two years
|
|
|
63,000 |
|
|
|
4.90 |
% |
Total
|
|
$ |
181,400 |
|
|
|
3.92 |
% |
The Bank
has established credit facilities with Citigroup and Barclays Bank. The credit
facilities are secured by pledged investment securities. At December 31, 2008,
the Bank had borrowings of $18.5 million and $10.0 million at Citigroup and
Barclays Bank, respectively. The borrowings are secured by a total of $34.0
million securities. In addition, the Bank closed its credit facility with
Pershing LLC in 2008. At December 31, 2007, the Bank had a borrowing of $500,000
against the Pershing LLC line.
At
December 31, 2008, the Bank had unsecured lines of credit with five banks for a
total amount of $35.0 million. Total borrowings against these lines
were zero at December 31, 2008 and 2007. The following summarizes
activities in other borrowings:
|
|
Year
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(dollars
in thousands)
|
|
Average
balance outstanding
|
|
$ |
14,787 |
|
|
$ |
5,172 |
|
Maximum
amount outstanding at any month-end during the year
|
|
|
28,500 |
|
|
|
31,500 |
|
Balance
outstanding at end of year
|
|
|
28,500 |
|
|
|
665 |
|
Weighted
average interest rate during the year
|
|
|
1.80 |
% |
|
|
5.78 |
% |
9.
Subordinated Debentures
On March 25, 2004 the Corporation
issued $10,310,000 of Floating Rate Junior Subordinated Deferrable Interest
Debentures (the “Debt Securities”) to PPBI Trust I, a statutory trust created
under the laws of the State of Delaware. The Debt Securities are
subordinated to effectively all borrowings of the Corporation and are due and
payable on April 7, 2034. Interest is payable quarterly on the Debt
Securities at three-month LIBOR plus 2.75% for a rate of 7.57% and 7.99% as of
December 31, 2008 and 2007, respectively. The Debt Securities may be
redeemed, in part or whole, on or after April 7, 2009 at the option of the
Corporation, at par. The Debt Securities can also be redeemed at par
if certain events occur that impact the tax treatment or the capital treatment
of the issuance. The Corporation also purchased a 3% minority
interest totaling $310,000 in PPBI Trust I. The balance of the equity
of PPBI Trust I is comprised of mandatorily redeemable preferred securities
(“Trust Preferred Securities”) and is included in other assets. PPBI Trust I
sold $10,000,000 of Trust Preferred Securities to investors in a private
offering.
10.
Income Taxes
Income
taxes for the years ended December 31 consisted of the following:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
Current
tax provision (benefit):
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
1,750 |
|
|
$ |
1,554 |
|
|
$ |
2,419 |
|
State
|
|
|
517 |
|
|
|
294 |
|
|
|
(220 |
) |
Total
current tax provision
|
|
|
2,267 |
|
|
|
1,848 |
|
|
|
2,199 |
|
Deferred
tax benefit (provision):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(1,578 |
) |
|
|
198 |
|
|
|
(1,799 |
) |
State
|
|
|
(656 |
) |
|
|
61 |
|
|
|
50 |
|
Total
deferred tax benefit (provision)
|
|
|
(2,234 |
) |
|
|
259 |
|
|
|
(1,749 |
) |
Total
income tax provision
|
|
$ |
33 |
|
|
$ |
2,107 |
|
|
$ |
450 |
|
A
reconciliation from statutory federal income taxes to the Company's effective
income taxes for the years ended December 31 are as follows:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
Statutory
federal taxes
|
|
$ |
252 |
|
|
$ |
1,662 |
|
|
$ |
2,447 |
|
State
taxes, net of federal income tax benefit
|
|
|
(92 |
) |
|
|
374 |
|
|
|
638 |
|
Change
in valuation allowance
|
|
|
- |
|
|
|
- |
|
|
|
(2,424 |
) |
Other
|
|
|
(127 |
) |
|
|
71 |
|
|
|
(211 |
) |
Total
|
|
$ |
33 |
|
|
$ |
2,107 |
|
|
$ |
450 |
|
Deferred
tax assets (liabilities) were comprised of the following at December
31:
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
Accrued
expenses
|
|
$ |
514 |
|
|
$ |
350 |
|
Depreciation
|
|
|
103 |
|
|
|
103 |
|
Net
operating loss
|
|
|
5,205 |
|
|
|
5,522 |
|
Allowance
for loan losses
|
|
|
2,637 |
|
|
|
2,062 |
|
Unrealized
losses on available for sale securities
|
|
|
2,011 |
|
|
|
494 |
|
Capital
Loss on Mutual Funds
|
|
|
742 |
|
|
|
- |
|
Other-Than-Temporary
Impairment
|
|
|
579 |
|
|
|
- |
|
Other
|
|
|
36 |
|
|
|
61 |
|
Total
deferred tax assets
|
|
|
11,827 |
|
|
|
8,592 |
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
State
taxes
|
|
|
(500 |
) |
|
|
(282 |
) |
Federal
Home Loan Bank Stock
|
|
|
(669 |
) |
|
|
(1,305 |
) |
Restricted
stock and Options Expense
|
|
|
(14 |
) |
|
|
(64 |
) |
Other
|
|
|
(140 |
) |
|
|
(187 |
) |
Total
deferred tax liabilities
|
|
|
(1,323 |
) |
|
|
(1,838 |
) |
Total
deferred tax
|
|
|
10,504 |
|
|
|
6,754 |
|
Less
valuation allowance
|
|
|
- |
|
|
|
- |
|
Net
deferred tax asset
|
|
$ |
10,504 |
|
|
$ |
6,754 |
|
At December
31, 2008, there was no valuation allowance against the Company’s net operating
loss deferred tax asset. The Company has a net operating loss
carryforward of approximately $13.5 million for federal income tax purposes
which expires in 2023. In addition, the Company has a net operating
loss carryforward of approximately $5.6 million for state franchise tax
purposes. However, California State has suspended the net operating loss
deduction utilization for the tax years 2008 and 2009. The net
operating loss deduction for the state is now schedule to expire in
2015. With the completion of the secondary offering in October 2003,
the Company had an “ownership change” as defined under Internal Revenue Code
Section 382. Under Section 382, which has also been adopted under
California law, if during any three-year period there is more than a 50
percentage point change in the ownership of the Company, then the future use of
any pre-change net operating losses or built-in losses of the Company may be
subject to an annual percentage limitation based on the value of the company at
the ownership change date. The ownership change reduced the federal
and state net operating loss carryforward by $5.8 million and $3.3 million,
respectively. The annual usable net operating loss carryforward going
forward is approximately $932,000 per year.
