ppbi_10q-2009q3.htm
UNITED
STATES SECURITIES AND EXCHANGE
COMMISSION
|
Washington,
DC 20549
FORM
10-Q
(Mark
One)
|
(X)
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended September 30, 2009
OR
(
) TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
transition period from _______ to _______
Commission
File Number 0-22193
(Exact
name of registrant as specified in its charter)
DELAWARE
|
33-0743196
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S
Employer Identification No.)
|
1600
SUNFLOWER AVENUE, 2ND
FLOOR, COSTA MESA, CALIFORNIA 92626
|
(Address
of principal executive offices and zip
code)
|
(714)
431-4000
|
(Registrant’s
telephone number, including area
code)
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [ X ] No [_]
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes [_] No
[_]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “accelerated filer”, “large accelerated
filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange
Act).
Large
accelerated filer
|
[
]
|
Accelerated
filer
|
[
]
|
Non-accelerated
filer
|
[
]
|
Smaller
reporting company
|
[ X
]
|
|
|
|
|
(Do
not check if a smaller reporting company)
|
|
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Exchange
Act Rule 12b-2). Yes [ ] No [X]
The
number of shares outstanding of the registrant's common stock as of November 16,
2009 was 9,618,836.
PACIFIC
PREMIER BANCORP, INC. AND SUBSIDIARIES
FORM
10-Q
FOR THE
QUARTER ENDED SEPTEMBER 30, 2009
INDEX
PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
|
|
|
|
(dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2009
|
|
|
December 31,
|
|
|
|
(Unaudited)
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
Cash and due from banks
|
|
$ |
115,662 |
|
|
$ |
8,181 |
|
Federal funds sold
|
|
|
30 |
|
|
|
1,526 |
|
Cash and cash equivalents
|
|
|
115,692 |
|
|
|
9,707 |
|
Investment securities available for sale
|
|
|
101,686 |
|
|
|
56,606 |
|
Federal Home Loan Bank stock/Federal Reserve stock, at
cost
|
|
|
14,330 |
|
|
|
14,330 |
|
Loans held for sale
|
|
|
- |
|
|
|
668 |
|
Loans held for investment, net of allowance for loan
losses
of $8,107 in 2009 and $5,881 in
2008
|
|
|
576,507 |
|
|
|
622,470 |
|
Accrued interest receivable
|
|
|
3,346 |
|
|
|
3,627 |
|
Other real estate owned
|
|
|
3,644 |
|
|
|
37 |
|
Premises and equipment
|
|
|
8,928 |
|
|
|
9,588 |
|
Deferred income taxes
|
|
|
10,981 |
|
|
|
10,504 |
|
Bank owned life insurance
|
|
|
11,792 |
|
|
|
11,395 |
|
Other assets
|
|
|
959 |
|
|
|
1,024 |
|
TOTAL ASSETS
|
|
$ |
847,865 |
|
|
$ |
739,956 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
Deposit accounts
|
|
|
|
|
|
|
|
|
Noninterest bearing transaction accounts
|
|
$ |
33,098 |
|
|
$ |
29,435 |
|
Interest bearing:
|
|
|
|
|
|
|
|
|
Transaction accounts
|
|
|
128,493 |
|
|
|
58,861 |
|
Retail certificates of deposit
|
|
|
438,545 |
|
|
|
341,741 |
|
Wholesale/brokered certificates of deposit
|
|
|
6,246 |
|
|
|
27,091 |
|
Total deposits
|
|
|
606,382 |
|
|
|
457,128 |
|
Federal Home Loan Bank advances and other
borrowings
|
|
|
166,500 |
|
|
|
209,900 |
|
Subordinated debentures
|
|
|
10,310 |
|
|
|
10,310 |
|
Accrued expenses and other liabilities
|
|
|
6,357 |
|
|
|
5,070 |
|
TOTAL LIABILITIES
|
|
|
789,549 |
|
|
|
682,408 |
|
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;
5,003,451 (2009)
and 4,903,451 (2008) shares issued and outstanding
|
|
|
49 |
|
|
|
48 |
|
Additional paid-in capital
|
|
|
64,648 |
|
|
|
64,680 |
|
Accumulated deficit
|
|
|
(4,487 |
) |
|
|
(4,304 |
) |
Accumulated other comprehensive loss, net of tax
of
$1,324 (2009)
and $2,011 (2008)
|
|
|
(1,894 |
) |
|
|
(2,876 |
) |
TOTAL STOCKHOLDERS’ EQUITY
|
|
|
58,316 |
|
|
|
57,548 |
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$ |
847,865 |
|
|
$ |
739,956 |
|
Accompanying
notes are an integral part of these consolidated financial
statements.
PACIFIC
PREMIER BANCORP, INC. AND SUBSIDIARIES
|
|
|
|
(dollars
in thousands, except per share data)
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30, 2009
|
|
|
September
30, 2008
|
|
|
September
30, 2009
|
|
|
September
30, 2008
|
|
INTEREST
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
9,612 |
|
|
$ |
10,444 |
|
|
$ |
29,832 |
|
|
$ |
31,633 |
|
Investment
securities and other interest-earning assets
|
|
|
1,145 |
|
|
|
1,126 |
|
|
|
3,172 |
|
|
|
3,413 |
|
Total
interest income
|
|
|
10,757 |
|
|
|
11,570 |
|
|
|
33,004 |
|
|
|
35,046 |
|
INTEREST
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on transaction accounts
|
|
|
378 |
|
|
|
352 |
|
|
|
943 |
|
|
|
1,168 |
|
Interest
on certificates of deposit
|
|
|
2,667 |
|
|
|
3,008 |
|
|
|
9,150 |
|
|
|
9,676 |
|
Total
interest-bearing deposits
|
|
|
3,045 |
|
|
|
3,360 |
|
|
|
10,093 |
|
|
|
10,844 |
|
FHLB
advances and other borrowings
|
|
|
1,870 |
|
|
|
2,517 |
|
|
|
5,602 |
|
|
|
8,046 |
|
Subordinated
debentures
|
|
|
89 |
|
|
|
143 |
|
|
|
290 |
|
|
|
463 |
|
Total
interest expense
|
|
|
5,004 |
|
|
|
6,020 |
|
|
|
15,985 |
|
|
|
19,353 |
|
NET
INTEREST INCOME BEFORE PROVISION FOR LOAN LOSS
|
|
|
5,753 |
|
|
|
5,550 |
|
|
|
17,019 |
|
|
|
15,693 |
|
PROVISION
FOR LOAN LOSSES
|
|
|
2,001 |
|
|
|
664 |
|
|
|
5,535 |
|
|
|
1,683 |
|
NET
INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
|
|
|
3,752 |
|
|
|
4,886 |
|
|
|
11,484 |
|
|
|
14,010 |
|
NONINTEREST
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
servicing fees
|
|
|
117 |
|
|
|
231 |
|
|
|
402 |
|
|
|
833 |
|
Bank
and other fees
|
|
|
215 |
|
|
|
155 |
|
|
|
638 |
|
|
|
424 |
|
Net
gain from sales of loans
|
|
|
7 |
|
|
|
- |
|
|
|
7 |
|
|
|
92 |
|
Net
gain (loss) from sales of investment securities
|
|
|
(380 |
) |
|
|
45 |
|
|
|
(1,278 |
) |
|
|
(3,586 |
) |
Other
income
|
|
|
297 |
|
|
|
216 |
|
|
|
789 |
|
|
|
810 |
|
Total
noninterest income (loss)
|
|
|
256 |
|
|
|
647 |
|
|
|
558 |
|
|
|
(1,427 |
) |
NONINTEREST
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
1,954 |
|
|
|
2,223 |
|
|
|
6,040 |
|
|
|
6,862 |
|
Premises
and occupancy
|
|
|
628 |
|
|
|
632 |
|
|
|
1,942 |
|
|
|
1,832 |
|
Data
processing and communications
|
|
|
143 |
|
|
|
114 |
|
|
|
471 |
|
|
|
405 |
|
Other
real estate owned operations, net
|
|
|
198 |
|
|
|
54 |
|
|
|
197 |
|
|
|
73 |
|
FDIC
insurance premiums
|
|
|
274 |
|
|
|
66 |
|
|
|
1,118 |
|
|
|
198 |
|
Legal
and audit
|
|
|
165 |
|
|
|
144 |
|
|
|
645 |
|
|
|
465 |
|
Marketing
|
|
|
164 |
|
|
|
221 |
|
|
|
508 |
|
|
|
494 |
|
Office
and postage
|
|
|
78 |
|
|
|
53 |
|
|
|
247 |
|
|
|
247 |
|
Other
expense
|
|
|
515 |
|
|
|
444 |
|
|
|
1,473 |
|
|
|
1,360 |
|
Total
noninterest expense
|
|
|
4,119 |
|
|
|
3,951 |
|
|
|
12,641 |
|
|
|
11,936 |
|
NET
INCOME (LOSS) BEFORE INCOME TAX (BENEFIT) PROVISION
|
|
|
(111 |
) |
|
|
1,582 |
|
|
|
(599 |
) |
|
|
647 |
|
INCOME
TAX (BENEFIT)
|
|
|
(104 |
) |
|
|
581 |
|
|
|
(416 |
) |
|
|
45 |
|
NET
INCOME (LOSS)
|
|
$ |
(7 |
) |
|
$ |
1,001 |
|
|
$ |
(183 |
) |
|
$ |
602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS
(LOSS) PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
- |
|
|
$ |
0.20 |
|
|
$ |
(0.04 |
) |
|
$ |
0.12 |
|
Diluted
|
|
$ |
- |
|
|
$ |
0.16 |
|
|
$ |
(0.04 |
) |
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
5,003,451 |
|
|
|
4,903,784 |
|
|
|
4,919,385 |
|
|
|
4,963,385 |
|
Diluted
|
|
|
5,003,451 |
|
|
|
6,143,646 |
|
|
|
4,919,385 |
|
|
|
6,248,787 |
|
Accompanying
notes are an integral part of these consolidated financial
statements.
PACIFIC
PREMIER BANCORP, INC. AND SUBSIDIARIES
|
|
|
|
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
|
|
(dollars
in thousands)
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Shares
|
|
|
Common
Stock Amount
|
|
|
Additional
Paid-in Capital
|
|
|
Accumulated
Deficit
|
|
|
Accumulated
Other Comprehensive Income (Loss)
|
|
|
Comprehensive
Income (Loss)
|
|
|
Total
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
5,163,488 |
|
|
$ |
53 |
|
|
$ |
66,417 |
|
|
$ |
(5,012 |
) |
|
$ |
(708 |
) |
|
|
|
|
$ |
60,750 |
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
602 |
|
|
|
|
|
|
$ |
602 |
|
|
|
602 |
|
Unrealized
gain on investments,
net
of tax of $(1,024)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,464 |
) |
|
|
(1,464 |
) |
|
|
(1,464 |
) |
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(862 |
) |
|
|
|
|
Share-based
compensation expense
|
|
|
|
|
|
|
|
|
|
|
196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196 |
|
Common
stock repurchased and retired
|
|
|
(259,704 |
) |
|
|
(4 |
) |
|
|
(2,065 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,069 |
) |
Balance
at September 30, 2008
|
|
|
4,903,784 |
|
|
$ |
49 |
|
|
$ |
64,548 |
|
|
$ |
(4,410 |
) |
|
$ |
(2,172 |
) |
|
|
|
|
|
$ |
58,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Shares
|
|
|
Common
Stock Amount
|
|
|
Additional
Paid-in Capital
|
|
|
Accumulated
Deficit
|
|
|
Accumulated
Other Comprehensive Income (Loss)
|
|
|
Comprehensive
Income (Loss)
|
|
|
Total
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
|
4,903,451 |
|
|
$ |
48 |
|
|
$ |
64,680 |
|
|
$ |
(4,304 |
) |
|
$ |
(2,876 |
) |
|
|
|
|
|
$ |
57,548 |
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(183 |
) |
|
|
|
|
|
|
(183 |
) |
|
|
(183 |
) |
Unrealized
gain on investments,
net
of tax of $687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
982 |
|
|
|
982 |
|
|
|
982 |
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
799 |
|
|
|
|
|
Share-based
compensation expense
|
|
|
|
|
|
|
|
|
|
|
203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203 |
|
Common
stock repurchased and retired
|
|
|
(100,000 |
) |
|
|
(1 |
) |
|
|
(383 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(384 |
) |
Warrants
exercised
|
|
|
200,000 |
|
|
|
2 |
|
|
|
148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150 |
|
Balance
at September 30, 2009
|
|
|
5,003,451 |
|
|
$ |
49 |
|
|
$ |
64,648 |
|
|
$ |
(4,487 |
) |
|
$ |
(1,894 |
) |
|
|
|
|
|
$ |
58,316 |
|
Accompanying
notes are an integral part of these consolidated financial
statements.
