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 March 31, 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
![](https://capedge.com/proxy/10-Q/0001028918-09-000022/ppbilog09.jpg)
(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 March 31, 2009 was 4,803,451.
PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2009
INDEX
Item 1 - Financial Statements
Consolidated Statements of Financial Condition: At March 31, 2009 (unaudited) and December 31, 2008
Consolidated Statements of Income: For the three months ended March 31, 2009 and 2008 (unaudited)
Consolidated Statements of Stockholders’ Equity and Comprehensive Income: for the three months ended March 31, 2009 and 2008 (unaudited)
Consolidated Statements of Cash Flows: for the three months ended March 31, 2009 and 2008 (unaudited)
PART II - OTHER INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION | ||||||||
(in thousands) | ||||||||
March 31, 2009 | ||||||||
(Unaudited) | December 31, 2008 | |||||||
ASSETS | ||||||||
Cash and due from banks | $ | 8,081 | $ | 8,181 | ||||
Federal funds sold | 28 | 1,526 | ||||||
Cash and cash equivalents | 8,109 | 9,707 | ||||||
Investment securities available for sale | 66,199 | 56,606 | ||||||
FHLB Stock/Federal Reserve Stock, at cost | 14,330 | 14,330 | ||||||
Loans: | ||||||||
Loans held for sale, net | 652 | 668 | ||||||
Loans held for investment, net of allowance for loan losses of $6,396 in 2009 and $5,881 in 2008 | 612,940 | 622,470 | ||||||
Accrued interest receivable | 3,768 | 3,627 | ||||||
Other real estate owned | 55 | 37 | ||||||
Premises and equipment | 9,386 | 9,588 | ||||||
Deferred income taxes | 9,891 | 10,504 | ||||||
Bank owned life insurance | 11,527 | 11,395 | ||||||
Other assets | 409 | 1,024 | ||||||
Total Assets | $ | 737,266 | $ | 739,956 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
LIABILITIES | ||||||||
Deposit accounts | ||||||||
Noninterest bearing transaction accounts | $ | 31,378 | $ | 29,435 | ||||
Interest bearing: | ||||||||
Transaction accounts | 66,596 | 58,861 | ||||||
Retail certificates of deposit | 385,822 | 341,741 | ||||||
Wholesale/brokered certificates of deposit | 9,554 | 27,091 | ||||||
Total Deposits | 493,350 | 457,128 | ||||||
Borrowings | 172,000 | 209,900 | ||||||
Subordinated debentures | 10,310 | 10,310 | ||||||
Accrued expenses and other liabilities | 3,395 | 5,070 | ||||||
Total Liabilities | $ | 679,055 | $ | 682,408 | ||||
COMMITMENTS AND CONTINGENCIES | - | - | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Common stock, $.01 par value; 15,000,000 shares authorized; 4,803,451 (2009) and 4,903,451 (2008) shares issued and outstanding | $ | 47 | $ | 48 | ||||
Additional paid-in capital | 64,373 | 64,680 | ||||||
Accumulated deficit | (3,767 | ) | (4,304 | ) | ||||
Accumulated other comprehensive loss, net of tax of $1,707 (2009) and $2,011 (2008) | (2,442 | ) | (2,876 | ) | ||||
Total Stockholders’ Equity | $ | 58,211 | $ | 57,548 | ||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 737,266 | $ | 739,956 |
CONSOLIDATED STATEMENTS OF INCOME | ||||||||
(in thousands, except per share data) | ||||||||
(UNAUDITED) | ||||||||
For the Three Months Ended | ||||||||
March 31, 2009 | March 31, 2008 | |||||||
INTEREST INCOME: | ||||||||
Loans | $ | 10,165 | $ | 10,938 | ||||
Other interest-earning assets | 787 | 1,006 | ||||||
Total interest income | 10,952 | 11,944 | ||||||
INTEREST EXPENSE: | ||||||||
Interest on transaction accounts | 255 | 434 | ||||||
Interest on certificates of deposit | 3,456 | 3,564 | ||||||
Total deposit interest expense | 3,711 | 3,998 | ||||||
Other borrowings | 1,861 | 2,937 | ||||||
Subordinated debentures | 103 | 180 | ||||||
Total interest expense | 5,675 | 7,115 | ||||||
NET INTEREST INCOME | 5,277 | 4,829 | ||||||
PROVISION FOR LOAN LOSSES | 1,160 | 183 | ||||||
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 4,117 | 4,646 | ||||||
NONINTEREST INCOME: | ||||||||
Loan servicing fee income | 159 | 105 | ||||||
Bank and other fee income | 212 | 115 | ||||||
Net gain from loan sales | - | 67 | ||||||
Net gain from sale of investment securities | 2 | - | ||||||
Other income | 257 | 392 | ||||||
Total noninterest income | 630 | 679 | ||||||
NONINTEREST EXPENSE: | ||||||||
Compensation and benefits | 2,009 | 2,397 | ||||||
Premises and occupancy | 658 | 607 | ||||||
Data processing | 155 | 154 | ||||||
Net (gain) loss on other real estate owned | (6 | ) | 15 | |||||
FDIC/SAIF insurance premiums | 286 | 66 | ||||||