As of
December 31, 2008, tax years for 2005 through 2008 remain open to audit by the
Internal Revenue Service and by the California state tax
authority. Currently, the Bank is undergoing an examination of its
2005 and 2006 income tax returns by the California Franchise Tax
Board. In connection with this examination, the state examiners are
reviewing, among other matters, whether certain net interest deductions taken in
tax years 2006 and 2005 are allowable. The deductions total $2.4
million and $2.2 million for the years 2005 and 2006,
respectively. In the event of an adverse finding against the Company,
the maximum after-tax exposure for the two years in question would be
approximately $327,000 in the aggregate.
11.
Commitments, Contingencies and Concentrations of Risk
Legal Proceedings – In
February 2004, the Bank was named in a class action lawsuit titled, “James Baker
v. Century Financial, et al”, alleging various violations of Missouri's Second
Mortgage Loans Act (the “Missouri Act”) by charging and receiving fees and costs
that were either wholly prohibited by or in excess of that allowed by the
Missouri Act relating to origination fees, interest rates, and other charges.
The class action lawsuit was filed in the Circuit Court of Clay County,
Missouri. The complaint seeks restitution of all improperly collected
charges, interest plus the right to rescind the mortgage loans or a right to
offset any illegal collected charges, interest against the principal amounts due
on the loans and punitive damages. In March 2005, the Bank’s motion
for dismissal due to limitations was denied by the trial court without
comment. The Bank’s “preemption” motion was denied in August 2006.
The Bank has answered the plaintiffs’ complaint and the parties have exchanged
and answered initial discovery requests. When the record is more
fully developed, the Bank intends to raise the limitations issue again in the
form of a motion for summary judgment.
The
Company is not involved in any other pending legal proceedings other than legal
proceedings occurring in the ordinary course of business. 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.
Lease Commitments – The
Company leases a portion of its facilities from non-affiliates under operating
leases expiring at various dates through 2023. The following schedule
shows the minimum annual lease payments, excluding any renewals and extensions,
property taxes, and other operating expenses, due under these
agreements:
Year
ending December 31,
|
|
|
|
|
|
(in
thousands)
|
|
2009
|
|
$ |
624 |
|
2010
|
|
|
633 |
|
2011
|
|
|
662 |
|
2012
|
|
|
595 |
|
2013
|
|
|
590 |
|
Thereafter
|
|
|
2,292 |
|
Total
|
|
$ |
5,396 |
|
Rental
expense under all operating leases totaled $643,000, $664,000, and $677,000 for
the years ended December 31, 2008, 2007, and 2006, respectively.
Share-Based Compensation –
The following table provides a summary of the expenses the Company has
recognized related to share-based compensation awards as a result of the
Company’s January 1, 2006 adoption of SFAS No. 123(R). The table
below also shows the impact those expenses have had on diluted earnings per
share and the remaining expense associated with those awards as of and for the
years ended December 31:
|
|
For
the Years Ended
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands, except per share data)
|
|
Share-based
compensation expense:
|
|
|
|
|
|
|
Stock
option expense
|
|
$ |
214 |
|
|
$ |
75 |
|
Restricted
stock expense
|
|
|
112 |
|
|
|
127 |
|
Total
share-based compensation expense
|
|
$ |
326 |
|
|
$ |
202 |
|
Total
share-based compensation expense, net of tax
|
|
$ |
192 |
|
|
$ |
119 |
|
Diluted
shares outstanding
|
|
|
6,210,387 |
|
|
|
6,524,753 |
|
Impact
on diluted earnings per share
|
|
$ |
0.031 |
|
|
$ |
0.018 |
|
Unrecognized
compensation expense:
|
|
|
|
|
|
|
|
|
Stock
option expense
|
|
$ |
559 |
|
|
$ |
38 |
|
Restricted
stock expense
|
|
|
14 |
|
|
|
85 |
|
Total
unrecognized share-based compensation expense
|
|
$ |
573 |
|
|
$ |
123 |
|
Total
unrecognized share-based compensation expense, net of tax
|
|
$ |
338 |
|
|
$ |
73 |
|
Employment Agreements—We have
entered into a three-year employment agreement with our Chief Executive Officer
(“CEO”). This agreement provides for the payment of a base salary and
a bonus based upon the CEO’s individual performance and the Company’s overall
performance, provides a vehicle for the CEO’s use, and provides for the payment
of severance benefits upon termination under specified
circumstances. Additionally, the Bank has entered into three-year
employment agreements with each of its Chief Financial Officer and Chief Banking
Officer. Each of these agreements provide for the payment of a base
salary, a bonus based upon the individual’s performance and the overall
performance of the Bank and the payment of severance benefits upon termination
under specified circumstances.
Availability of Funding
Sources—The Company funds substantially all of the loans, which it
originates or purchases, through deposits, internally generated funds, and/or
borrowings. The Company competes for deposits primarily on the basis
of rates, and, as a consequence, the Company could experience difficulties in
attracting deposits to fund its operations if the Company does not continue to
offer deposit rates at levels that are competitive with other financial
institutions. To the extent that the Company is not able to maintain
its currently available funding sources or to access new funding sources, it
would have to curtail its loan production activities or sell loans earlier than
is optimal. Any such event could have a material adverse effect on
the Company’s results of operations, financial condition and cash
flows.
12.
Benefit Plans
401(k) Plan—The Bank
maintains an Employee Savings Plan (the “401(k) Plan”) which qualifies under
Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, employees
may contribute between 1% to 50% of their compensation. In 2008, 2007
and 2006, the Bank matched 100% of contributions for the first three percent
contributed and 50% on the next two percent contributed. The
amounts of contributions made to the 401(k) Plan by the Bank were approximately
$186,000, $202,000, and $155,000 for the years ended December 31, 2008, 2007 and
2006, respectively.