PACIFIC
PREMIER BANCORP, INC. AND SUBSIDIARIES
|
|
|
|
(in
thousands)
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
|
2009
|
|
|
2008
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
(183 |
) |
|
$ |
602 |
|
Adjustments
to net income (loss):
|
|
|
|
|
|
|
|
|
Depreciation
and amortization expense
|
|
|
765 |
|
|
|
703 |
|
Provision
for loan losses
|
|
|
5,535 |
|
|
|
1,683 |
|
Share-based
compensation expense
|
|
|
203 |
|
|
|
202 |
|
Gain
on sale and disposal of premises and equipment
|
|
|
25 |
|
|
|
3 |
|
Gain
on sale, provision, and write-down of other real estate owned,
net
|
|
|
157 |
|
|
|
57 |
|
Amortization
of premium/discounts on investment securities held for
sale
|
|
|
235 |
|
|
|
2,428 |
|
Gain
on sale of loans held for sale
|
|
|
(7 |
) |
|
|
(25 |
) |
Loss
on sale of investment securities available for sale
|
|
|
1,278 |
|
|
|
3,586 |
|
Gain
on sale of loans held for investment
|
|
|
- |
|
|
|
(67 |
) |
Purchase
and origination of loans held for sale
|
|
|
- |
|
|
|
(408 |
) |
Proceeds
from the sales of, and principal payments from, loans held for
sale
|
|
|
675 |
|
|
|
500 |
|
Increase
in current and deferred income tax receivable
|
|
|
(477 |
) |
|
|
(2,042 |
) |
Increase
in accrued expenses and other liabilities
|
|
|
(1,287 |
) |
|
|
(843 |
) |
Federal
Home Loan Bank stock dividend
|
|
|
(54 |
) |
|
|
(649 |
) |
Income
from bank owned life insurance
|
|
|
(397 |
) |
|
|
(394 |
) |
Decrease
in accrued interest receivable and other assets
|
|
|
346 |
|
|
|
418 |
|
Net
cash provided by operating activities
|
|
|
6,814 |
|
|
|
5,754 |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds
from sale and principal payments on loans held for
investment
|
|
|
51,142 |
|
|
|
129,146 |
|
Purchase,
origination and advances of loans held for investment
|
|
|
(13,513 |
) |
|
|
(149,660 |
) |
Principal
payments on securities available for sale
|
|
|
11,153 |
|
|
|
9,362 |
|
Proceeds
from sale of other real estate owned
|
|
|
45 |
|
|
|
710 |
|
Purchase
of securities available for sale
|
|
|
(147,502 |
) |
|
|
(33,401 |
) |
Proceeds
from sale or maturity of securities available for sale
|
|
|
92,456 |
|
|
|
14,179 |
|
Proceeds
from sale of equipment
|
|
|
- |
|
|
|
20 |
|
Increase
in premises and equipment
|
|
|
(80 |
) |
|
|
(554 |
) |
Redemption
of Federal Home Loan Bank and Federal Reserve Bank stock
|
|
|
- |
|
|
|
3,250 |
|
Net
cash used in by investing activities
|
|
|
(6,299 |
) |
|
|
(26,948 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net increase
in deposit accounts
|
|
|
149,254 |
|
|
|
35,219 |
|
Repayment
of Federal Home Loan Bank advances
|
|
|
(43,400 |
) |
|
|
(64,965 |
) |
Proceeds
from other borrowings
|
|
|
- |
|
|
|
28,500 |
|
Repurchase
of common stock
|
|
|
(384 |
) |
|
|
(2,069 |
) |
Net
cash provided by (used in) financing activities
|
|
|
105,470 |
|
|
|
(3,315 |
) |
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
105,985 |
|
|
|
(24,509 |
) |
CASH
AND CASH EQUIVALENTS, beginning of period
|
|
|
9,707 |
|
|
|
34,021 |
|
CASH
AND CASH EQUIVALENTS, end of period
|
|
$ |
115,692 |
|
|
$ |
9,512 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
CASH FLOW DISCLOSURES
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
16,054 |
|
|
$ |
15,916 |
|
Income
taxes paid
|
|
$ |
810 |
|
|
$ |
2,765 |
|
NONCASH
OPERATING ACTIVITIES DURING THE PERIOD
|
|
|
|
|
|
|
|
|
Restricted
stock vested
|
|
$ |
104 |
|
|
$ |
122 |
|
NONCASH
INVESTING ACTIVITIES DURING THE PERIOD
|
|
|
|
|
|
|
|
|
Transfers
from loans to other real estate owned
|
|
$ |
3,806 |
|
|
$ |
82 |
|
Accompanying
notes are an integral part of these consolidated financial
statements.
PACIFIC
PREMIER BANCORP, INC. AND SUBSIDIARY
September
30, 2009
(UNAUDITED)
Note
1 - Basis of Presentation
The
consolidated financial statements include the accounts of Pacific Premier
Bancorp, Inc. (the “Corporation”) and its wholly owned subsidiary, Pacific
Premier Bank (the “Bank”) (collectively, the “Company,” “we,” “our” or
“us”). All significant intercompany accounts and transactions have
been eliminated in consolidation.
In the
opinion of management, the consolidated financial statements contain all
adjustments (consisting of normal recurring accruals) necessary to present
fairly the Company’s financial position as of September 30, 2009 and December
31, 2008; the results of its operations for the three and nine months ended
September 30, 2009 and 2008; and changes in stockholders’ equity, comprehensive
income and cash flows for the nine months ended September 30,
2009. Operating results for the three and nine months ended September
30, 2009 are not necessarily indicative of the results that may be expected for
any other interim period or the full year ending December 31, 2009.
Certain
information and note disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to the rules
and regulations of the Securities and Exchange Commission
(“SEC”). The unaudited consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and notes
thereto included in the Company’s Annual Report on Form 10-K, as amended, for
the year ended December 31, 2008.
The
Company accounts for its investments in its wholly owned special purpose entity,
PPBI Trust I, under the equity method whereby the subsidiary’s net earnings are
recognized in the Company’s statement of income.
Note
2 – Recently Issued Accounting Pronouncements
Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles: In June 2009, the Financial Accounting Standards Board
(“FASB”) issued an accounting standard regarding The FASB Accounting Standards
Codification TM (“Codification” or “ASC”)(FASB ASC 105) that will become the
source of authoritative U.S. generally accepted accounting principles (“GAAP”)
recognized by the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of the SEC under authority of federal securities laws are
also sources of authoritative GAAP for SEC registrants. On the
effective date of this standard, all interim and annual reporting periods ending
after September 15, 2009, the Codification will supersede all then-existing
non-SEC accounting and reporting standards. All other non-grandfathered non-SEC
accounting literature not included in the Codification will become
non-authoritative. We adopted this standard on September 30, 2009 and
the adoption did not have a material impact on the Company’s financial
statements.
Business
Combinations: On January 1, 2009, the Company adopted FASB ASC
805 which requires, among other things, the acquiring entity in a business
combination to recognize all (and only) the assets acquired and liabilities
assumed in the transaction; establishes the acquisition date fair value as the
measurement objective for all assets acquired and liabilities assumed; and
requires the acquirer to disclose to investors and other users all of the
information they need to evaluate and understand the nature and financial effect
of the business combination. The adoption of this standard had no effect on the
Company’s financial statements.
Noncontrolling
Interest in Consolidated Financial Statements: On January 1,
2009, the Company adopted FASB ASC 810 whose objective is to improve the
relevance, comparability, and transparency of the financial information that a
reporting entity provides in its consolidated financial statements by
establishing accounting and reporting standards for the noncontrolling interest
in a subsidiary. The adoption of this standard will affect the presentation of
the Company’s financial statements in the fourth quarter of
2009.
Impairment: On
January 1, 2009, the Company adopted FASB ASC 320 whose objective is to achieve
more consistent determinations of whether an Other-than-temporary impairment
(“OTTI”) has occurred. The adoption of this standard had no effect on the
Company’s financial statements.
Subsequent
Events: In May 2009, the Company adopted FASB ASC 855
which establishes accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or available to be
issued. The standard defines (i) the period after the balance sheet date during
which a reporting entity’s management should evaluate events or transactions
that may occur for potential recognition or disclosure in the financial
statements (ii) the circumstances under which an entity should recognize events
or transactions occurring after the balance sheet date in its financial
statements, and (iii) the disclosures an entity should make about events or
transactions that occurred after the balance sheet date. The adoption of this
standard had no effect on the Company’s financial
statements.
Accounting
for Transfers of Financial Assets: FASB ASC 860 enhances
reporting about transfers of financial assets, including securitizations, and
where companies have continuing exposure to the risks related to transferred
financial assets. It eliminates the concept of a “qualifying special-purpose
entity” and changes the requirements for derecognizing financial assets. It also
requires additional disclosures about all continuing involvements with
transferred financial assets including information about gains and losses
resulting from transfers during the period. The standard will be effective
January 1, 2010 and is not expected to have an impact on the Company’s financial
statements.
Fair
Value Measurements and Impairments of Securities: On June 30,
2009, the Company adopted FASB ASC 825 which provides additional application
guidance and enhances disclosures regarding fair value measurements and
impairments of securities, as well as clarity and consistency in accounting for
and presenting impairment losses on securities. The standards give guidance to
determining fair values when there is no active market or where the price inputs
being used represent distressed sales. It reaffirms the need to use judgment to
ascertain if a formerly active market has become inactive and in determining
fair values when markets have become inactive. The standards also relate to fair
value disclosures for any financial instruments that are not currently reflected
on the balance sheet of companies at fair value. Previously, fair values for
these assets and liabilities were only disclosed once a year, These disclosures
are now required on a quarterly basis to provide qualitative and quantitative
information about fair value estimates for all those financial instruments not
measured on the balance sheet at fair value. Guidance on OTTI is intended to
bring greater consistency to the timing of impairment recognition, and provide
greater clarity to investors about the credit and noncredit components of
impaired debt securities that are not expected to be sold. The measure of
impairment in comprehensive income remains fair value. The standard also
requires increased and timelier disclosures sought by investors regarding
expected cash flows, credit losses, and an aging of securities with unrealized
losses. The adoption of this standard had no impact on the Company’s financial
statements.
Note
3 – Regulatory Matters
It is our
goal to maintain capital levels within the regulatory “well capitalized”
category. The Company’s (on a consolidated basis) and the Bank’s
capital amounts and ratios are presented in the following table:
|
|
|
|
|
|
|
|
To
be Adequately
|
|
|
To
be Well
|
|
|
|
Actual
|
|
|
Capitalized
|
|
|
Capitalized
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(dollars
in thousands)
|
|
September
30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 capital to adjusted tangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
$ |
64,658 |
|
|
|
8.03 |
% |
|
$ |
32,214 |
|
|
|
4.00 |
% |
|
$ |
40,267 |
|
|
|
5.00 |
% |
Consolidated
|
|
|
65,026 |
|
|
|
8.08 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Tier
1 risk-based capital to risk-weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
|
64,658 |
|
|
|
10.74 |
% |
|
|
24,087 |
|
|
|
4.00 |
% |
|
|
36,131 |
|
|
|
6.00 |
% |
Consolidated
|
|
|
65,026 |
|
|
|
10.71 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Total
capital to risk-weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
|
72,191 |
|
|
|
11.99 |
% |
|
$ |
48,175 |
|
|
|
8.00 |
% |
|
$ |
60,218 |
|
|
|
10.00 |
% |
Consolidated
|
|
|
72,619 |
|
|
|
11.96 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
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 |
|
Note
4 – FHLB Advances and Other Borrowings
At
September 30, 2009, Federal Home Loan Bank (“FHLB”) advances and other
borrowings of the Company amounted to $166.5 million. These
borrowings were comprised of FHLB term borrowings of $138.0 million at a
weighted average interest rate of 4.92% and three inverse putable reverse
repurchase agreements totaling $28.5 million at a weighted average rate of
3.04%. The other borrowings were secured by approximately $36.3
million of mortgage backed securities issued by the Federal Home Loan Mortgage
Corporation, Government National Mortgage Association, and Federal National
Mortgage Association. The FHLB term advances had a weighted average
maturity of 0.42 year as of September 30, 2009 and were collateralized by
pledges of certain real estate loans with an aggregate principal balance of
$500.0 million and FHLB stock totaling $12.7 million. As of September
30, 2009, the Bank was able to borrow up to 45% of its total assets under its
line of credit with the FHLB, which amounted to $352.7 million, an increase of
$31.8 million from the year ended December 31, 2008. FHLB advances
consisted of the following as of September 30, 2009:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Percent
|
|
|
Average
Annual
|
|
|
|
Amount
|
|
|
of
Total
|
|
|
Interest
Rate
|
|
|
|
(dollars
in thousands)
|
|
FHLB
advances maturing in:
|
|
|
|
|
|
|
|
|
|
One
month or less
|
|
$ |
50,000 |
|
|
|
36.2 |
% |
|
|
4.91 |
% |
Over
one month to three months
|
|
|
25,000 |
|
|
|
18.1 |
% |
|
|
4.99 |
% |
Over
three months to six months
|
|
|
25,000 |
|
|
|
18.1 |
% |
|
|
4.87 |
% |
Over
one year
|
|
|
38,000 |
|
|
|
27.6 |
% |
|
|
4.92 |
% |
Total
FHLB advances
|
|
$ |
138,000 |
|
|
|
100.0 |
% |
|
|
4.92 |
% |
Note
5 – Subordinated Debentures
In March
2004, the Corporation issued $10.3 million of Floating Rate Junior Subordinated
Deferrable Interest Debentures (the “Subordinated Debentures”) to PPBI Trust I,
which funded the payment of $10.0 million of Floating Rate Trust Preferred
Securities issued by PPBI Trust I in March 2004. The net proceeds from the
offering of Trust Preferred Securities were contributed as capital to the Bank
to support further growth. Interest is payable quarterly on the
Subordinated Debentures at three-month LIBOR plus 2.75% per annum, for an
effective rate of 3.26% per annum as of September 30, 2009.
The
Corporation is not allowed to consolidate PPBI Trust I into the Company’s
financial statements. The resulting effect on the Company’s
consolidated financial statements is to report the Subordinated Debentures as a
component of liabilities.
Note
6 – Earnings (Loss) Per Share
Basic
earnings per share excludes dilution and is computed by dividing net income or
loss available to common stockholders by the weighted average number of common
shares outstanding for the period, excluding common shares in
treasury. Diluted earnings per share reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted from the issuance of common
stock that would then share in earnings and excludes common shares in
treasury. For the three and nine months ended September 30, 2009
stock options of 602,500 shares and warrants of 966,400 shares were not included
in the computation of earnings per share because they were
anti-dilutive. For the three months ended September 30, 2008 stock
options of 411,000 shares and for the nine months ended September 30, 2008 stock
options of 511,000 shares were excluded from the computations of diluted
earnings per share due to their exercise price exceeding the average market
price for their respective periods.
The table
below sets forth the Company’s unaudited earnings per share calculations for the
three and nine months ended September 30, 2009 and 2008.
|
|
Three
Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Net
|
|
|
|
|
|
Per
Share
|
|
|
Net
|
|
|
|
|
|
Per
Share
|
|
|
|
Loss
|
|
|
Shares
|
|
|
Amount
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
|
(dollars
in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
(7 |
) |
|
|
|
|
|
|
|
$ |
1,001 |
|
|
|
|
|
|
|
Basic
income (loss) available to common stockholders
|
|
|
(7 |
) |
|
|
5,003,451 |
|
|
$ |
- |
|
|
|
1,001 |
|
|
|
4,903,784 |
|
|
$ |
0.20 |
|
Effect
of warrants and dilutive stock options
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
1,239,862 |
|
|
|
|
|
Diluted
income (loss) available to common stockholders
|
|
$ |
(7 |
) |
|
|
5,003,451 |
|
|
$ |
- |
|
|
$ |
1,001 |
|
|
|
6,143,646 |
|
|
$ |
0.16 |
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Net
|
|
|
|
|
|
Per
Share
|
|
|
Net
|
|
|
|
|
|
Per
Share
|
|
|
|
Loss
|
|
|
Shares
|
|
|
Amount
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
|
(dollars
in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
(183 |
) |
|
|
|
|
|
|
|
$ |
602 |
|
|
|
|
|
|
|
Basic
income (loss) available to common stockholders
|
|
$ |
(183 |
) |
|
|
4,919,385 |
|
|
$ |
(0.04 |
) |
|
$ |
602 |
|
|
|
4,963,385 |
|
|
$ |
0.12 |
|
Effect
of warrants and dilutive stock options
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
1,285,402 |
|
|
|
|
|
Diluted
income (loss) available to common stockholders
|
|
$ |
(183 |
) |
|
|
4,919,385 |
|
|
$ |
(0.04 |
) |
|
$ |
602 |
|
|
|
6,248,787 |
|
|
$ |
0.10 |
|
Note
7 – Fair Value of Financial Instruments
Effective
January 1, 2008, the Company determines the fair market values of certain
financial instruments based on the fair value hierarchy established in GAAP
under ASC 820, “Fair Value Measurements and Disclosures. GAAP
requires an entity to maximize the use of observable inputs and minimize the use
of unobservable inputs when measuring fair value and describes three levels of
inputs that may be used to measure fair value.