Pacific Premier Bancorp, Inc. 2004
Long-Term Incentive Plan (“the Plan”)—The Plan was approved by the
Corporation’s shareholders in May 2004. The Plan authorizes the
granting of options equal to 525,500 shares of the common stock of the
Corporation for issuances to executives, key employees, officers, and
directors. The Plan will be in effect for a period of ten years from
February 25, 2004, the date the Plan was adopted. Options granted
under the Plan will be made at an exercise price equal to the fair market value
of the stock on the date of grant. Awards granted to officers and
employees may include incentive stock options, nonstatutory stock options and
limited rights, which are exercisable only upon a change in control of the
Corporation. The options granted pursuant to the Plan originally
vested at a rate of 33.3% per year. On March 4, 2005, the Corporation chose to
accelerate the vesting on all outstanding options. Below is a summary
of the activity in the Corporation’s 2000 Stock Incentive Plan and the Plan for
the years ended December 31, 2008, 2007, and 2006.
There
were no stock options exercised in 2008 and 2007 and $39,000 was exercised in
2006. The aggregate intrinsic value, (the amount by which a call
option is in the money, calculated by taking the difference between the strike
price and the market price of the underlier), of options outstanding at December
31, 2008, 2007, and 2006 was $11,000, $119,000, and $798,000,
respectively.
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Shares
|
|
|
Weighted
average
exercise price per share
|
|
|
Shares
|
|
|
Weighted
average
exercise price per share
|
|
|
Shares
|
|
|
Weighted
average
exercise price per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding at the beginning of the year
|
|
|
392,625 |
|
|
$ |
10.72 |
|
|
|
335,225 |
|
|
$ |
11.26 |
|
|
|
376,147 |
|
|
$ |
11.43 |
|
Granted
|
|
|
265,750 |
|
|
|
5.90 |
|
|
|
111,250 |
|
|
|
12.07 |
|
|
|
- |
|
|
|
- |
|
Exercised
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(6,500 |
) |
|
|
8.79 |
|
Forfeited
& Expired
|
|
|
(24,825 |
) |
|
|
9.45 |
|
|
|
(53,850 |
) |
|
|
16.89 |
|
|
|
(34,422 |
) |
|
|
13.65 |
|
Options
outstanding at the end of the year
|
|
|
633,550 |
|
|
$ |
8.75 |
|
|
|
392,625 |
|
|
$ |
10.72 |
|
|
|
335,225 |
|
|
$ |
11.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at the end of the year
|
|
|
376,800 |
|
|
|
|
|
|
|
300,375 |
|
|
|
|
|
|
|
335,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average remaining contractual life of options outstanding at end of
year
|
|
7.0
Years
|
|
|
|
|
|
|
8.9
Years
|
|
|
|
|
|
|
6.5
Years
|
|
|
|
|
|
As of
December 31, 2008 only 20,000 of the exercisable options shown above had an
exercise price that was lower than the market price of the common
stock.
The
amount charged against compensation expense in relation to the stock option was
$240,000 and $86,000 for 2008 and 2007, respectively. At December 31, 2008,
unrecognized compensation expense related to the options is approximately
$309,000, $191,000, and $59,000 for the years 2009, 2010, and 2011,
respectively.
The fair
value of options granted under the Plan during 2008 was estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions used:
|
|
|
|
|
|
|
|
Assumptions
|
|
|
|
Number
|
|
|
Grant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Market
|
|
Grant
|
|
of
Options
|
|
|
Price
|
|
|
Dividend
|
|
|
|
|
|
Risk
Free
|
|
|
Expected
|
|
|
Value
at Grant
|
|
Date
|
|
Granted
|
|
|
Per
Share
|
|
|
Yield
|
|
|
Volatility
|
|
|
Rate
|
|
|
Life
(Years)
|
|
|
Per
Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/2/2008
|
|
|
117,750 |
|
|
$ |
7.10 |
|
|
|
-- |
|
|
|
29.28 |
% |
|
|
3.89 |
% |
|
|
10.00 |
|
|
$ |
2.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/27/2008
|
|
|
135,500 |
|
|
$ |
5.01 |
|
|
|
-- |
|
|
|
56.36 |
% |
|
|
3.96 |
% |
|
|
10.00 |
|
|
$ |
2.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/20/2008
|
|
|
5,000 |
|
|
$ |
4.24 |
|
|
|
-- |
|
|
|
63.41 |
% |
|
|
3.91 |
% |
|
|
10.00 |
|
|
$ |
2.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/3/2008
|
|
|
5,000 |
|
|
$ |
4.25 |
|
|
|
-- |
|
|
|
66.23 |
% |
|
|
3.96 |
% |
|
|
10.00 |
|
|
$ |
2.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/10/2008
|
|
|
2,500 |
|
|
$ |
4.49 |
|
|
|
-- |
|
|
|
61.30 |
% |
|
|
2.69 |
% |
|
|
10.00 |
|
|
$ |
2.59 |
|
During
2006, restricted stock awards were granted for 35,050 shares of the
Corporation’s common stock. These shares vest with respect to each
employee over a three-year period from the date of grant, provided the
individual remains in the employment of the Company as of the vesting
date. Additionally, these shares (or a portion thereof) could vest
earlier in the event of a change in control of the
Company. Compensation expenses relating to these grants was $112,000
and $127,000 in 2008 and 2007, respectively. At December 31, 2008,
restricted stock awards for 8,900 shares of the Corporation’s common stock
remained unvested. The table below summarizes the restricted stock
award activity for the periods indicated.
|
|
2008
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
Restricted
stock awards
|
|
Shares
|
|
|
Grant
Price
|
|
Outstanding
grants at January 1, 2008
|
|
|
20,300 |
|
|
$ |
11.63 |
|
Granted
|
|
|
- |
|
|
|
- |
|
Vested
|
|
|
(10,566 |
) |
|
|
11.58 |
|
Cancelled
|
|
|
(834 |
) |
|
|
11.34 |
|
Outstanding
grants at December 31, 2008
|
|
|
8,900 |
|
|
$ |
11.70 |
|
|
|
2007
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
Restricted
stock awards
|
|
Shares
|
|
|
Grant
Price
|
|
Outstanding
grants at January 1, 2007
|
|
|
34,300 |
|
|
$ |
11.62 |
|
Granted
|
|
|
- |
|
|
|
- |
|
Vested
|
|
|
(11,933 |
) |
|
|
11.60 |
|
Cancelled
|
|
|
(2,067 |
) |
|
|
11.73 |
|
Outstanding
grants at December 31, 2007
|
|
|
20,300 |
|
|
$ |
11.63 |
|
Restricted
stock awards are expensed evenly over the vesting period. At December
31, 2008 there was $14,000 remaining to be expensed for restricted stock awards
that have been granted under the Plan.
Salary Continuation Plan—The
Bank implemented a non-qualified supplemental retirement plan in 2006 (the
“Salary Continuation Plan”) for certain executive officers of the Bank. The
Salary Continuation Plan is unfunded. The amounts expensed in 2008 and 2007
under the Salary Continuation Plan amounted to $111,000 and $105,000,
respectively. As of December 31, 2008 and 2007, $290,000 and
$179,000, respectively, were recorded in other liabilities on the consolidated
statements of condition for the Salary Continuation Plan. The Salary
Continuation Plan was accounted for in accordance with SFAS No. 158 as of
December 31, 2008.
Long-Term Care Insurance
Plan—The Bank implemented a Long-Term Care Insurance Plan in September
2006 for the executive officers and directors of the Bank. The
non-employee directors may elect not to participate in the insurance
plan. For those who opt out, the amount of the insurance premium, up
to $4,000 annually, will be recorded each month to their deferred compensation
account with interest. The expense for 2008 and 2007 was $33,000 and
$33,000, respectively, for this plan. As of December 31, 2008 and 2007, $24,000
and $13,000, respectively, was recorded in other liabilities on the consolidated
statements of condition for the insurance plan.
Directors’ Deferred Compensation
Plan—The Bank created a Directors’ Deferred Compensation Plan in
September 2006 which allows directors to defer board of directors’ fees. The
deferred compensation is credited with interest by the Bank at prime plus one
percent and the accrued liability is payable upon retirement or resignation. The
Directors’ Deferred Compensation Plan is unfunded. The Company is
under no obligation to make matching contributions to the plan. As of December
31, 2008 and 2007, the liability for the plan was $62,000 and $37,000,
respectively, and the interest expense for 2008 and 2007 was $2,000 and $2,000,
respectively.
13. Financial Instruments with Off
Balance Sheet Risk
The
Company is a party to financial instruments with off- balance sheet risk in the
normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit in the form of originating loans or providing funds under existing lines
or letters of credit. These instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amounts recognized in
the accompanying consolidated statements of financial condition.
The
Company's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit is
represented by the contractual or notional amount of those instruments. The
Company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
Commitments
to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments
generally have fixed expiration dates and may require payment of a fee. Since
many commitments are expected to expire, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates
each customer's credit worthiness on a case-by-case basis. The
Company’s commitments to extend credit at December 31, 2008 and 2007 totaled
$14.4 million and $19.1 million, respectively. In addition to these
commitments, the Company had standby letters of credit of $2.2 million and $1.8
million, at December 31, 2008 and 2007,
respectively.
14.
Fair Value of Financial Instruments
The
following disclosures of the estimated fair value of financial instruments are
made in accordance with the requirements of SFAS No. 107, “Disclosures About
Fair Value of Financial Instruments.” The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. However, considerable judgment is necessarily required
to interpret market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts the
Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
|
|
At
December 31, 2008
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair
Value
|
|
|
|
(in
thousands)
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
9,707 |
|
|
$ |
9,707 |
|
Securities
available for sale
|
|
|
56,606 |
|
|
|
56,606 |
|
Federal
Reserve and FHLB Stock, at cost
|
|
|
14,330 |
|
|
|
14,330 |
|
Loans
held for sale, net
|
|
|
668 |
|
|
|
668 |
|
Loans
held for investment, net
|
|
|
622,470 |
|
|
|
620,136 |
|
Accrued
interest receivable
|
|
|
3,627 |
|
|
|
3,627 |
|
Liabilities:
|
|
|
|
|
|
|
|
|
Deposit
accounts
|
|
|
457,128 |
|
|
|
463,591 |
|
FHLB
Advances
|
|
|
181,400 |
|
|
|
187,225 |
|
Other
Borrowings
|
|
|
28,500 |
|
|
|
31,482 |
|
Subordinated
debentures
|
|
|
10,310 |
|
|
|
6,732 |
|
Accrued
interest payable
|
|
|
237 |
|
|
|
237 |
|
|
|
|
|
|
|
|
|
|
|
|
Notional
Amount
|
|
|
Cost
to Cede
or
Assume
|
|
Off-balance
sheet commitments and standby letters of credit
|
|
$ |
16,548 |
|
|
$ |
1,655 |
|
|
|
At
December 31, 2007
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair
Value
|
|
|
|
(in
thousands)
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
34,021 |
|
|
$ |
34,021 |
|
Securities
available for sale
|
|
|
56,238 |
|
|
|
56,238 |
|
Federal
Reserve and FHLB Stock, at cost
|
|
|
16,804 |
|
|
|
16,804 |
|
Loans
held for sale, net
|
|
|
749 |
|
|
|
749 |
|
Loans
held for investment, net
|
|
|
622,114 |
|
|
|
626,140 |
|
Accrued
interest receivable
|
|
|
3,995 |
|
|
|
3,995 |
|
Liabilities:
|
|
|
|
|
|
|
|
|
Deposit
accounts
|
|
|
386,735 |
|
|
|
384,259 |
|
FHLB
Advances
|
|
|
297,300 |
|
|
|
300,007 |
|
Other
Borrowings
|
|
|
665 |
|
|
|
665 |
|
Subordinated
debentures
|
|
|
10,310 |
|
|
|
9,936 |
|
Accrued
interest payable
|
|
|
3,995 |
|
|
|
3,995 |
|
|
|
|
|
|
|
|
|
|
|
|
Notional
Amount
|
|
|
Cost
to Cede
or
Assume
|
|
Off-balance
sheet commitments and standby letters of credit
|
|
$ |
20,858 |
|
|
$ |
2,086 |
|
Cash and Cash Equivalents—The
carrying amount approximates fair value.