The
following provides a summary of the hierarchical levels used to measure fair
value:
Level 1 -
Quoted prices in active markets for identical assets or liabilities that the
reporting entity has the ability to access at the measurement date. Level 1
assets and liabilities may include debt and equity securities that are traded in
an active exchange market and that are highly liquid and are actively traded in
over-the-counter markets.
Level 2 -
Observable inputs other than Level 1 prices, such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities. Level 2 assets and
liabilities may include debt securities with quoted prices that are traded less
frequently than exchange-traded instruments and other instruments whose value is
determined using a pricing model with inputs that are observable in the market
or can be derived principally from or corroborated by observable market data.
This category generally includes U.S. Government and agency mortgage-backed debt
securities, corporate debt securities, derivative contracts, residential
mortgage and loans held-for-sale.
Level 3 -
Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities. Level 3 assets
and liabilities include financial instruments whose value is determined using
pricing models, discounted cash flow methodologies, or similar techniques, as
well as instruments for which the determination of fair value requires
significant management judgment or estimation. This category generally includes
certain private equity investments, retained residual interests in
securitizations, residential MSRs, asset-backed securities (“ABS”), highly
structured or long-term derivative contracts and certain collateralized debt
obligations (“CDO”) where independent pricing information was not able to be
obtained for a significant portion of the underlying assets.
The
Company’s financial assets and liabilities measured at fair value on a recurring
basis include securities available for sale and impaired
loans. Securities available for sale include mortgage-backed
securities and equity securities. 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 its pricing service vendor cannot price due to lack of trade
activity in these securities.
Impaired
Loans. 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, 2009, 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 at the date
indicated:
|
|
Fair
Value Measurement Using
|
|
|
September
30, 2009
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Assets
at
Fair
Value
|
|
|
|
(in
thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities
|
|
$ |
84,219 |
|
|
$ |
16,809 |
|
|
$ |
658 |
|
|
$ |
101,686 |
|
Total
assets
|
|
$ |
84,219 |
|
|
$ |
16,809 |
|
|
$ |
658 |
|
|
$ |
101,686 |
|
The following table summarizes the
activity in the Level 3 fair value category for the year-to-date period
indicated:
|
|
Fair
Value Measurement Using Significant Other Unobservable
Inputs
|
|
|
|
September
30, 2009
|
|
|
|
(Level
3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
Govt.
Sponsored
|
|
|
Private
|
|
|
|
|
|
|
Treasuries
|
|
|
Agencies
|
|
|
Label
|
|
|
Total
|
|
|
|
(in
thousands)
|
|
Beginning
Balance, January 1, 2009
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,614 |
|
|
$ |
1,614 |
|
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
|
|
|
- |
|
|
|
- |
|
|
|
(956 |
) |
|
|
(956 |
) |
Ending
Balance, September 30, 2009
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
658 |
|
|
$ |
658 |
|
The
following fair value hierarchy table presents information about the Company’s
assets measured at fair value on a nonrecurring basis at the date
indicated:
|
|
Fair
Value Measurement Using
|
|
|
September
30, 2009
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Assets
at
Fair
Value
|
|
|
|
(in
thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
Loans
|
|
$ |
- |
|
|
$ |
9,751 |
|
|
$ |
- |
|
|
$ |
9,751 |
|
Other
real estate owned
|
|
|
- |
|
|
|
3,644 |
|
|
|
- |
|
|
|
3,644 |
|
Total
assets
|
|
$ |
- |
|
|
$ |
13,395 |
|
|
$ |
- |
|
|
$ |
13,395 |
|
Note
8 – Subsequent Event
In
accordance with FASB ASC 855, Subsequent Events, the Company evaluates events
and transactions that occur after the balance sheet date for potential
recognition in the financial statements. The effect of all subsequent events
that provide additional evidence of conditions that existed at the balance sheet
date are recognized in the financial statements as of September 30, 2009. In
preparing these financial statements, we evaluated the events and transactions
that occurred subsequent to the quarter ended September 30, 2009.
On
November 9, 2009, we closed our public offering of 4,615,385 shares of common
stock at $3.25 per share. We received net proceeds from the offering
of approximately $13.9 million, after underwriting discounts and commissions and
estimated expenses. The shares were sold in an underwritten public
offering. We have granted the underwriter a 30-day option to purchase
up to an additional 692,307 shares of common stock to cover over-allotments, if
any.
We intend
to use the net proceeds from the offering for general corporate purposes,
including contributing additional capital to the Bank, and to support its
ongoing and future anticipated growth, which may include opportunistic
acquisitions of all or parts of other financial institutions, including
FDIC-assisted transactions.
FORWARD-LOOKING
STATEMENTS
This
Quarterly Report on Form 10-Q contain statements that are considered “forward
looking statements” within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. These forward-looking statements represent plans, estimates,
objectives, goals, guidelines, expectations, intentions, projections and
statements of our beliefs concerning future events, business plans, objectives,
expected operating results and the assumptions upon which those statements are
based. Forward-looking statements include without limitation, any
statement that may predict, forecast, indicate or imply future results,
performance or achievements, and are typically identified with words such as
“may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,”
“expect,” “intend,” “plan,” or words or phases of similar meaning. We
caution that the forward-looking statements are based largely on our
expectations and are subject to a number of known and unknown risks and
uncertainties that are subject to change based on factors which are, in many
instances, beyond our control. Actual results, performance or
achievements could differ materially from those contemplated, expressed, or
implied by the forward-looking statements.
The
following factors, among others, could cause our financial performance to differ
materially from that expressed in such forward-looking statements:
• The
strength of the United States economy in general and the strength of the local
economies in which we conduct operations;
• The
effects of, and changes in, trade, monetary and fiscal policies and laws,
including interest rate policies of the Board of Governors of the Federal
Reserve System (the “Federal
Reserve Board”);
• Inflation,
interest rate, market and monetary fluctuations;
• The
timely development of competitive new products and services and the acceptance
of these products and services by new and existing customers;
• The
willingness of users to substitute competitors’ products and services for our
products and services;
• The
impact of changes in financial services policies, laws and regulations,
including laws, regulations and policies concerning taxes, banking, securities
and insurance, and the application thereof by regulatory bodies;
• Technological
changes;
• The
effect of acquisitions we may make, if any, including, without limitation, the
failure to achieve the expected revenue growth and/or expense savings from such
acquisitions;
• Changes
in the level of our nonperforming assets and charge-offs;
• Oversupply
of inventory and continued deterioration in values of California real estate,
both residential and commercial;
• The
effect of changes in accounting policies and practices, as may be adopted from
time-to-time by bank regulatory agencies, the SEC, the Public Company Accounting
Oversight Board, the Financial Accounting Standards Board or other accounting
standards setters;
• Possible
other-than-temporary impairments of securities held by us;
• The
impact of current governmental efforts to restructure the U.S. financial
regulatory system;
• Changes
in consumer spending, borrowing and savings habits;
• The
effects of our lack of a diversified loan portfolio, including the risks of
geographic and industry concentrations;
• Ability
to attract deposits and other sources of liquidity;
• Changes
in the financial performance and/or condition of our borrowers;
• Changes
in the competitive environment among financial and bank holding companies and
other financial service providers;
• Geopolitical
conditions, including acts or threats of terrorism, actions taken by the United
States or other governments in response to acts or threats of
terrorism and/or military conflicts, which could
impact business and economic conditions in the United States and
abroad;
• Unanticipated
regulatory or judicial proceedings; and
• Our
ability to manage the risks involved in the foregoing.
If one or
more of the factors affecting our forward-looking information and statements
proves incorrect, then our actual results, performance or achievements could
differ materially from those expressed in, or implied by, forward-looking
information and statements contained in this Quarterly Report on Form 10-Q and
other reports and registration statements filed by us with the
SEC. Therefore, we caution you not to place undue reliance on our
forward-looking information and statements. We will not update the
forward-looking statements to reflect actual results or changes in the factors
affecting the forward-looking statements. The above factors and other
risks and uncertainties are discussed in our 2008 Annual Report on Form 10-K, as
amended, as superseded by the risk factors contain in “Item 1A. Risk Factors” in
Part II of this Quarterly Report on Form 10-Q.
Forward-looking
statements should not be viewed as predictions, and should not be the primary
basis upon which investors evaluate us. Any investor in our common
stock should consider all risks and uncertainties disclosed in our filings with
the SEC, all of which are accessible on the SEC’s website at
http://www.sec.gov.
GENERAL
This
discussion should be read in conjunction with our Management Discussion and
Analysis of Financial Condition and Results of Operations included in the 2008
Annual Report on Form 10-K, as amended, plus the unaudited consolidated
financial statements and the notes thereto appearing elsewhere in this
report. The results for the three and nine months ended September 30,
2009 are not necessarily indicative of the results expected for the year ending
December 31, 2009.
We are a
California-based bank holding company incorporated in the state of Delaware and
registered as a bank holding company under the Bank Holding Company Act of 1956,
as amended ("BHCA”). Our wholly owned subsidiary, Pacific Premier
Bank, is a California state chartered commercial bank. The Bank is
subject to examination and regulation by the California Department of Financial
Institutions (“DFI”), the Federal Reserve, and by the Federal Deposit Insurance
Corporation (“FDIC”). Additionally, we are subject to regulation and
supervision by the Federal Reserve. Our primary business is community
banking.
The Bank
was founded in 1983 as a state chartered savings and loan, became a federally
chartered stock savings bank in 1991 and in March 2007, converted to a
California state chartered commercial bank. The Bank is a member of
the FHLB of San Francisco, which is a member bank of the Federal Home Loan Bank
System, and the Federal Reserve. As of September 30, 2009, the Bank’s
deposit accounts were insured under federal laws by the Deposit Insurance Fund,
which is an insurance fund administered by the FDIC. The maximum
deposit insurance coverage allowable under federal law increased in October 2008
from $100,000 to $250,000 per depositor and is in effect through December 31,
2013. On January 1, 2014, the standard insurance amount will return to $100,000
per depositor for all account categories except IRAs and certain retirement
accounts, which will remain at $250,000 per depositor.
We
provide banking services within our targeted markets in Southern California to
businesses, including the owners and employees of those businesses,
professionals, real estate investors and non-profit organizations, as well as
consumers in the communities we serve. The Bank operates six depository branches
in Southern California located in the cities of Costa Mesa, Huntington Beach,
Los Alamitos, Newport Beach, San Bernardino, and Seal Beach. Our
corporate headquarters are located in Costa Mesa, California. Through
our branches and our web site at www.ppbi.com
on the Internet, we offer a broad array of deposit products and services for
both businesses, and consumer customers including checking, money market and
savings accounts, cash management services, electronic banking, and on-line bill
payment. We offer a wide array of loan products, such as commercial
business loans, lines of credit, commercial real estate loans, U.S. Small
Business Administration (“SBA”) loans, residential home loans, and home equity
loans. The Bank funds its lending and investment activities with
retail deposits obtained through its branches, advances from the FHLB of San
Francisco, lines of credit, and wholesale and brokered certificates of
deposits.
Our
principal sources of income are the net spread between interest earned on loans
and investments and the interest costs associated with deposits and other
borrowings used to finance its loan and investment
portfolio. Additionally, the Bank generates fee income from loan
sales and various products and services offered to both depository and loan
customers.
Recent
Developments
Capital
Raise. On November 9, 2009, we closed our public offering of
4,615,385 shares of common stock at $3.25 per share. We received net
proceeds from the offering of approximately $13.9 million, after underwriting
discounts and commissions and estimated expenses. The shares were
sold in an underwritten public offering. We have granted the
underwriter a 30-day option to purchase up to an additional 692,307 shares of
common stock to cover over-allotments, if any.
We intend
to use the net proceeds from the offering for general corporate purposes,
including contributing additional capital to the Bank, and to support its
ongoing and future anticipated growth, which may include opportunistic
acquisitions of all or parts of other financial institutions, including
FDIC-assisted transactions.
General
Economic Developments. Although recent U.S. economic indicators have
indicated the health of the economy is improving, the recovery is generally
believed to be weak and may require an extended period of time to recover from
the recent recession. The financial markets, and the financial
services industry in particular, suffered significant disruption starting in
2008, which has resulted in many institutions failing or requiring government
intervention to avoid failure. These conditions, 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,
continue to negatively affect the U.S. economy and the markets where we do
business.
The
United States, state and foreign governments have taken 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 assisting homeowners in
restructuring and lowering mortgage payments on qualifying loans and
offering tax credits for qualified first-time home
buyers.
|
There can
be no assurance that TARP or any other legislation or regulatory initiatives
will be effective at improving economic conditions globally, nationally or in
our markets, or that the measures adopted will not have adverse consequences on
our results of operations.
CRITICAL
ACCOUNTING POLICIES
Management
has established various accounting policies which govern the application of
accounting principles generally accepted in the United States of America in the
preparation of our financial statements. Our significant accounting
policies are described in the Notes to the Consolidated Financial Statements in
our 2008 Annual Report on Form 10-K, as amended. Certain accounting
policies require management to make estimates and assumptions which have a
material impact on the carrying value of certain assets and liabilities;
management considers these to be critical accounting policies. The
estimates and assumptions management uses are based on historical experience and
other factors, which management believes to be reasonable under the
circumstances. Actual results could differ significantly from these
estimates and assumptions, which could have a material impact on the carrying
value of assets and liabilities at balance sheet dates and our results of
operations for future reporting periods.
Management
believes that the allowance for loan losses is the critical accounting policy
that requires estimates and assumptions in the preparation of our financial
statements that is most susceptible to significant change. For further
information, see “Allowances for Loan Losses” discussed later in this report and
in our 2008 Annual Report on Form 10-K, as amended.
FINANCIAL
CONDITION
Our total
assets were $847.9 million as of September 30, 2009, compared to $740.0 million
as of December 31, 2008. The $107.9 million, or 14.6%, increase in
total assets was primarily due to an increase of $106.0 million in cash and cash
equivalents and of $45.1 million in investment securities available for sale,
partially offset by a decrease of $46.6 million in loans. We expect
to utilize the increase in cash, in part, to pay down $75 million of the our
fixed rate FHLB term advances that mature in the fourth quarter of 2009 and
carry a weighted average rate of 4.92%.