Securities Available for
Sale—Fair values are based on quoted market prices.
FHLB and Federal Reserve
Stock – The carrying value approximates the fair value based upon the
redemption provisions of the stock.
Loans Held for Sale—Fair
values are based on quoted market prices or dealer quotes.
Loans Held for Investment—The
fair value of gross loans receivable has been estimated using the present value
of cash flow method, discounted using the current rate at which similar loans
would be made to borrowers with similar credit ratings and for the same
maturities, and giving consideration to estimated prepayment risk and credit
loss factors.
Accrued Interest
Receivable/Payable—The carrying amount approximates fair
value.
Deposit Accounts—The fair
value disclosed for checking, passbook and money market accounts is the amount
payable on demand at the reporting date. The fair value of
certificates of deposit accounts is estimated using a discounted cash flow
calculation based on interest rates currently offered for certificate of
deposits of similar remaining maturities.
FHLB Advances—The fair value
disclosed for FHLB advances is determined by discounting contractual cash flows
at current market interest rates for similar instruments.
Other Borrowings—The carrying
amount approximates fair value as the interest rate, based on risk, currently
approximates market.
Subordinated Debentures – The
fair value of subordinated debentures is estimated by discounting the balance by
the current three-month LIBOR rate plus the current market spread. In
2007, the fair value is determined assuming that we will call the debenture on
its next callable date. In 2008, the fair value is determined based on the
maturity date as the Company does not have any intentions to call the
debenture.
The fair
value estimates presented herein are based on pertinent information available to
management as of December 31, 2008 and 2007.
15.
Fair Value Disclosures
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 Using
|
|
|
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Assets
at
Fair
Value
|
|
|
|
(in
thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities
|
|
$ |
39,019 |
|
|
$ |
15,973 |
|
|
$ |
1,614 |
|
|
$ |
56,606 |
|
Total
assets
|
|
$ |
39,019 |
|
|
$ |
15,973 |
|
|
$ |
1,614 |
|
|
$ |
56,606 |
|
The following
table provides a summary of the changes in balance sheet carrying values
associated with Level 3 financial instruments during the twelve months ended
December 31, 2008:
|
|
Fair
Value Measurement Using
|
|
|
|
Significant
Other Unobservable Inputs
|
|
|
|
(Level
3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
Govt.
Sponsored
|
|
|
Private
|
|
|
|
|
|
|
Treasuries
|
|
|
Agencies
|
|
|
Label
|
|
|
Total
|
|
|
|
(in
thousands)
|
|
Beginning
Balance, January 1, 2008
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
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
|
|
|
- |
|
|
|
- |
|
|
|
1,614 |
|
|
|
1,614 |
|
Ending
Balance, December 31, 2008
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,614 |
|
|
$ |
1,614 |
|
The following
table provides a summary of the financial instruments the Company measures at
fair value on a non-recurring basis as of December 31, 2008:
|
|
Fair
Value Measurement Using
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Assets
at Fair Value
|
|
|
|
(in
thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
Loans
|
|
$ |
- |
|
|
$ |
5,200 |
|
|
$ |
- |
|
|
$ |
5,200 |
|
Loans
held for sale
|
|
|
- |
|
|
|
668 |
|
|
|
- |
|
|
|
668 |
|
Other
real estate owned
|
|
|
- |
|
|
|
37 |
|
|
|
- |
|
|
|
37 |
|
Total
assets
|
|
$ |
- |
|
|
$ |
5,905 |
|
|
$ |
- |
|
|
$ |
5,905 |
|
16.
Earnings Per Share
A
reconciliation of the numerators and denominators used in basic and diluted
earnings per share computations is presented in the table
below. Excluded from the diluted earnings per share calculation were
options of 606,050, 331,125, and 81,725 for the years ended December 31, 2008,
2007, and 2006, as the exercise price exceeded the stock price at the end of the
period.
|
|
Income
|
|
|
Shares
|
|
|
Per
Share
|
|
|
|
(numerator)
|
|
|
(denominator)
|
|
|
Amount
|
|
|
|
(dollars
in thousands, except share data)
|
|
For
the year ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
Net
income applicable to earnings per share
|
|
$ |
708 |
|
|
|
|
|
|
|
Basic
earnings per share: Income available to common
stockholders
|
|
|
708 |
|
|
|
4,948,359 |
|
|
$ |
0.14 |
|
Effect
of dilutive securities : Warrants and stock option plans
|
|
|
- |
|
|
|
1,262,028 |
|
|
|
|
|
Diluted
earnings per share: Income available to common
stockholders
|
|
$ |
708 |
|
|
|
6,210,387 |
|
|
$ |
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the year ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income applicable to earnings per share
|
|
$ |
3,619 |
|
|
|
|
|
|
|
|
|
Basic
earnings per share: Income available to common
stockholders
|
|
|
3,619 |
|
|
|
5,189,104 |
|
|
$ |
0.70 |
|
Effect
of dilutive securities : Warrants and stock option plans
|
|
|
- |
|
|
|
1,335,649 |
|
|
|
|
|
Diluted
earnings per share: Income available to common
stockholders
|
|
$ |
3,619 |
|
|
|
6,524,753 |
|
|
$ |
0.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the year ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income applicable to earnings per share
|
|
$ |
7,428 |
|
|
|
|
|
|
|
|
|
Basic
earnings per share: Income available to common
stockholders
|
|
|
7,428 |
|
|
|
5,261,897 |
|
|
$ |
1.41 |
|
Effect
of dilutive securities : Warrants and stock option plans
|
|
|
- |
|
|
|
1,423,018 |
|
|
|
|
|
Diluted
earnings per share: Income available to common
stockholders
|
|
$ |
7,428 |
|
|
|
6,684,915 |
|
|
$ |
1.11 |
|
17.