Investment
Securities Available
for Sale
Investment
securities available for sale totaled $101.7 million at September 30, 2009,
compared to $56.6 million at December 31, 2008. The increase was
primarily due to the purchase of securities totaling $146.3 million, partially
offset by sales of $92.8 million and investment principal received of $10.9
million. At September 30, 2009, the investment securities available
for sale consisted of $157,000 in US Treasuries, $84.1 million in government
sponsored enterprises (“GSE”) mortgage-backed securities and $17.5 million of
private label mortgage-backed securities. Of these private label
securities, 46 or $13.4 million were rated as investment grade and 49 or $4.1
million were rated as below investment grade, which is any rating below
“BBB”. In addition, we had $36.3 million of the GSE securities
pledged as collateral for our $28.5 million of reverse repurchase
agreements.
The
following table sets forth the amortized cost and estimated fair value of our
investment securities held for sale portfolio as of September 30, 2009 and
December 31, 2008.
|
|
September
30, 2009
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Fair
Value
|
|
|
|
(in
thousands)
|
|
Securities
available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury notes
|
|
$ |
148 |
|
|
$ |
9 |
|
|
$ |
- |
|
|
$ |
157 |
|
Government
sponsored enterprises mortgage-backed securities
|
|
|
83,683 |
|
|
|
490 |
|
|
|
(112 |
) |
|
|
84,061 |
|
Private
label mortgage-backed securities - investment grade
|
|
|
14,879 |
|
|
|
- |
|
|
|
(1,512 |
) |
|
|
13,367 |
|
Private
label mortgage-backed securities - non-investment grade
|
|
|
6,193 |
|
|
|
49 |
|
|
|
(2,141 |
) |
|
|
4,101 |
|
Total
securities available for sale
|
|
$ |
104,903 |
|
|
$ |
548 |
|
|
$ |
(3,765 |
) |
|
$ |
101,686 |
|
Federal
Home Loan Bank stock
|
|
$ |
12,731 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
12,731 |
|
Federal
Reserve Bank stock
|
|
|
1,599 |
|
|
|
- |
|
|
|
- |
|
|
|
1,599 |
|
Total
equities held at cost
|
|
$ |
14,330 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
14,330 |
|
Total
securities
|
|
$ |
119,233 |
|
|
$ |
548 |
|
|
$ |
(3,765 |
) |
|
$ |
116,016 |
|
|
|
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 |
|
Government
sponsored enterprises mortgage-backed securities
|
|
|
37,887 |
|
|
|
996 |
|
|
|
(30 |
) |
|
|
38,853 |
|
Private
label mortgage-backed securities - investment grade
|
|
|
20,536 |
|
|
|
1 |
|
|
|
(4,573 |
) |
|
|
15,964 |
|
Private
label mortgage-backed securities - non-investment grade
|
|
|
2,922 |
|
|
|
- |
|
|
|
(1,300 |
) |
|
|
1,622 |
|
Total
securities available for sale
|
|
$ |
61,493 |
|
|
$ |
1,016 |
|
|
$ |
(5,903 |
) |
|
$ |
56,606 |
|
Federal
Home Loan Bank 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 |
|
The following table sets forth the fair
values and weighted average yields on our investment securities available for
sale portfolio by contractual maturity.
|
|
As
of September 30, 2009
|
|
|
|
1
Year or Less
|
|
|
Over
1 to 5 Years
|
|
|
Over
5 to 10 Years
|
|
|
Over
10 Years
|
|
|
Total
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Fair
|
|
|
Average
|
|
|
Fair
|
|
|
Average
|
|
|
Fair
|
|
|
Average
|
|
|
Fair
|
|
|
Average
|
|
|
Fair
|
|
|
Average
|
|
|
|
Value
|
|
|
Yield
|
|
|
Value
|
|
|
Yield
|
|
|
Value
|
|
|
Yield
|
|
|
Value
|
|
|
Yield
|
|
|
Value
|
|
|
Yield
|
|
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury notes
|
|
$ |
- |
|
|
|
- |
% |
|
$ |
79 |
|
|
|
3.53 |
% |
|
$ |
78 |
|
|
|
4.15 |
% |
|
$ |
- |
|
|
|
- |
% |
|
$ |
157 |
|
|
|
3.84 |
% |
Government
sponsored enterprises mortgage-backed securities
|
|
|
- |
|
|
|
- |
% |
|
|
12,845 |
|
|
|
4.00 |
% |
|
|
8,370 |
|
|
|
4.12 |
% |
|
|
62,846 |
|
|
|
3.23 |
% |
|
|
84,061 |
|
|
|
3.44 |
% |
Private
label mortgage-backed securities - investment grade
|
|
|
- |
|
|
|
- |
% |
|
|
- |
|
|
|
- |
% |
|
|
- |
|
|
|
- |
% |
|
|
13,367 |
|
|
|
5.67 |
% |
|
|
13,367 |
|
|
|
5.67 |
% |
Private
label mortgage-backed securities - non-investment grade
|
|
|
- |
|
|
|
- |
% |
|
|
310 |
|
|
|
1.33 |
% |
|
|
- |
|
|
|
- |
% |
|
|
3,791 |
|
|
|
5.99 |
% |
|
|
4,101 |
|
|
|
5.64 |
% |
Total
securities available for sale
|
|
$ |
- |
|
|
|
- |
% |
|
$ |
13,234 |
|
|
|
3.93 |
% |
|
$ |
8,448 |
|
|
|
4.12 |
% |
|
$ |
80,004 |
|
|
|
3.77 |
% |
|
$ |
101,686 |
|
|
|
3.82 |
% |
Each quarter we review 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 we will be unable to collect all amounts due according to
the contractual terms of the debt security, an other-than-temporary impairment
write down will be recorded against the security and a loss
recognized. These losses are recorded on the income statement in net
gains (losses) from sales of investment securities. During the
quarter ended September 30, 2009, we took a $0.4 million other-than-temporary
impairment charge against securities deemed to be impaired. This
follows a $3.1 million other-than-temporary charge taken in the first quarter of
this year. These impaired securities are classified as substandard
assets with all the interest received since the date of impairment being applied
against their principal balances. All of our impaired securities were
acquired when we redeemed our shares in AMF mutual funds in the second quarter
of 2008.
Loans
Gross
loans outstanding totaled $584.6 million at September 30, 2009 compared to
$628.4 million at December 31, 2008. The decrease was primarily due
to principal repayments of $52.1 million, which was partially offset by the
purchase of $4.1 million of performing multi-family loans and the origination of
$6.9 million of commercial and industrial business and consumer
loans.
From time
to time, management utilizes loan purchases or sales to manage its liquidity,
interest rate risk, loan to deposit ratio, diversification of the loan portfolio
and net balance sheet growth.
The
following table sets forth the origination, purchase and sale activity relating
to our loans held for investment portfolio for the three and nine months ended
September 30, 2009 and 2008 are as follows:
|
|
Nine
Months Ended
|
|
|
|
September
30, 2009
|
|
|
September
30, 2008
|
|
|
|
(in
thousands)
|
|
Total
gross loan balance, beginning of period
|
|
$ |
628,099 |
|
|
$ |
626,692 |
|
Loans
originated and purchased:
|
|
|
|
|
|
|
|
|
Real
estate:
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
4,545 |
|
|
|
32,458 |
|
Commercial
real estate
|
|
|
- |
|
|
|
53,807 |
|
Business
Loans:
|
|
|
|
|
|
|
|
|
Commercial
owner occupied (1)
|
|
|
365 |
|
|
|
51,273 |
|
Commercial
and industrial (1)
|
|
|
3,890 |
|
|
|
16,386 |
|
SBA
(1)
|
|
|
1,150 |
|
|
|
907 |
|
Other
|
|
|
1,067 |
|
|
|
1,193 |
|
Total
loans originated and purchased
|
|
|
11,017 |
|
|
|
156,024 |
|
Principal
repayments
|
|
|
(52,121 |
) |
|
|
(123,851 |
) |
Change
in undisbursed loan funds
|
|
|
2,496 |
|
|
|
(5,956 |
) |
Charge-offs
|
|
|
(1,068 |
) |
|
|
(582 |
) |
Loan
sales
|
|
|
- |
|
|
|
(6,235 |
) |
Transfers
to other real estate owned
|
|
|
(3,809 |
) |
|
|
(82 |
) |
Increase
(decrease) in total gross loans
|
|
|
(43,485 |
) |
|
|
19,318 |
|
Less
loans held for sale, end of period
|
|
|
- |
|
|
|
(682 |
) |
Total
gross loans held for investment, end of period
|
|
$ |
584,614 |
|
|
$ |
645,328 |
|
(1)
Includes lines of credit
|
|
|
|
|
|
|
|
|
The
following table sets forth the percentage mix of our loan portfolio at the dates
indicated.
|
|
September
30, 2009
|
|
|
December
31, 2008
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Percent
|
|
|
Average
|
|
|
|
|
|
Percent
|
|
|
Average
|
|
|
|
Amount
|
|
|
of
Total
|
|
|
Interest
Rate
|
|
|
Amount
|
|
|
of
Total
|
|
|
Interest
Rate
|
|
|
|
(dollars
in thousands)
|
|
Real
Estate Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
$ |
284,116 |
|
|
|
48.60 |
% |
|
|
6.20 |
% |
|
$ |
287,592 |
|
|
|
45.74 |
% |
|
|
6.30 |
% |
Commercial
|
|
|
153,406 |
|
|
|
26.24 |
% |
|
|
6.88 |
% |
|
|
163,428 |
|
|
|
25.99 |
% |
|
|
7.04 |
% |
One-to-four
family (1)
|
|
|
8,591 |
|
|
|
1.47 |
% |
|
|
8.30 |
% |
|
|
9,925 |
|
|
|
1.58 |
% |
|
|
8.78 |
% |
Construction-Multifamily
|
|
|
- |
|
|
|
- |
% |
|
|
- |
% |
|
|
2,733 |
|
|
|
0.43 |
% |
|
|
8.00 |
% |
Land
|
|
|
- |
|
|
|
- |
% |
|
|
- |
% |
|
|
2,550 |
|
|
|
0.41 |
% |
|
|
- |
% |
Business
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
owner occupied
|
|
|
105,060 |
|
|
|
17.97 |
% |
|
|
7.16 |
% |
|
|
112,406 |
|
|
|
17.88 |
% |
|
|
7.13 |
% |
Commercial
and industrial
|
|
|
28,820 |
|
|
|
4.93 |
% |
|
|
7.11 |
% |
|
|
43,235 |
|
|
|
6.88 |
% |
|
|
6.75 |
% |
SBA
|
|
|
3,521 |
|
|
|
0.60 |
% |
|
|
5.70 |
% |
|
|
4,942 |
|
|
|
0.79 |
% |
|
|
6.35 |
% |
Other
loans
|
|
|
1,100 |
|
|
|
0.19 |
% |
|
|
1.33 |
% |
|
|
1,956 |
|
|
|
0.30 |
% |
|
|
2.26 |
% |
Total
gross loans
|
|
$ |
584,614 |
|
|
|
100.00 |
% |
|
|
6.61 |
% |
|
$ |
628,767 |
|
|
|
100.00 |
% |
|
|
6.68 |
% |
(1)
Includes second trust deeds.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table sets forth the weighted average interest rate and weighted
average number of months to reprice for our multi-family and commercial real
estate loans and our commercial owner occupied loans as of September 30,
2009:
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
Number
|
|
|
|
|
|
Average
|
|
|
Average
Months
|
|
|
|
of
Loans
|
|
|
Amount
|
|
|
Interest
Rate
|
|
|
to
Reprice
|
|
|
|
(dollars
in thousands)
|
|
1
Year and less (1)
|
|
|
208 |
|
|
$ |
182,036 |
|
|
|
6.25 |
% |
|
|
3.76 |
|
Over
1 Year to 3 Years
|
|
|
122 |
|
|
|
170,051 |
|
|
|
6.69 |
% |
|
|
23.49 |
|
Over
3 Years to 5 Years
|
|
|
93 |
|
|
|
90,431 |
|
|
|
6.64 |
% |
|
|
43.06 |
|
Over
5 Years to 7 Years
|
|
|
12 |
|
|
|
27,101 |
|
|
|
6.80 |
% |
|
|
70.74 |
|
Over
7 Years to 10 Years
|
|
|
20 |
|
|
|
15,362 |
|
|
|
6.61 |
% |
|
|
99.68 |
|
Fixed
|
|
|
51 |
|
|
|
57,601 |
|
|
|
7.09 |
% |
|
|
- |
|
Total
|
|
|
506 |
|
|
$ |
542,582 |
|
|
|
6.58 |
% |
|
|
24.79 |
|
(1)
Includes three and five year hybrid loans that have reached their initial
repricing date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for Loan Losses
The
allowance for loan losses represents an estimate of probable losses inherent in
our loan portfolio and is determined by applying a systematically derived loss
factor to individual segments of the loan portfolio. The adequacy and
appropriateness of the allowance for loan losses and the individual loss factors
is reviewed each quarter by management.
The loss
factor for each segment of our loan portfolio is generally based on our actual
historical loss rate experience with emphasis on recent past periods to account
for current economic conditions and supplemented by management judgment for
certain segments where we lack loss history experience. We also
consider historical charge-off rates for the last 10 and 15 years for commercial
banks and savings institutions headquartered in California as collected and
reported by the FDIC. The loss factor is adjusted using nine
qualitative adjustment factors to arrive at a final loss factor for each loan
portfolio segment. For additional information regarding the
qualitative adjustments, please see “Allowances for Loan Losses” discussed in
our 2008 Annual Report on Form 10-K, as amended. The qualitative
factors allow management to assess current trends within our loan portfolio and
the economic environment to incorporate their affect when calculating the
allowance for loan losses. The final loss factors are applied to pass
graded loans within our loan portfolio. Higher factors are applied to
loans graded below pass, including classified and criticized
assets.
No
assurance can be given that we will not, in any particular period, sustain loan
losses that exceed the amount reserved, or that subsequent evaluation of our
loan portfolio, in light of the prevailing factors, including economic
conditions which may adversely affect our market area or other circumstances,
will not require significant increases in the loan loss allowance. In
addition, regulatory agencies as an integral part of their examination process,
periodically review our allowance for loan losses and may require us to
recognize additional provisions to increase the allowance or take charge-offs in
anticipation of future losses.
Since
year end, our provision for loan losses less net loan charge-offs resulted in an
increase of $2.2 million in our allowance for loan losses to $8.1 million at
September 30, 2009. The increase in the allowance for loan losses
from year end was primarily due to the deteriorating economic environment, an
increase in the level of classified loans, and an overall increase in the
reserve factors applied to various segments of our loan portfolio. At
September 30, 2009, given the composition of our loan portfolio, the allowance
for loan losses was considered adequate to cover estimated losses inherent in
the loan portfolio. At September 30, 2009, the allowance for loan
losses as a percentage of total loans increased to 1.4% from 0.9% at December
31, 2008.
The
table below summarizes the activity within our allowance for loan losses for the
three and nine months ended September 30, 2009 and 2008.
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(in
thousands)
|
|
Balance,
beginning of period
|
|
$ |
7,158 |
|
|
$ |
5,267 |
|
|
$ |
5,881 |
|
|
$ |
4,598 |
|
ALLL
Transfer In *
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8 |
|
Provision
for loan losses
|
|
|
2,001 |
|
|
|
664 |
|
|
|
5,535 |
|
|
|
1,683 |
|
Loan
charge-offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
- |
|
|
|
- |
|
|
|
(515 |
) |
|
|
- |
|
Commercial
|
|
|
- |
|
|
|
- |
|
|
|
(59 |
) |
|
|
- |
|
One-to-four
family
|
|
|
- |
|
|
|
(48 |
) |
|
|
(125 |
) |
|
|
(77 |
) |
Business
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and Industrial
|
|
|
(1,037 |
) |
|
|
- |
|
|
|
(1,392 |
) |
|
|
- |
|
SBA
loans
|
|
|
(22 |
) |
|
|
(122 |
) |
|
|
(800 |
) |
|
|
(505 |
) |
Other
loans
|
|
|
- |
|
|
|
- |
|
|
|
(468 |
) |
|
|
- |
|
Total
loan charge-offs
|
|
|
(1,059 |
) |
|
|
(170 |
) |
|
|
(3,359 |
) |
|
|
(582 |
) |
Loan
recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
- |
|
|
|
103 |
|
|
|
- |
|
|
|
103 |
|
One-to-four
family
|
|
|
1 |
|
|
|
1 |
|
|
|
24 |
|
|
|
48 |
|
Business
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and Industrial
|
|
|
1 |
|
|
|
- |
|
|
|
2 |
|
|
|
- |
|
SBA
loans
|
|
|
- |
|
|
|
(2 |
) |
|
|
11 |
|
|
|
(2 |
) |
Other
loans
|
|
|
5 |
|
|
|
4 |
|
|
|
13 |
|
|
|
11 |
|
Total
loan recoveries
|
|
|
7 |
|
|
|
106 |
|
|
|
50 |
|
|
|
160 |
|
Net
loan charge-offs
|
|
|
(1,052 |
) |
|
|
(64 |
) |
|
|
(3,309 |
) |
|
|
(422 |
) |
Balance,
end of period
|
|
$ |
8,107 |
|
|
$ |
5,867 |
|
|
$ |
8,107 |
|
|
$ |
5,867 |
|
* Note: Represents
the addition of valuation reserves for overdrafts that were previously
held outside of the General Allowance.
|
|
Nonperforming
assets consist of loans on which we have ceased accruing interest (nonaccrual
loans), restructured loans and real estate acquired in settlement of
loans. It is our general policy to account for a loan as nonaccrual
when the loan becomes 90 days delinquent or when collection of interest appears
doubtful. Nonperforming assets totaled $13.4 million or 1.58% of
total assets at September 30, 2009 and $5.2 million or 0.71% of total assets as
of December 31, 2008. We had nonaccrual loans of $9.8 million and
other real estate owned of $3.6 million at September 30, 2009, compared to
nonaccrual loans of $5.2 million and other real estate owned of $37,000 at
December 31, 2008. The increase in nonaccrual loans was primarily in
commercial owner occupied, multifamily and commercial and industrial loans, all
of which reflect the continuing weakness in the markets where we
operate. At September 30, 2009, nonaccrual loans consisted of two
commercial real estate loans; one of which is current on its loan payments; one
multi-family participated loan, for which we were not the originating bank; and
multiple, smaller loans within the remaining loan types. At September
30, 2009, $2.1 million of our total nonaccrual loans represented borrowers who
were current on their loan payments. Other real estate owned was
composed of four properties, including one land loan for $2.1 million that is
currently in escrow to be sold. The allowance for loan losses as a
percent of nonperforming loans decreased to 83% as of September 30, 2009 from
113% at December 31, 2008.
The table
below summarizes our composition of nonperforming assets as of the dates
indicated.
|
|
September
30, 2009
|
|
|
December
31, 2008
|
|
|
|
(dollars
in thousands)
|
|
Real
estate:
|
|
|
|
|
|
|
Multi-family
|
|
|
2,234 |
|
|
|
350 |
|
Commercial
|
|
|
3,096 |
|
|
|
3,188 |
|
One-to-four
family
|
|
$ |
108 |
|
|
$ |
637 |
|
Business
loans:
|
|
|
|
|
|
|
|
|
Commercial
owner occupied
|
|
|
2,690 |
|
|
|
- |
|
Commercial
and industrial
|
|
|
1,027 |
|
|
|
- |
|
SBA
|
|
|
596 |
|
|
|
1,025 |
|
Other
loans
|
|
|
- |
|
|
|
- |
|
Total
nonaccrual loans
|
|
|
9,751 |
|
|
|
5,200 |
|
Other
real estate owned
|
|
|
3,644 |
|
|
|
37 |
|
Total
nonperforming assets
|
|
$ |
13,395 |
|
|
$ |
5,237 |
|
|
|
|
|
|
|
|
|
|
Restructured
loans
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses as a percent of
|
|
|
|
|
|
|
|
|
total
gross loans
|
|
|
1.39 |
% |
|
|
0.94 |
% |
|
|
|
|
|
|
|
|
|
Allowance
for loan losses as a percent of
|
|
|
|
|
|
|
|
|
total
nonaccrual loans
|
|
|
83.14 |
% |
|
|
113.10 |
% |
|
|
|
|
|
|
|
|
|
Nonaccrual
loans as a
|
|
|
|
|
|
|
|
|
percent
of total gross loans
|
|
|
1.67 |
% |
|
|
0.83 |
% |
|
|
|
|
|
|
|
|
|
Nonperforming
assets as a
|
|
|
|
|
|
|
|
|
percent
of total assets
|
|
|
1.58 |
% |
|
|
0.71 |
% |
Liabilities
and Stockholders’ Equity
Total
liabilities increased from $682.4
million at December 31, 2008 to $789.5 million at September 30,
2009. The increase was primarily due to an increase in total deposits
of $149.3 million, partially offset by a decrease in borrowings of $43.4
million.
Total
deposits were $606.4 million as of September 30, 2009, compared to $457.1
million at December 31, 2008, an annualized increase of 43.5%. The
increase in deposits was comprised of increases in retail certificate of
deposits of $96.8 million and transaction accounts of $73.3 million, partially
offset by a decrease in brokered certificates of deposits of $20.8 million. As
of September 30, 2009, we had $80.1 million of certificate of deposits that are
scheduled to reprice in the next quarter.
We
had $166.5 million of borrowings as of September 30, 2009, compared to $209.9
million of borrowings at December 31, 2008. Borrowings consist
primarily of advances from the FHLB which are collateralized by pledges of
certain real estate loans with an aggregate principal balance of $500.0 million
and FHLB stock totaling $12.7 million at September 30, 2009. See
“Note 4 – FHLB Advances and Other Borrowings” in our Notes to Consolidated
Financial Statements contained herein. The total cost of borrowings
for the nine months ended September 30, 2009 was 4.31%, an increase of 5 basis
points from the same period in 2008.
We
had $10.3 million of subordinated debentures as of September 30, 2009 which were
used to fund the issuance of trust preferred securities in 2004. The
total cost of the subordinated debentures for the three months ended September
30, 2009 was 3.45%, compared to 5.55% for the same period in
2008. The total cost of the subordinated debenture for the nine
months ended September 30, 2009 was 3.75%, compared to 5.99% for the same period
in 2008.
Total
equity was $58.3 million as of September 30, 2009, compared to $57.5 million at
December 31, 2008, an increase of $768,000. The increase in equity
was primarily due to an increase in the accumulated adjustment to stockholders’
equity of $982,000 due to an increase in the unrealized value of our investment
portfolio, stock-based compensation expense of $203,000 and 200,000 warrants for
common stock exercised at $0.75 per share or $150,000. This increase
was partially offset by a net loss of $183,000 and the repurchase and retirement
of 100,000 shares of common stock at a cost of $384,000, or at an average cost
of $3.84 per share.
RESULTS
OF OPERATIONS
In the
third quarter of 2009, we recorded a net loss of $7,000, or less than $0.01 per
diluted share, compared to net income of $1.0 million, or $0.16 per diluted
share for the third quarter of 2008. All diluted earnings per share
amounts have been adjusted to reflect the dilutive effect of all warrants and
stock options, except for those options whose exercise price exceeds the closing
market price as of September 30, 2009. See Note 6 – Earnings (Loss)
Per Share, in our Notes to Consolidated Financial Statements contained
herein.
For the
quarter ended September 30, 2009, our pre-tax income/loss decreased by $1.7
million, compared with the same period in the prior year, primarily due
to:
·
|
A
$1.3 million increase in provision for loan
losses;
|
·
|
A
$391,000 decline in noninterest income, primarily due to an
other-than-temporary impairment charge taken on private label securities
in the current period; and
|
·
|
A
$168,000 increase in noninterest expense, primarily associated with higher
costs related to FDIC insurance premiums and net operations of other real
estate owned, partially offset by lower compensation and benefits
expense.
|
These
unfavorable items were partially offset by an increase in net interest income of
$203,000.
For the
three months ended September 30, 2009, return on average assets was less than
0.01% and our return on average equity was a negative 0.05%. These
compare to our returns for the same comparable period of 2008 of $0.55% on
average assets and 6.87% on average equity.
The net
loss for the nine months ended September 30, 2009 was $183,000, or $0.04 per
diluted share, compared to net income of $602,000, or $0.10 per diluted share in
the comparable prior period. For the nine months ended September 30,
2009, return on average assets was a negative 0.03% and our return on average
equity was a negative 0.42%. These compare to our returns for the
same comparable period of 2008 of 0.11% on average assets and 1.35% on average
equity.
Our basic
value per share decreased to $11.66 at September 30, 2009 from $11.74 at
December 31, 2008. Our diluted book value per share increased to
$9.86 at September 30, 2009, from $9.60 at December 31, 2008, reflecting an
annualized increase of 3.6%. The decrease in our basic value per
share is primarily due to the repurchase and retirement of 100,000 shares of our
stock at a cost below our book value during the first quarter of 2009, offset by
the issuance of 200,000 shares from a warrant exercise in May 2009. The
increase in our diluted value per share is primarily due to an increase in the
number of outstanding shares and options whose exercise price was below the
closing market price as of September 30, 2009. Options
whose exercise price exceeds the closing market price as of September 30, 2009
are excluded from the diluted book value calculation.
Net
Interest Income
Our
earnings are derived predominately from net interest income, which is the
difference between the interest income earned on interest-earning assets,
primarily loans and securities, and the interest expense incurred on
interest-bearing liabilities, primarily deposits and borrowings. The
spread between the yield on interest-earning assets and the cost of
interest-bearing liabilities and the relative dollar amounts of these assets and
liabilities principally affect net interest income. The net interest
margin reflects the relative level of interest-earning assets to
interest-bearing liabilities and equals the net interest income divided by the
average interest-earning assets.
Net
interest income totaled $5.8 million in the third quarter of 2009, up $0.2
million or 3.7% from the same period in the prior year, reflecting an 11.2%
increase in average interest-earning assets to $771.4 million, partially offset
by a decline in the net interest margin. The net interest margin was
2.98% for the quarter ended September 30, 2009, down 22 basis points from the
same period in the prior year and down 32 basis points from the second quarter
of 2009. The decline in the current quarter from a year ago primarily
reflected the average yield on interest-earning assets decreasing more rapidly
than the average costs on our interest-bearing
liabilities. Decreasing market interest rates associated with the
economic downturn affected the repricing on our adjustable rate loan portfolio
whereby yields on average loans decreased 29 basis points. The
decrease in our loan yield was mitigated by the interest rate floors we have on
our loans. At September 30, 2009, 88.7% of our loan portfolio had
adjustable rates of which 90.4% of those loans were at their interest rate
floor. Decreasing market interest rates also lowered the yield on our
short-term investments, which contributed to the decrease in yield on our
investment securities of 163 basis points. During the quarter ended
September 30, 2009, we began to restructure the securities portfolio to reduce
the credit risk exposure by selling some of the higher credit risk private label
securities and replacing them with lower yielding, lower credit risk GSE
securities. These GSE securities also enhance our regulatory capital
as they have a lower asset risk weighting than the private label
securities.
For the
first nine months of 2009, net interest income totaled $17.0 million, up $1.3
million or 8.5% from the same period in the prior year. The increase
was associated with higher interest-earning assets which grew by $30.1 million
and an increase in the net interest margin of 12 basis points.