Parent Company Financial Information
PACIFIC
PREMIER BANCORP, INC.
|
|
STATEMENTS
OF FINANCIAL CONDITION
|
|
(Parent
company only)
|
|
|
|
At
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
773 |
|
|
$ |
594 |
|
Investment
in subsidiaries
|
|
|
62,350 |
|
|
|
65,851 |
|
Income
tax receivable
|
|
|
- |
|
|
|
11 |
|
Deferred
income taxes
|
|
|
4,539 |
|
|
|
4,487 |
|
Other
assets
|
|
|
329 |
|
|
|
380 |
|
Total
Assets
|
|
$ |
67,991 |
|
|
$ |
71,323 |
|
Liabilities:
|
|
|
|
|
|
|
|
|
Subordinated
debentures
|
|
$ |
10,310 |
|
|
$ |
10,310 |
|
Accrued
expenses and other liabilities
|
|
|
133 |
|
|
|
263 |
|
Total
Liabilities
|
|
|
10,443 |
|
|
|
10,573 |
|
Total
Stockholders’ Equity
|
|
|
57,548 |
|
|
|
60,750 |
|
Total
Liabilities and Stockholders’ Equity
|
|
$ |
67,991 |
|
|
$ |
71,323 |
|
PACIFIC
PREMIER BANCORP, INC.
|
|
STATEMENTS
OF OPERATIONS
|
|
(Parent
company only)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Income:
|
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
$ |
6 |
|
|
$ |
20 |
|
|
$ |
75 |
|
Noninterest
Income
|
|
|
76 |
|
|
|
201 |
|
|
|
173 |
|
Total
income
|
|
|
82 |
|
|
|
221 |
|
|
|
248 |
|
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense
|
|
|
649 |
|
|
|
822 |
|
|
|
801 |
|
Noninterest
Expense
|
|
|
552 |
|
|
|
479 |
|
|
|
436 |
|
Total
expense
|
|
|
1,201 |
|
|
|
1,301 |
|
|
|
1,237 |
|
Loss
Before Income Tax Provision
|
|
|
(1,119 |
) |
|
|
(1,080 |
) |
|
|
(989 |
) |
Income
Tax Benefit
|
|
|
(459 |
) |
|
|
(411 |
) |
|
|
(1,966 |
) |
Net
(loss) income (parent only)
|
|
|
(660 |
) |
|
|
(669 |
) |
|
|
977 |
|
Equity
In Net Earnings Of Subsidiaries
|
|
|
1,368 |
|
|
|
4,288 |
|
|
|
6,451 |
|
Net
income
|
|
$ |
708 |
|
|
$ |
3,619 |
|
|
$ |
7,428 |
|
PACIFIC
PREMIER BANCORP, INC.
|
|
SUMMARY
STATEMENTS OF CASH FLOWS
|
|
(Parent
company only)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
(in
thousands)
|
|
Net
income
|
|
$ |
708 |
|
|
$ |
3,619 |
|
|
$ |
7,428 |
|
Adjustments
to reconcile net income to cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
compensation expense
|
|
|
333 |
|
|
|
202 |
|
|
|
122 |
|
Equity
in net earnings of subsidiaries
|
|
|
(1,368 |
) |
|
|
(4,288 |
) |
|
|
(6,451 |
) |
Increase
(decrease) in accrued expenses and other liabilities
|
|
|
(130 |
) |
|
|
(108 |
) |
|
|
25 |
|
Decrease
(increase) in current and deferred taxes
|
|
|
(41 |
) |
|
|
73 |
|
|
|
(1,434 |
) |
Decrease
(increase) in other assets
|
|
|
51 |
|
|
|
(56 |
) |
|
|
7 |
|
Net
cash used in operating activities
|
|
|
(447 |
) |
|
|
(558 |
) |
|
|
(303 |
) |
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in subsidiaries
|
|
|
- |
|
|
|
- |
|
|
|
61 |
|
Net
cash provided by investing activities
|
|
|
- |
|
|
|
- |
|
|
|
61 |
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
from Bank
|
|
|
2,700 |
|
|
|
- |
|
|
|
- |
|
Repurchase
of common stock
|
|
|
(2,074 |
) |
|
|
(1,093 |
) |
|
|
(33 |
) |
Proceeds
from exercise of stock options
|
|
|
- |
|
|
|
- |
|
|
|
57 |
|
Net
cash provided by (used in) financing activities
|
|
|
626 |
|
|
|
(1,093 |
) |
|
|
24 |
|
Net
Increase (Decrease) In Cash And Cash Equivalents
|
|
|
179 |
|
|
|
(1,651 |
) |
|
|
(218 |
) |
Cash
And Cash Equivalents, Beginning Of Year
|
|
|
594 |
|
|
|
2,245 |
|
|
|
2,463 |
|
Cash
And Cash Equivalents, End Of Year
|
|
$ |
773 |
|
|
$ |
594 |
|
|
$ |
2,245 |
|
18.