The
following tables set forth for the three and nine months ended September 30,
2009 and 2008, our interest income from average interest-earning assets and the
resultant yields and interest expense on average interest-bearing liabilities
and the resultant costs, expressed as rates. The yields and costs are
derived by dividing the related income or expense by the associated average
balance of assets or liabilities for the periods shown. We compute
average balances from the daily average balances for the periods
indicated. The yields and costs also may include fees that are
considered adjustments to yields.
|
|
Three
Months Ended September 30, 2009
|
|
|
Three
Months Ended September 30, 2008
|
|
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
Annualized
|
|
|
Average
|
|
|
|
|
|
Annualized
|
|
Assets
|
|
Balance
|
|
|
Interest
|
|
|
Yield/Cost
|
|
|
Balance
|
|
|
Interest
|
|
|
Yield/Cost
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
82,250 |
|
|
$ |
49 |
|
|
|
0.24 |
% |
|
$ |
7,460 |
|
|
$ |
7 |
|
|
|
0.38 |
% |
Federal
funds sold
|
|
|
30 |
|
|
|
- |
|
|
|
- |
% |
|
|
1,976 |
|
|
|
10 |
|
|
|
2.02 |
% |
Investment
securities
|
|
|
104,476 |
|
|
|
1,096 |
|
|
|
4.20 |
% |
|
|
76,039 |
|
|
|
1,109 |
|
|
|
5.83 |
% |
Loans
receivable, net
|
|
|
584,625 |
|
|
|
9,612 |
|
|
|
6.58 |
% |
|
|
608,169 |
|
|
|
10,444 |
|
|
|
6.87 |
% |
Total
interest-earning assets
|
|
|
771,381 |
|
|
|
10,757 |
|
|
|
5.58 |
% |
|
|
693,644 |
|
|
|
11,570 |
|
|
|
6.67 |
% |
Non-interest-earning
assets
|
|
|
37,004 |
|
|
|
|
|
|
|
|
|
|
|
32,090 |
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
808,385 |
|
|
|
|
|
|
|
|
|
|
$ |
725,734 |
|
|
|
|
|
|
|
|
|
Liabilities
and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
accounts
|
|
$ |
137,523 |
|
|
$ |
378 |
|
|
|
1.10 |
% |
|
$ |
97,853 |
|
|
$ |
352 |
|
|
|
1.44 |
% |
Retail
certificates of deposit
|
|
|
422,120 |
|
|
|
2,610 |
|
|
|
2.47 |
% |
|
|
283,722 |
|
|
|
2,722 |
|
|
|
3.84 |
% |
Wholesale/brokered
certificates of deposit
|
|
|
8,146 |
|
|
|
57 |
|
|
|
2.80 |
% |
|
|
29,839 |
|
|
|
286 |
|
|
|
3.83 |
% |
Total
interest-bearing deposits
|
|
|
567,789 |
|
|
|
3,045 |
|
|
|
2.15 |
% |
|
|
411,414 |
|
|
|
3,360 |
|
|
|
3.27 |
% |
Borrowings
|
|
|
166,543 |
|
|
|
1,870 |
|
|
|
4.49 |
% |
|
|
239,367 |
|
|
|
2,517 |
|
|
|
4.21 |
% |
Subordinated
debentures
|
|
|
10,310 |
|
|
|
89 |
|
|
|
3.45 |
% |
|
|
10,310 |
|
|
|
143 |
|
|
|
5.55 |
% |
Total
borrowings
|
|
|
176,853 |
|
|
|
1,959 |
|
|
|
4.43 |
% |
|
|
249,677 |
|
|
|
2,660 |
|
|
|
4.26 |
% |
Total
interest-bearing liabilities
|
|
|
744,642 |
|
|
|
5,004 |
|
|
|
2.69 |
% |
|
|
661,091 |
|
|
|
6,020 |
|
|
|
3.64 |
% |
Non-interest-bearing
liabilities
|
|
|
5,739 |
|
|
|
|
|
|
|
|
|
|
|
6,338 |
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
750,381 |
|
|
|
|
|
|
|
|
|
|
|
667,429 |
|
|
|
|
|
|
|
|
|
Equity
|
|
|
58,004 |
|
|
|
|
|
|
|
|
|
|
|
58,305 |
|
|
|
|
|
|
|
|
|
Total
liabilities and equity
|
|
$ |
808,385 |
|
|
|
|
|
|
|
|
|
|
$ |
725,734 |
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
|
$ |
5,753 |
|
|
|
|
|
|
|
|
|
|
$ |
5,550 |
|
|
|
|
|
Net
interest rate spread
|
|
|
|
|
|
|
|
|
|
|
2.89 |
% |
|
|
|
|
|
|
|
|
|
|
3.03 |
% |
Net
interest margin
|
|
|
|
|
|
|
|
|
|
|
2.98 |
% |
|
|
|
|
|
|
|
|
|
|
3.20 |
% |
Ratio
of interest-earning assets to interest-bearing liabilities
|
|
|
|
|
|
|
|
103.59 |
% |
|
|
|
|
|
|
|
|
|
|
104.92 |
% |
|
|
Nine
Months Ended September 30, 2009
|
|
Nine
Months Ended September 30, 2008
|
|
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
Annualized
|
|
|
Average
|
|
|
|
|
|
Annualized
|
|
Assets
|
|
Balance
|
|
|
Interest
|
|
|
Yield/Cost
|
|
|
Balance
|
|
|
Interest
|
|
|
Yield/Cost
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
39,454 |
|
|
$ |
67 |
|
|
|
0.23 |
% |
|
$ |
7,314 |
|
|
$ |
31 |
|
|
|
0.57 |
% |
Federal
funds sold
|
|
|
4,001 |
|
|
|
8 |
|
|
|
0.27 |
% |
|
|
1,143 |
|
|
|
20 |
|
|
|
2.33 |
% |
Investment
securities
|
|
|
88,212 |
|
|
|
3,097 |
|
|
|
4.68 |
% |
|
|
83,691 |
|
|
|
3,362 |
|
|
|
5.36 |
% |
Loans
receivable
|
|
|
602,189 |
|
|
|
29,832 |
|
|
|
6.61 |
% |
|
|
611,640 |
|
|
|
31,633 |
|
|
|
6.90 |
% |
Total
interest-earning assets
|
|
|
733,856 |
|
|
|
33,004 |
|
|
|
6.00 |
% |
|
|
703,788 |
|
|
|
35,046 |
|
|
|
6.64 |
% |
Non-interest-earning
assets
|
|
|
35,547 |
|
|
|
|
|
|
|
|
|
|
|
32,203 |
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
769,403 |
|
|
|
|
|
|
|
|
|
|
$ |
735,991 |
|
|
|
|
|
|
|
|
|
Liabilities
and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
accounts
|
|
$ |
113,154 |
|
|
$ |
943 |
|
|
|
1.11 |
% |
|
$ |
99,263 |
|
|
$ |
1,168 |
|
|
|
1.57 |
% |
Retail
certificates of deposit
|
|
|
398,157 |
|
|
|
8,879 |
|
|
|
2.97 |
% |
|
|
269,455 |
|
|
|
8,829 |
|
|
|
4.37 |
% |
Wholesale/brokered
certificates of deposit
|
|
|
12,229 |
|
|
|
271 |
|
|
|
2.95 |
% |
|
|
34,481 |
|
|
|
847 |
|
|
|
3.28 |
% |
Total
interest-bearing deposits
|
|
|
523,540 |
|
|
|
10,093 |
|
|
|
2.57 |
% |
|
|
403,199 |
|
|
|
10,844 |
|
|
|
3.59 |
% |
Borrowings
|
|
|
171,967 |
|
|
|
5,602 |
|
|
|
4.34 |
% |
|
|
255,758 |
|
|
|
8,046 |
|
|
|
4.19 |
% |
Subordinated
debentures
|
|
|
10,310 |
|
|
|
290 |
|
|
|
3.75 |
% |
|
|
10,310 |
|
|
|
463 |
|
|
|
5.99 |
% |
Total
borrowings
|
|
|
182,277 |
|
|
|
5,892 |
|
|
|
4.31 |
% |
|
|
266,068 |
|
|
|
8,509 |
|
|
|
4.26 |
% |
Total
interest-bearing liabilities
|
|
|
705,817 |
|
|
|
15,985 |
|
|
|
3.02 |
% |
|
|
669,267 |
|
|
|
19,353 |
|
|
|
3.86 |
% |
Non-interest-bearing
liabilities
|
|
|
5,620 |
|
|
|
|
|
|
|
|
|
|
|
7,439 |
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
711,437 |
|
|
|
|
|
|
|
|
|
|
|
676,706 |
|
|
|
|
|
|
|
|
|
Equity
|
|
|
57,966 |
|
|
|
|
|
|
|
|
|
|
|
59,285 |
|
|
|
|
|
|
|
|
|
Total
liabilities and equity
|
|
$ |
769,403 |
|
|
|
|
|
|
|
|
|
|
$ |
735,991 |
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
|
$ |
17,019 |
|
|
|
|
|
|
|
|
|
|
$ |
15,693 |
|
|
|
|
|
Net
interest rate spread
|
|
|
|
|
|
|
|
|
|
|
2.98 |
% |
|
|
|
|
|
|
|
|
|
|
2.78 |
% |
Net
interest margin
|
|
|
|
|
|
|
|
|
|
|
3.09 |
% |
|
|
|
|
|
|
|
|
|
|
2.97 |
% |
Ratio
of interest-earning assets to interest-bearing liabilities
|
|
|
|
|
|
|
|
103.97 |
% |
|
|
|
|
|
|
|
|
|
|
105.16 |
% |
Changes
in our net interest income are a function of changes in both rates and volumes
of interest-earning assets and interest-bearing liabilities. The
following table sets forth the effects of changing rates and volumes on our net
interest income. Information is provided with respect to effects on
interest income attributable to changes in (i) rate (changes in rate multiplied
by prior volume); (ii) volume (changes in volume multiplied by prior rate); and
(iii) the net change from both rate and volume.
|
|
Three
Months Ended September 30, 2009
|
|
|
Nine
Months Ended September 30, 2009
|
|
|
|
Compared
to
|
|
|
Compared
to
|
|
|
|
Three
Months Ended September 30, 2008
|
|
|
Nine
Months Ended September 30, 2008
|
|
|
|
Increase
(decrease) due to
|
|
|
Increase
(decrease) due to
|
|
|
|
Rate
|
|
|
Volume
|
|
|
Net
|
|
|
Rate
|
|
|
Volume
|
|
|
Net
|
|
|
|
(in
thousands)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
(4 |
) |
|
$ |
46 |
|
|
$ |
42 |
|
|
$ |
(29 |
) |
|
$ |
65 |
|
|
$ |
36 |
|
Federal
funds sold
|
|
|
(5 |
) |
|
|
(5 |
) |
|
|
(10 |
) |
|
|
(30 |
) |
|
|
18 |
|
|
|
(12 |
) |
Investment
securities
|
|
|
(362 |
) |
|
|
349 |
|
|
|
(13 |
) |
|
|
(441 |
) |
|
|
176 |
|
|
|
(265 |
) |
Loans
receivable, net
|
|
|
(434 |
) |
|
|
(398 |
) |
|
|
(832 |
) |
|
|
(1,317 |
) |
|
|
(484 |
) |
|
|
(1,801 |
) |
Total
interest-earning assets
|
|
$ |
(805 |
) |
|
$ |
(8 |
) |
|
$ |
(813 |
) |
|
$ |
(1,817 |
) |
|
$ |
(225 |
) |
|
$ |
(2,042 |
) |
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
accounts
|
|
$ |
(95 |
) |
|
$ |
121 |
|
|
$ |
26 |
|
|
$ |
(373 |
) |
|
$ |
148 |
|
|
$ |
(225 |
) |
Retail
certificates of deposit
|
|
|
(1,165 |
) |
|
|
1,053 |
|
|
|
(112 |
) |
|
|
(3,366 |
) |
|
|
3,416 |
|
|
|
50 |
|
Wholesale/brokered
certificates of deposit
|
|
|
(62 |
) |
|
|
(167 |
) |
|
|
(229 |
) |
|
|
(76 |
) |
|
|
(500 |
) |
|
|
(576 |
) |
Borrowings
|
|
|
164 |
|
|
|
(811 |
) |
|
|
(647 |
) |
|
|
279 |
|
|
|
(2,723 |
) |
|
|
(2,444 |
) |
Subordinated
debentures
|
|
|
(54 |
) |
|
|
- |
|
|
|
(54 |
) |
|
|
(173 |
) |
|
|
- |
|
|
|
(173 |
) |
Total
interest-bearing liabilities
|
|
$ |
(1,212 |
) |
|
$ |
196 |
|
|
$ |
(1,016 |
) |
|
$ |
(3,709 |
) |
|
$ |
341 |
|
|
$ |
(3,368 |
) |
Change
in net interest income
|
|
$ |
407 |
|
|
$ |
(204 |
) |
|
$ |
203 |
|
|
$ |
1,892 |
|
|
$ |
(566 |
) |
|
$ |
1,326 |
|
Provision
for Loan Losses
During
the quarter ended September 30, 2009, the provision for loan losses totaled $2.0
million, up $1.3 million from the same period in the prior year. The
increase in provision was primarily due to two factors. First, we
replenished the allowance for increases in loan charge-offs of $1.0 million,
primarily associated with two industrial loans. Second, we raised the
reserve factors applied to various segments of our loan portfolio and had an
increase in the level of our classified loans. The increased reserve
factors were in response to deteriorating economic conditions and constraints on
the financial markets in which we lend. These conditions adversely
affected our borrowers, their businesses and the collateral securing our
loans. The higher factors accounted for approximately 50% of the
current quarter’s provision for loan losses.
For the
first nine months of 2009, the provision for loan losses totaled $5.5 million
and net loan charge-offs were $3.3 million. This compares with a $1.7
million provision for loan losses and net charge-offs of $0.4 million for the
same period a year ago.
Our Loss
Mitigation Department continues collection efforts on loans previously written
down and/or charged-off to maximize potential recoveries. See
“Allowance for Loan Losses.”
Noninterest
Income
Noninterest
income totaled $256,000 in the third quarter of 2009, down $391,000 or 60.4%
from the same period in the prior year. The primary contributor to
the decline between quarters was due to an other-than-temporary impairment
charge of $421,000 on private label securities recorded in the current quarter
within our net gain (loss) from sale of investment securities
category. As previously disclosed, we received these securities when
we redeemed our shares in a defunct AMF mutual fund in the second quarter of
2008.
For the
first nine months of 2009, noninterest income totaled $0.6 million, compared
with a loss of $1.4 million from the same period a year ago. The loss
in 2008 was primarily due to our redemption of the aforementioned AMF mutual
fund investment for a loss of $3.6 million, partially offset by higher loan
servicing fee income related to prepayment fees.
Noninterest
Expense
Noninterest
expense totaled $4.1 million in the current quarter, up $168,000 or 4.3% from
the same period in the prior year. The increase was primarily
associated with higher costs related to FDIC insurance premiums of $208,000 and
net operations of other real estate owned of $144,000, partially offset by lower
compensation and benefits expense of $269,000. FDIC insurance
premiums increased due to a raise in the regular quarterly assessment from 7.5
basis points in the third quarter of 2008 to 18.0 basis points for the third
quarter of 2009 and the growth in our deposits of 43.7% from the end of
September 2008. Higher costs related to net operations of other real
estate owned were due to an increase in write downs and, to a lesser extent, an
increase in the number of foreclosed properties. The decrease in
compensation and benefits expense for the quarter was primarily attributable to
a reduction in the annual incentive compensation accrual.
For the
first nine months of 2009, noninterest expense totaled $12.6 million, up $0.7
million or 5.9% from the same period in the prior year. The increase
was due to higher FDIC insurance premiums of $0.9 million, which included a
one-time special assessment of $365,000, along with higher expenses in all the
other expense categories, except for compensation and benefits expense which
decreased $0.8 million. The number of full-time equivalent employees
at September 30, 2009 was 91.5 compared to 88.5 at September 30,
2008.
Income
Taxes
For the
three months ended September 30, 2009, we had a tax benefit of
$104,000 compared to a tax provision of $581,000 for the same period in
2008. The change in income taxes was primarily due to a reduction in
net income before taxes of $1.7 million. We had a tax benefit for the
nine months ended September 30, 2009 of $416,000 compared to a tax provision of
$45,000 for the same period in 2008. At September 30, 2009, we had no
valuation allowance against our deferred tax asset of $11.0 million based on
management’s analysis that the asset was more-likely-than-not to be
realized.
LIQUIDITY
Our
primary sources of funds are deposits; advances from the FHLB and other
borrowings; principal and interest payments on loans; and income from
investments. While maturities and scheduled amortization of loans are a
predictable source of funds, deposit inflows and outflows as well as loan
prepayments are greatly influenced by general interest rates, economic
conditions, and competition.
Our cash
flows are comprised of three primary classifications: operating activities,
investing activities and financing activities. Net cash provided by
operating activities was $6.8 million for the nine months ended September 30,
2009, compared to $5.8 million for the nine months ended September 30,
2008. Net cash used in investing activities was $6.3 million for the
nine months ended September 30, 2009, compared to $26.9 million for the nine
months ended September 30, 2008. Net cash provided by financing
activities was $105.5 million for the nine months ended September 30, 2009,
compared to net cash used in financing activities of $3.3 million for the nine
months ended September 30, 2008.
Our most
liquid assets are unrestricted cash and short-term investments. The
levels of these assets are dependent on our operating, lending and investing
activities during any given period. At September 30, 2009, cash and
cash equivalents totaled $115.7 million and the market-value of our investment
securities available for sale totaled $101.7 million. If additional
funds are needed, we have additional sources of liquidity that can be accessed,
including FHLB advances, Federal Funds lines, the Federal Reserve’s lending
programs, and loan sales. We are currently approved by the FHLB to
borrow up to 45% of the Bank’s total assets to the extent we provide qualifying
collateral and hold sufficient FHLB stock. At September 30, 2009, the
maximum amount we could borrow through the FHLB was $352.7
million. To the extent 2009 deposit growth falls short of satisfying
ongoing commitments to fund maturing and withdrawalable deposits, repay maturing
borrowings, fund existing and future loans, or make investments, we may access
funds through our FHLB borrowing arrangement or other sources. For
the quarter ended September 30, 2009, our average liquidity ratio was 17.66%, up
from a ratio 9.93% for the same period in 2008.
As of
September 30, 2009, we had commitments to extend credit of $13.9 million as
compared to $14.4 million at December 31, 2008. There were no
material changes to our commitments or contingent liabilities as of September
30, 2009, compared to the period ended December 31, 2008 as discussed in the
notes to the audited consolidated financial statements included in our 2008
Annual Report on Form 10-K, as amended.
CAPITAL
RESOURCES
Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, to be considered adequately capitalized by regulatory agencies, a bank
must meet a minimum ratio of Tier 1 capital to tangible total assets (leverage
ratio) of 4.0%, of Tier 1 capital to risk-adjusted assets of 4.0% and of total
capital to risk-adjusted assets of 8.0%. The minimum leverage ratio
is lowered to 3.0% for a bank rated at the highest level of safety and soundness
by regulators. Despite these guidelines, the regulators still have
the discretion to increase these minimum capital ratios for specific
institutions, if deemed appropriate. At September 30, 2009, under the
same guidelines and framework, the Bank continued to exceed the more stringent
“well capitalized” standards of 5.00% for Tier 1 capital to tangible total
assets, 6.00% for Tier 1 capital to risk-adjusted assets and 10.00% for total
capital to risk-adjusted assets, as defined by regulation.
The table
in “Note 3 - Regulatory Matters” in our Notes to Financial Statements contained
herein, reflects the Company’s and the Bank’s capital ratios based on the end of
the period covered by this report and the regulatory requirements to be
adequately capitalized and well capitalized. As of September 30,
2009, the Bank met the capital ratios required to be considered well capitalized
under applicable regulatory standards.
Management
believes that there have been no material changes in our quantitative and
qualitative information about market risk since December 31, 2008. For a
complete discussion of our quantitative and qualitative market risk, see “Item
7A. Quantitative and Qualitative Disclosure About Market Risk” in our 2008
Annual Report on Form 10-K, as amended.
Evaluation of Disclosure Controls and
Procedures
Our Chief
Executive Officer and its Chief Financial Officer, after evaluating the
effectiveness of our disclosure controls and procedures as defined in Rules
13a-15(c) and 15-d-15(e) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), as of the end of the period covered by this report (the
"Evaluation Date") have concluded that as of the Evaluation Date, our disclosure
controls and procedures were adequate and effective to ensure that material
information relating to us and our consolidated subsidiaries would be made known
to them by others within those entities, particularly during the period in which
this quarterly report was being prepared. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us in the reports that it
files under the Exchange Act is accumulated and communicated to its Management,
including its Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required
disclosure.
Changes in Internal
Controls
There
have not been any changes in our internal control over financial reporting (as
such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act)
during the fiscal quarter to which this report relates that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
We were
not involved in any legal proceedings other than those occurring in the ordinary
course of business, except for the “James Baker v. Century Financial, et al”
which was discussed in “Item 3. Legal Proceedings” in our 2008 Annual Report on
Form 10-K, as amended. Management believes that none of these legal
proceedings, individually or in the aggregate, will have a material adverse
impact on our results of operations or financial condition.
Set
forth below are updated risk factors from those set forth in our Current Report
on Form 8-K filed with the SEC on October 9, 2009, which superseded the risk
factors disclosed in our Annual Report on Form 10-K, as amended, for the year
ended December 31, 2008, and Quarterly Report on Form 10-Q for the quarter ended
June 30, 2009.
Risks
Related to Our Business
Our
business is subject to various lending and other economic risks that could
adversely impact our results of operations and financial condition.
There was
significant disruption and volatility in the financial and capital markets
during 2008 and the first nine months of 2009. The financial markets
and the financial services industry in particular suffered unprecedented
disruption, causing a number of institutions to fail or require government
intervention to avoid failure. These conditions were largely the
result of the erosion of the U.S. and global credit markets, including a
significant and rapid deterioration in the mortgage lending and related real
estate markets. Continued declines in real estate values, high
unemployment and financial stress on borrowers as a result of the uncertain
economic environment could have an adverse effect on our borrowers or their
customers, which could adversely affect our financial condition and results of
operations.
As a
consequence of the difficult economic environment, we experienced losses,
resulting primarily from significant provisions for loan losses and substantial
impairment charges on our investment securities. There can be no
assurance that the economic conditions that have adversely affected the
financial services industry, and the capital, credit and real estate markets
generally, will improve in the near term, in which case we could continue to
experience losses and write-downs of assets, and could face capital and
liquidity constraints or other business challenges. A further
deterioration in economic conditions, particularly within our geographic region,
could result in the following consequences, any of which could have a material
adverse effect on our business:
·
|
Loan
delinquencies may further increase causing additional increases in our
provision and allowance for loan
losses.
|
·
|
Our
ability to assess the creditworthiness of our customers may be impaired if
the models and approaches we use to select, manage, and underwrite our
customers become less predictive of future
charge-offs.
|
·
|
Collateral
for loans made by the Bank, especially real estate, may continue to
decline in value, in turn reducing a client’s borrowing power, and
reducing the value of assets and collateral associated with our loans held
for investment.
|
·
|
Consumer
confidence levels may decline and cause adverse changes in payment
patterns, resulting in increased delinquencies and default rates on loans
and other credit facilities and decreased demand for our products and
services.
|
·
|
Performance
of the underlying loans in the private label mortgage backed securities
may continue to deteriorate as the recession continues potentially causing
further other-than-temporary impairment markdowns to our investment
portfolio.
|
We
may suffer losses in our loan portfolio in excess of our allowance for loan
losses.
We have
experienced increases in the levels of our nonperforming assets and loan
charge-offs in recent periods. Our total nonperforming assets
amounted to $13.4 million, or 1.6% of our total assets, at September 30, 2009,
up from $5.2 million or 0.7% of our total assets, at December 31,
2008. We had $3.3 million of net loan charge-offs for the first nine
months of 2009, compared to $966,000 in net loan charge-offs for the entire year
ended December 31, 2008. Our provision for loan losses was $5.5
million for the year-to-date period ended September 30, 2009, compared to $2.2
million for the entire year ended December 31, 2008. At September 30,
2009, the ratio of our allowance for loan losses to nonperforming loans was
83.1% and the ratio of our allowance for loan losses to total loans was
1.4%. Additional increases in our nonperforming assets or loan
charge-offs may have an adverse effect upon our future results of
operations.
We seek
to mitigate the risks inherent in our loan portfolio by adhering to specific
underwriting practices. These practices include analysis of a
borrower’s prior credit history, financial statements, tax returns and cash flow
projections, valuation of collateral based on reports of independent appraisers
and verification of liquid assets. Although we believe that our
underwriting criteria are appropriate for the various kinds of loans we make, we
may incur losses on loans that meet our underwriting criteria, and these losses
may exceed the amounts set aside as reserves in our allowance for loan
losses. 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.
|
Although
we maintain an allowance for loan losses at a level that we believe is adequate
to absorb losses inherent in our loan portfolio, 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 Board 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.
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
September 30, 2009, approximately 92% 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.
Our
level of credit risk is increasing due to our focus on commercial lending and
the concentration on small businesses customers with heightened vulnerability to
economic conditions.
As of
September 30, 2009, our largest outstanding commercial business loan was $3.0
million, which is fully committed as of such date and our largest outstanding
commercial real estate loan was $11.6 million. At such date, our
commercial real estate loans amounted to $437.5 million, or 74.8% of our total
loan portfolio, and our commercial business loans amounted to $28.8 million, or
4.9% of our total loan portfolio. Commercial real estate and
commercial business loans generally are considered riskier than single-family
residential loans because they have larger balances to a single borrower or
group of related borrowers. Commercial real estate and commercial
business loans involve risks because the borrowers’ ability to repay the loans
typically depends primarily on the successful operation of the businesses or the
properties securing the loans. Most of the Bank’s commercial business
loans are made to small business or middle market customers who may have a
heightened vulnerability to economic conditions. Moreover, a portion
of these loans have been made or acquired by us in recent years and the
borrowers may not have experienced a complete business or economic
cycle. Furthermore, the deterioration of our borrowers’ businesses
may hinder their ability to repay their loans with us, which could adversely
affect our results of operations.
Nonperforming
assets take significant time to resolve and adversely affect our results of
operations and financial condition.
Nonperforming
assets adversely affect our net income in various ways. Until
economic and market conditions improve, we may expect to continue to incur
losses relating to an increase in nonperforming assets. We generally
do not record interest income on nonperforming loans or other real estate owned,
thereby adversely affecting our income, and increasing our loan administration
costs. When we take collateral in foreclosures and similar
proceedings, we are required to mark the related asset to the then fair market
value of the collateral, which may ultimately result in a loss. An
increase in the level of nonperforming assets increases our risk profile and may
impact the capital levels our regulators believe are appropriate in light of the
ensuing risk profile. While we reduce problem assets through loan
sales, workouts, restructurings and otherwise, decreases in the value of the
underlying collateral, or in these borrowers’ performance or financial
condition, whether or not due to economic and market conditions beyond our
control, could adversely affect our business, results of operations and
financial condition. In addition, the resolution of nonperforming
assets requires significant commitments of time from management and our
directors, which can be detrimental to the performance of their other
responsibilities. There can be no assurance that we will not
experience future increases in nonperforming assets.
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 larger 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 interest rates or conditions. In general, higher interest
rates are associated with a lower volume of loan originations while lower
interest rates are usually associated with higher loan
originations. 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. Also, as many of our loans currently have interest rate
floors, a rise in rates may increase the cost of our deposits while the rates on
the loans remain at the floor, which could decrease our
margin. Accordingly, changes in levels of market interest rates could
materially and adversely affect our net interest margin, asset quality and loan
origination volume.
Adverse
outcomes of litigation against us could harm our business and results of
operations.
We are
currently involved in litigation relating to the origination of certain subprime
mortgages that prior management purchased on the secondary market (and later
sold), as well as other actions arising in the ordinary course of
business. A significant judgment against us in connection with any
pending or future litigation could harm our business and results of
operations.
Changes
in the fair value of our securities may reduce our stockholders’ equity and net
income.
At
September 30, 2009, $101.7 million of our securities were classified as
available for sale and had an aggregate net unrealized loss of $3.2
million. We increase or decrease stockholders’ equity by the amount
of change from the unrealized gain or loss (the difference between the estimated
fair value and the amortized cost) of our available-for-sale securities
portfolio, net of the related tax, under the category of accumulated other
comprehensive income/loss. Therefore, a decline in the estimated fair
value of this portfolio will result in a decline in reported stockholders’
equity, as well as book value per common share and tangible book value per
common share. This decrease will occur even though the securities are
not sold. In the case of debt securities, if these securities are
never sold and there are no credit impairments, the decrease will be recovered
over the life of the securities. In the case of equity securities
which have no stated maturity, the declines in fair value may or may not be
recovered over time.
For the
year ended December 31, 2008, we reported a non-cash other-than-temporary
impairment charge of $1.3 million on our securities portfolio. We
continue to monitor the fair value of our entire securities portfolio as part of
our ongoing other-than-temporary impairment evaluation process. No
assurance can be given that we will not need to recognize additional
other-than-temporary impairment charges related to securities in the
future. In addition, as a condition to membership in the FHLB of San
Francisco, we are required to purchase and hold a certain amount of FHLB
stock. Our stock purchase requirement is based, in part, upon the
outstanding principal balance of advances from the FHLB. At September
30, 2009, we had stock in the FHLB of San Francisco totaling $12.7
million. The FHLB stock held by us is carried at cost and is subject
to recoverability testing under applicable accounting standards. The
FHLB has discontinued the repurchase of their stock and discontinued the
distribution of dividends. For the nine months ended September 30,
2009, we did not recognize an impairment charge related to our FHLB stock
holdings. There can be no assurance, however, that future negative
changes to the financial condition of the FHLB may not require us to recognize
an impairment charge with respect to such holdings.
Conditions
in the financial markets may limit our access to additional funding to meet our
liquidity needs.
Liquidity
is essential to our business, as we must maintain sufficient funds to respond to
the needs of depositors and borrowers. An inability to raise funds
through deposits, repurchase agreements, federal funds purchased, FHLB advances,
the sale or pledging as collateral of loans and other assets could have a
substantial negative effect on our liquidity. Our access to funding
sources in amounts adequate to finance our activities could be impaired by
factors that affect us specifically or the financial services industry in
general. Factors that could negatively affect our access to liquidity
sources include negative operating results, a decrease in the level of our
business activity due to a market downturn or negative regulatory action against
us. Our ability to borrow could also be impaired by factors that are
not specific to us, such as severe disruption of the financial markets or
negative news and expectations about the prospects for the financial services
industry as a whole, as evidenced by recent turmoil in the domestic and
worldwide credit markets.