Quarterly Results of Operations (Unaudited)
The
following is a summary of quarterly results for the years ended December
31:
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(dollars
in thousands, except per share data)
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$ |
11,944 |
|
|
$ |
11,532 |
|
|
$ |
11,570 |
|
|
$ |
11,476 |
|
Interest
expense
|
|
|
7,117 |
|
|
|
6,221 |
|
|
|
6,021 |
|
|
|
6,045 |
|
Provision
for estimated loan losses
|
|
|
183 |
|
|
|
836 |
|
|
|
664 |
|
|
|
558 |
|
Noninterest
income
|
|
|
678 |
|
|
|
(2,753 |
) |
|
|
647 |
|
|
|
(744 |
) |
Noninterest
expense
|
|
|
4,015 |
|
|
|
3,969 |
|
|
|
3,951 |
|
|
|
4,036 |
|
Income
tax provision (benefit)
|
|
|
464 |
|
|
|
(1,000 |
) |
|
|
581 |
|
|
|
(12 |
) |
Net
income (loss)
|
|
$ |
843 |
|
|
$ |
(1,247 |
) |
|
$ |
1,000 |
|
|
$ |
105 |
|
Earnings
(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.17 |
|
|
$ |
(0.25 |
) |
|
$ |
0.20 |
|
|
$ |
0.02 |
|
Diluted
|
|
$ |
0.13 |
|
|
$ |
(0.25 |
) |
|
$ |
0.16 |
|
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$ |
12,124 |
|
|
$ |
12,084 |
|
|
$ |
12,808 |
|
|
$ |
12,416 |
|
Interest
expense
|
|
|
7,644 |
|
|
|
7,562 |
|
|
|
8,093 |
|
|
|
7,867 |
|
Provision
for estimated loan losses
|
|
|
299 |
|
|
|
215 |
|
|
|
403 |
|
|
|
734 |
|
Noninterest
income
|
|
|
1,740 |
|
|
|
1,859 |
|
|
|
1,519 |
|
|
|
1,241 |
|
Noninterest
expense
|
|
|
4,430 |
|
|
|
4,307 |
|
|
|
4,406 |
|
|
|
4,105 |
|
Income
tax provision (benefit)
|
|
|
546 |
|
|
|
698 |
|
|
|
574 |
|
|
|
289 |
|
Net
income
|
|
$ |
945 |
|
|
$ |
1,161 |
|
|
$ |
851 |
|
|
$ |
662 |
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.18 |
|
|
$ |
0.22 |
|
|
$ |
0.16 |
|
|
$ |
0.14 |
|
Diluted
|
|
$ |
0.14 |
|
|
$ |
0.18 |
|
|
$ |
0.13 |
|
|
$ |
0.10 |
|
19. Related
Parties
The Bank
made three loans to the partnership of McKennon Wilson & Morgan LLP, of
which Michael L. McKennon, a director of the Corporation, is a
partner. One loan is a fixed rate commercial loan at the rate of
7.00%, another loan is a fixed rate commercial loan at the rate of 8.50%, and
the third loan is a commercial line of credit with a variable rate of prime plus
50 basis points with a floor of 7.50% (the rate in effect was 7.50%
at December 31, 2008). The balances of the loans were $38,000,
$34,000 and $350,000, respectively, as of December 31, 2008.
All of
these loans were made on terms that were available to the general public at the
time of origination. It is the belief of management that these loans
neither involve more than the normal risk of collectability nor present other
unfavorable features. The following table shows the activity of loans
to all officers and directors of the Company for the periods
specified:
None
Evaluation
of Disclosure Controls and Procedures
Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures pursuant to Rule 13a-15 under the Exchange Act, as of the end of the
period covered by this report. In designing and evaluating the
disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives. In
addition, the design of disclosure controls and procedures must reflect the fact
that there are resource constraints and that management is required to apply its
judgment in evaluating the benefits of possible controls and procedures relative
to their costs.
Based on
our evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that the Company’s disclosure controls and procedures are effective as
of the end of the period covered by this report in providing reasonable
assurance that information we are required to disclose in reports that we file
or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms, and that such
information is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure.
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act. Our internal control over financial reporting
is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with United States generally accepted accounting
principles. Our internal control over financial reporting includes
those policies and procedures that:
(1)
|
pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of our
assets;
|
(2)
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with United States
generally accepted accounting principles, and that our receipts and
expenditures are being made only in accordance with the authorization of
its management and directors; and
|
(3)
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have
a material effect on the financial
statements.
|
Our
management assessed the effectiveness of its internal control over financial
reporting as of December 31, 2008. In making this assessment,
management used the framework set forth in the report entitled “Internal Control—Integrated
Framework” issued by the Committee of Sponsoring Organizations of the
Treadway Commission, or COSO. The COSO framework summarizes each of
the components of a company’s internal control system, including (i) the control
environment, (ii) risk assessment, (iii) control activities, (iv) information
and communication, and (v) monitoring. Based on this assessment, our
management believes that, as of December 31, 2008, our internal control over
financing reporting is effective based on those criteria.
The
Company’s Annual Report on Form 10-K does not include an attestation report of
our registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
SEC that permit the Company to provide only management’s report in its Annual
Report on Form 10-K.
Changes
in Internal Control over Financial Reporting
We
regularly review our system of internal control over financial reporting and
make changes to our processes and systems to improve controls and increase
efficiency, while ensuring that we maintain an effective internal control
environment. Changes may include such activities as implementing new,
more efficient systems, consolidating activities, and migrating
processes.
There
were no changes in our internal controls over financial reporting during the
fiscal quarter to which this report relates that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
None
The
information required by this item with respect to our directors and certain
corporate governance practices is contained in our Proxy Statement for our 2009
Annual Meeting of Stockholders (the “Proxy Statement”) under the headings
“Corporate Governance;” “Item 1—Election of Directors;” and “Section 16(a)
Beneficial Ownership Reporting Compliance,” which information is incorporated
herein by reference. The information required by this item with respect to our
executive officers is contained in the Proxy Statement under the headings
“Corporate Governance” and “Section 16(a) Beneficial Ownership Reporting
Compliance,” which information is incorporated herein by reference.
The
information required by this item is contained in the Proxy Statement under the
headings “Executive Compensation;” “Compensation Committee Interlocks and
Insider Participation;” and “Compensation Committee Report,” which information
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
information required by this item is contained in the Proxy Statement under the
headings “Principal Holders of Common Stock” and “Security Ownership of
Directors and Executives Officers,” which information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AND DIRECTOR INDEPENDECE
The
information required by this item is contained in the Proxy Statement under the
headings “Transactions with Certain Related Persons” and “Item 1—Election of
Directors”, which information is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
information required by this item is contained in the Proxy Statement under the
heading “Item 2—Ratification of Appointment of Independent Auditors,” which
information is incorporated herein by reference.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
(a) Documents
filed as part of this report.
|
(1)
|
The
following financial statements are incorporated by reference from Item 8
hereof:
|
Independent
Auditors’ Report.