The
soundness of other financial institutions could negatively affect
us.
Financial
services institutions are interrelated as a result of trading, clearing,
counterparty, or other relationships. We have exposure to many
different industries and counterparties, and we routinely execute transactions
with counterparties in the financial services industry, including commercial
banks, brokers and dealers, investment banks and other institutional
clients. Many of these transactions expose us to credit risk in the
event of a default by a counterparty or client. In addition, our
credit risk may be exacerbated when the collateral held by us cannot be realized
upon or is liquidated at prices not sufficient to recover the full amount of the
credit or derivative exposure due to us. Any such losses could have a
material adverse effect on our financial condition and results of
operations.
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 by the Federal Reserve Board, 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 (“EESA”) was
signed into law. Pursuant to the EESA, the U.S. Department of the
Treasury (“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 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 and the possible enactment of recently
proposed bankruptcy legislation may adversely affect our 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.
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. The affects of such recently enacted, and proposed,
legislation and regulatory programs on us cannot reliably be determined at this
time.
Confidential
customer information transmitted through the Bank’s online banking service is
vulnerable to security breaches and computer viruses, which could expose the
Bank to litigation and adversely affect its reputation and ability to generate
deposits.
The Bank
provides its customers the ability to bank online. The secure
transmission of confidential information over the Internet is a critical element
of online banking. The Bank’s network could be vulnerable to
unauthorized access, computer viruses, phishing schemes and other security
problems. The Bank may be required to spend significant capital and
other resources to protect against the threat of security breaches and computer
viruses, or to alleviate problems caused by security breaches or
viruses. To the extent that the Bank’s activities or the activities
of its customers involve the storage and transmission of confidential
information, security breaches and viruses could expose the Bank to claims,
litigation and other possible liabilities. Any inability to prevent
security breaches or computer viruses could also cause existing customers to
lose confidence in the Bank’s systems and could adversely affect its reputation
and our ability to generate deposits.
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 in late
2000. The loss of Mr. Gardner could have a negative impact on the
success of our business strategy. In addition, we rely upon the
services of Eddie Wilcox, our Executive Vice President and Chief Banking
Officer, and our ability to attract and retain highly skilled
personnel. We do not maintain key-man life insurance on any employee
other than Mr. Gardner. 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.
|
We
are subject to extensive regulation which could adversely affect our
business.
Our
operations are subject to extensive regulation by federal, state and local
governmental authorities and are subject to various laws and judicial and
administrative decisions imposing requirements and restrictions on part or all
of our operations. Given the current disruption in the financial
markets and potential new regulatory initiatives, including the Obama
Administration’s recent financial regulatory reform proposal, new regulations
and laws that may affect us are increasingly likely. Because our
business is highly regulated, the laws, rules and regulations applicable to us
are subject to regular modification and change. There are currently
proposed laws, rules and regulations that, if adopted, would impact our
operations. These proposed laws, rules and regulations, or any other
laws, rules or regulations, may be adopted in the future, which could (1) make
compliance much more difficult or expensive, (2) restrict our ability to
originate, broker or sell loans or accept certain deposits, (3) further limit or
restrict the amount of commissions, interest or other charges earned on loans
originated or sold by us, or (4) otherwise adversely affect our business or
prospects for business.
Moreover,
banking regulators have significant discretion and authority to prevent or
remedy unsafe or unsound practices or violations of laws or regulations by
financial institutions and holding companies in the performance of their
supervisory and enforcement duties. The exercise of regulatory
authority may have a negative impact on our financial condition and results of
operations.
Additionally,
in order to conduct certain activities, including acquisitions, we are required
to obtain regulatory approval. There can be no assurance that any
required approvals can be obtained, or obtained without conditions or on a
timeframe acceptable to us.
Higher
FDIC deposit insurance premiums and assessments could adversely affect our
financial condition.
FDIC
insurance premiums have increased substantially in 2009, and we expect to pay
significantly higher FDIC premiums in the future. As the large number
of recent bank failures continues to deplete the Deposit Insurance Fund, the
FDIC adopted a revised risk-based deposit insurance assessment schedule in
February 2009, which raised deposit insurance premiums. The FDIC also
implemented a five basis point special assessment of each insured depository
institution’s assets minus Tier 1 capital as of June 30, 2009, which special
assessment amount was capped at 10 basis points times the institution’s
assessment base for the second quarter of 2009. The amount of our
special assessment was $360,000. In addition, the FDIC recently
announced a proposed rule that will require financial institutions, such as the
Bank, to prepay their estimated quarterly risk-based assessments for the fourth
quarter of 2009 and for all of 2010 through and including 2012 in order to
re-capitalize the Deposit Insurance Fund. The proposed rule also
provides for increasing the FDIC assessment rates by three basis points
effective January 1, 2011.
A
natural disaster or recurring energy shortage, especially in California, could
harm our business.
We are
based in Costa Mesa, California, and approximately 92% of our total loan
portfolio was secured by real estate located in California at September 30,
2009. In addition, the computer systems that operate our Internet
websites and some of their back-up systems are located in Costa Mesa,
California. Historically, California has been vulnerable to natural
disasters. Therefore, we are susceptible to the risks of natural
disasters, such as earthquakes, wildfires, floods and
mudslides. Natural disasters could harm our operations directly
through interference with communications, including the interruption or loss of
our websites, which would prevent us from gathering deposits, originating loans
and processing and controlling our flow of business, as well as through the
destruction of facilities and our operational, financial and management
information systems. A natural disaster or recurring power outages
may also impair the value of our largest class of assets, our loan portfolio,
which is comprised substantially of real estate loans. Uninsured or
underinsured disasters may reduce borrowers’ ability to repay mortgage
loans. Disasters may also reduce the value of the real estate
securing our loans, impairing our ability to recover on defaulted loans through
foreclosure and making it more likely that we would suffer losses on defaulted
loans. California has also experienced energy shortages, which, if
they recur, could impair the value of the real estate in those areas
affected. Although we have implemented several back-up systems and
protections (and maintain business interruption insurance), these measures may
not protect us fully from the effects of a natural disaster. The
occurrence of natural disasters or energy shortages in California could have a
material adverse effect on our business, prospects, financial condition and
results of operations.
Risks
Related to Ownership of Our Common Stock
The
price of our common stock may fluctuate significantly, and this may make it
difficult for you to resell shares of common stock owned by you at times or at
prices you find attractive.
Stock
price volatility may make it difficult for you to resell your common stock when
you want and at prices you find attractive. Our stock price can
fluctuate significantly in response to a variety of factors including, among
other things:
·
|
Actual
or anticipated variations in quarterly results of
operations;
|
·
|
Recommendations
by securities analysts;
|
·
|
Operating
and stock price performance of other companies that investors deem
comparable to us;
|
·
|
News
reports relating to trends, concerns and other issues in the financial
services industry, including the failures of other financial institutions
in the current economic downturn;
|
·
|
Perceptions
in the marketplace regarding us and/or our
competitors;
|
·
|
New
technology used, or services offered, by
competitors;
|
·
|
Significant
acquisitions or business combinations, strategic partnerships, joint
ventures or capital commitments by or involving us or our
competitors;
|
·
|
Failure
to integrate acquisitions or realize anticipated benefits from
acquisitions;
|
·
|
Changes
in government regulations; and
|
·
|
Geopolitical
conditions such as acts or threats of terrorism or military
conflicts.
|
General
market fluctuations, industry factors and general economic and political
conditions and events, such as economic slowdowns or recessions, interest rate
changes or credit loss trends, could also cause our stock price to decrease
regardless of operating results as evidenced by the current volatility and
disruption of capital and credit markets.
Only
a limited trading market exists for our common stock, which could lead to
significant price volatility.
Our
common stock is traded on the NASDAQ Global Market under the trading symbol
“PPBI,” but there is low trading volumes in our common stock. The
limited trading market for our common stock may cause fluctuations in the market
value of our common stock to be exaggerated, leading to price volatility in
excess of that which would occur in a more active trading market of our common
stock. Future sales of substantial amounts of common stock in the
public market, or the perception that such sales may occur, could adversely
affect the prevailing market price of the common stock. In addition,
even if a more active market in our common stock develops, we cannot assure you
that such a market will continue.
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
stockholders, we would most likely need to obtain funds from the
Bank. The Bank’s ability to pay dividends to us is subject to
restrictions set forth in the California Financial Code. The
California Financial Code provides that a bank may not make a cash distribution
to its stockholders in excess of the lesser of (1) a bank’s retained earnings;
or (2) a 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 stockholders of the bank during such period. However, a
bank may, with the approval of the DFI, make a distribution to its stockholders
in an amount not exceeding the greatest of (a) its retained earnings; (b) its
net income for its last fiscal year; or (c) its net income for its current
fiscal year. In the event that bank regulators determine that the
stockholders’ equity of a bank is inadequate or that the making of a
distribution by the bank would be unsafe or unsound, the regulators may order
the bank to refrain from making a proposed distribution. The payment
of dividends could, depending on the financial condition of the Bank, be deemed
to constitute an unsafe or unsound practice. Under these provisions,
the amount available for distribution from the Bank to us was approximately $9.4
million at September 30, 2009.
Approval
of the Federal Reserve Board is required for payment of any dividend by a state
chartered bank that is a member of the Federal Reserve Board System, such as the
Bank, if the total of all dividends declared by the bank in any calendar year
would exceed the total of its retained net income for that year combined with
its retained net income for the preceding two years. In addition, a
state member bank may not pay a dividend in an amount greater than its undivided
profits without regulatory and stockholder approval. The Bank is also
prohibited under federal law from paying any dividend that would cause it to
become undercapitalized.
Upon
exercise by certain stockholders of warrants for our common stock, existing
stockholders will experience significant dilution in their shares of common
stock.
We have
issued warrants to certain stockholders representing the right to purchase
966,400 shares of our common stock at an exercise price of $0.75 per share
outstanding as of September 30, 2009. The aggregate number of shares
of our common stock subject to these warrants represents approximately 16% of
our issued and outstanding shares as of September 30, 2009, reduced to 10% after
the completion of our previously announced public offering on November 9,
2009. For further information on the public offering, see “Note 8 –
Subsequent Event” in our Notes to Consolidated Financial Statements contained
herein. The trading price of our common stock has been significantly
higher than the exercise price of the warrants for the last three consecutive
fiscal years. Upon exercise of the warrants, existing stockholders
will experience significant dilution of the shares of our common stock that they
hold.
An
investment in our common stock is not an insured deposit.
Our
common stock is not a bank deposit and, therefore, is not insured against loss
by the FDIC, any other deposit insurance fund or by any other public or private
entity. Investment in our common stock is inherently risky for the
reasons described in this “Risk Factors” section and is subject to the same
market forces that affect the price of common stock in any
company. As a result, if you acquire our common stock, you may lose
some or all of your investment.
There
may be future sales or other dilutions of our equity which may adversely affect
the market price of our common stock.
We
generally are not restricted from issuing additional shares of common stock,
including securities that are convertible into or exchangeable for, or that
represent the right to receive our common stock. Because our decision
to issue securities in any future offering will depend on market conditions and
other factors beyond our control, we cannot predict or estimate the amount,
timing or nature of any future offerings. Thus, our stockholders bear
the risk of any future stock issuances reducing the market price of our common
stock and diluting their stock holdings in us. The exercise of any
options granted to our directors and employees, the exercise of the outstanding
warrants for our common stock as referenced herein, the issuance of shares of
common stock in acquisitions and other issuances of our common stock could have
an adverse effect on the market price of the shares of our common
stock. In addition, the existence of options and warrants to acquire
shares of our common stock may materially adversely affect the terms upon which
we may be able to obtain additional capital in the future through the sale of
equity securities. Any future issuances of shares of our common stock
will be dilutive to existing stockholders.
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 of
directors;
|
·
|
Permit
the issuance, without stockholder 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.
Future
offerings of debt, which would be senior to our common stock upon liquidation,
and/or preferred equity securities, which may be senior to our common stock for
purposes of dividend distributions or upon liquidation, may adversely affect the
market price of our common stock.
In the
future, we may attempt to increase our capital resources or, if the Bank’s
capital ratios fall below the required minimums, we could be forced to raise
additional capital by making additional offerings of debt or preferred equity
securities, including medium-term notes, trust preferred securities, senior or
subordinated notes or preferred stock, including preferred stock issued under
the U.S. Treasury’s TARP Capital Purchase Program. Upon liquidation,
holders of our debt securities and shares of preferred stock and lenders with
respect to other borrowings will receive distributions of our available assets
prior to the holders of our common stock. Holders of our common stock
are not entitled to preemptive rights or other protections against
dilution.
A
holder with as little as a 5% interest in us could, under certain circumstances,
be subject to regulation as a “bank holding company.”
Any
entity (including a “group” composed of natural persons) owning 25% or more of
our outstanding common stock, or 5% or more if such holder otherwise exercises a
“controlling influence” over us, may be subject to regulation as a “bank holding
company” in accordance with the Bank Holding Company Act of 1956, as amended, or
the BHCA. In addition, (1) any bank holding company or foreign bank
with a U.S. presence may be required to obtain the approval of the Federal
Reserve Board under the BHCA to acquire or retain 5% or more of our outstanding
common stock and (2) any person other than a bank holding company may be
required to obtain the approval of the Federal Reserve Board under the Change in
Bank Control Act of 1978, as amended, to acquire or retain 10% or more of our
outstanding common stock. Becoming a bank holding company imposes
certain statutory and regulatory restrictions and burdens, and might require the
holder to divest all or a portion of the holder’s investment in
us. In addition, because a bank holding company is required to
provide managerial and financial strength for its bank subsidiary, such a holder
may be required to divest investments that may be deemed incompatible with bank
holding company status, such as a material investment in a company unrelated to
banking.
None
None
None
None
Exhibit
31.1 Certification of Chief Executive Officer
pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
Exhibit
31.2 Certification of Chief Financial Officer
pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
|
Exhibit
32
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
PACIFIC
PREMIER BANCORP, INC.,
November
16, 2009
|
By:
|
/s/
Steven R. Gardner
|
Date
Steven R. Gardner
President
and Chief Executive Officer
(principal
executive officer)
November
16, 2009
|
/s/
Kent J.
Smith
|
Date
Kent J. Smith
Senior
Vice President and Chief Financial Officer
(principal
financial and accounting officer)
Exhibit
No. Description
of
Exhibit
|
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
31.2
|
Certification of
Chief Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of
2002
|
32 Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act.