Consolidated
Statements of Financial Condition as of December 31, 2008 and 2007.
Consolidated
Statements of Income for the Years Ended December 31, 2008, 2007 and
2006.
Consolidated
Statement of Stockholders’ Equity and Other Comprehensive Income for the Years
Ended December 31, 2008, 2007 and 2006.
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and
2006.
Notes to
Consolidated Financial Statements.
|
(2)
|
All
schedules for which provision is made in the applicable accounting
regulation of the SEC are omitted because they are not applicable or the
required information is included in the consolidated financial statements
or related notes thereto.
|
|
(3)
|
The
following exhibits are filed as part of this Form 10-K, and this list
includes the Exhibit Index.
|
Exhibit No.
|
Description
|
3.1.0
|
Certificate
of Incorporation of Pacific Premier Bancorp, Inc. (1)
|
3.1.1
|
First
Certificate of Amendment to Certificate of Incorporation of Pacific
Premier Bancorp, Inc. (2)
|
3.1.2
|
Second
Certificate of Amendment to Certificate of Incorporation of Pacific
Premier Bancorp, Inc. (2)
|
3.1.3
|
Third
Certificate of Amendment to Certificate of Incorporation of Pacific
Premier Bancorp, Inc. (2)
|
3.1.4
|
Fourth
Certificate of Amendment to Certificate of Incorporation of Pacific
Premier Bancorp, Inc. (3)
|
3.2
|
Bylaws
of Pacific Premier Bancorp, Inc., as amended. (1)
|
4.1
|
Specimen
Stock Certificate of Pacific Premier Bancorp, Inc. (4)
|
4.2
|
Form
of Warrant to Purchase 1,166,400 Shares of Common Stock of Pacific Premier
Bancorp, Inc. (5)
|
4.3
|
Indenture
from PPBI Trust I. (7)
|
10.1
|
2000
Stock Incentive Plan. (6)*
|
10.2
|
Employment
Agreement between Pacific Premier Bancorp, Inc. and Pacific Premier Bank
and Steven Gardner dated December 19, 2007. (10)*
|
10.3
|
Employment
Agreement between Pacific Premier Bank and John Shindler dated December
19, 2007. (10)*
|
10.4
|
Employment
Agreement between Pacific Premier Bank and Eddie Wilcox dated December 19,
2007. (10)*
|
10.5
|
Amended
and Restated Declaration of Trust from PPBI Trust I.
(7)
|
10.6
|
Guarantee
Agreement from PPBI Trust I. (7)
|
10.7
|
Salary
Continuation Agreements between Pacific Premier Bank and Steven R.
Gardner. (8)*
|
10.8
|
Salary
Continuation Agreements between Pacific Premier Bank and John Shindler.
(8)*
|
10.9
|
Form
of Pacific Premier Bancorp, Inc. 2004 Long-Term Incentive Plan agreement.
(9)*
|
21
|
Subsidiaries
of Pacific Premier Bancorp, Inc. (Reference is made to “Item 1. Business”
for the required information.)
|
23
|
Consent
of Vavrinek, Trine, Day and Co., LLP.
|
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act.
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act.
|
32
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act.
|
(1)
|
Incorporated
by reference from the Registrant’s Form 10-K filed with the SEC on March
31, 2003.
|
(2)
|
Incorporated
by reference from the Registrant’s Form 10-K/A filed with the SEC on
August 28, 2003.
|
(3)
|
Incorporated
by reference from the Registrant’s Form 10-Q filed with the SEC on August
14, 2003.
|
(4)
|
Incorporated
by reference from the Registrant’s Registration Statement on Form S-1
(Registration No. 333-20497) filed with the SEC on January 27,
1997.
|
(5)
|
Incorporated
by reference from the Registrant’s Proxy Statement filed with the SEC on
December 14, 2001.
|
(6)
|
Incorporated
by reference from the Registrant’s Proxy Statement filed with the SEC on
May 1, 2001.
|
(7)
|
Incorporated
by reference from the Registrant’s Form 10-Q filed with the SEC on May 3,
2004.
|
(8)
|
Incorporated
by reference from the Registrant’s Form 8-K filed with the SEC on May 19,
2006.
|
(9)
|
Incorporated
by reference from the Registrant’s Form 10-K filed with the SEC on April
4, 2007.
|
(10)
|
Incorporated
by reference from the Registrant’s Form 8-K filed with the SEC on December
21, 2007.
|
(11)
|
Incorporated
by reference from the Registrant’s Form 10-K filed with the SEC on April
15, 2008.
|
*
|
Management
contract or compensatory plan or
arrangement.
|
Pursuant
to the requirements of Section 13 or 15(d) 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.
By: /s/ Steven R.
Gardner
Steven R.
Gardner
President
and Chief Executive Officer
DATED:
March 26, 2009
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature
|
Title
|
Date
|
|
|
|
|
|
|
/s/
Steven R. Gardner
|
President
and Chief Executive Officer
(principal
executive officer)
|
March
26, 2009
|
Steven
R. Gardner
|
|
|
|
|
|
|
|
|
/s/
John Shindler
|
Executive
Vice President and Chief Financial Officer
(principal
financial and accounting officer)
|
March
26, 2009
|
John
Shindler
|
|
|
|
|
|
|
|
|
/s/
Ronald G. Skipper
|
Chairman
of the Board of Directors
|
March
26, 2009
|
Ronald
G. Skipper
|
|
|
|
|
|
|
|
|
/s/
John D. Goddard
|
Director
|
March
26, 2009
|
John
D. Goddard
|
|
|
|
|
|
|
|
|
/s/
Michael L. McKennon
|
Director
|
March
26, 2009
|
Michael
L. McKennon
|
|
|
|
|
|
|
|
|
/s/
Kenneth Boudreau
|
Director
|
March
26, 2009
|
Kenneth
Boudreau
|
|
|
|
|
|
|
|
|
/s/
Jeff C. Jones
|
Director
|
March
26, 2009
|
Jeff
C. Jones
|
|
|
|
|
|
|
|
|
/s/David
L. Hardin
|
Director
|
March
26, 2009
|
David
L. Hardin
|
|
|