Legal and audit | 132 | 141 | ||||||
Marketing expense | 189 | 131 | ||||||
Office and postage expense | 80 | 82 | ||||||
Other expense | 427 | 422 | ||||||
Total noninterest expense | 3,930 | 4,015 | ||||||
INCOME BEFORE INCOME TAXES | 817 | 1,310 | ||||||
PROVISION FOR INCOME TAXES | 280 | 464 | ||||||
NET INCOME | $ | 537 | $ | 846 | ||||
INCOME PER SHARE: | ||||||||
Basic income per share | $ | 0.11 | $ | 0.17 | ||||
Diluted income per share | $ | 0.09 | $ | 0.13 | ||||
WEIGHTED AVERAGE SHARES OUTSTANDING: | ||||||||
Basic | 4,852,895 | 5,083,243 | ||||||
Diluted | 6,038,129 | 6,390,148 |
Accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME | ||||||||||||||||||||||||||||
FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008 | ||||||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||
(UNAUDITED) | ||||||||||||||||||||||||||||
Common Stock Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Comprehensive Income (Loss) | Total Stockholders’ Equity | ||||||||||||||||||||||
Balance at December 31, 2007 | 5,163,488 | $ | 53 | $ | 66,417 | $ | (5,012 | ) | $ | (708 | ) | $ | 60,750 | |||||||||||||||
Net income | 847 | $ | 847 | 847 | ||||||||||||||||||||||||
Unrealized loss on investments, net of tax of ($201) | (287 | ) | (287 | ) | (287 | ) | ||||||||||||||||||||||
Total comprehensive income | $ | 560 | ||||||||||||||||||||||||||
Share-based compensation expense | 64 | 64 | ||||||||||||||||||||||||||
Common stock repurchased and retired | (259,704 | ) | (4 | ) | (2,065 | ) | (2,069 | ) | ||||||||||||||||||||
Balance at March 31, 2008 | 4,903,784 | $ | 49 | $ | 64,416 | $ | (4,165 | ) | $ | (995 | ) | $ | 59,305 | |||||||||||||||
Common Stock Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive 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 income | 537 | 537 | 537 | |||||||||||||||||||||||||
Unrealized gain on investments, net of tax of $304 | 434 | 434 | 434 | |||||||||||||||||||||||||
Total comprehensive income | $ | 971 | ||||||||||||||||||||||||||
Share-based compensation expense | 76 | 76 | ||||||||||||||||||||||||||
Common stock repurchased and retired | (100,000 | ) | (1 | ) | (383 | ) | (384 | ) | ||||||||||||||||||||
Stock options exercised | - | - | - | - | - | - | ||||||||||||||||||||||
Balance at March 31, 2009 | 4,803,451 | $ | 47 | $ | 64,373 | $ | (3,767 | ) | $ | (2,442 | ) | $ | 58,211 |
Accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
(in thousands) | ||||||||
(UNAUDITED) | ||||||||
Three Months Ended | ||||||||
March 31, | ||||||||
2009 | 2008 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net income | $ | 537 | $ | 846 | ||||
Adjustments to net income: | ||||||||
Depreciation and amortization expense | 252 | 222 | ||||||
Provision for loan losses | 1,160 | 183 | ||||||
Share-based compensation | 76 | 64 | ||||||
Loss on sale and disposal of premises and equipment | 24 | - | ||||||
Gain on sale, provision, and write-down of foreclosed real estate | (6 | ) | - | |||||
Amortization of premium/discounts on securities held for sale, net | 19 | 263 | ||||||
Gain on sale of loans held for sale | - | (67 | ) | |||||
Gain on sale of investment securities available for sale | (2 | ) | - | |||||
Purchase and origination of loans held for sale | - | (582 | ) | |||||
Proceeds from the sales of, and principal payments from, loans held for sale | 16 | 461 | ||||||
(Increase) decrease in current and deferred income tax receivable | 613 | 264 | ||||||
(Decrease) increase in accrued expenses and other liabilities | (1,675 | ) | 8,772 | |||||
Income from bank owned life insurance | (132 | ) | (133 | ) | ||||
Decrease in accrued interest receivable and other assets | 474 | 53 | ||||||
Net cash provided by operating activities | 1,356 | 10,346 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Proceeds from sale and principal payments on loans held for investment | 17,372 | 51,138 | ||||||
Purchase, origination and advances of loans held for investment | (9,260 | ) | (40,194 | ) | ||||
Principal payments on securities available for sale | 1,963 | 1,788 | ||||||
Proceeds from sale of foreclosed real estate | 45 | - | ||||||
Purchase of securities available for sale | (10,986 | ) | (30,961 | ) | ||||
(Increase) decrease in premises and equipment | (26 | ) | (362 | ) | ||||
Net cash used in investing activities | (892 | ) | (18,591 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Net increase in deposit accounts | 36,222 | 9,894 | ||||||
(Repayment of) proceeds from FHLB advances | (37,900 | ) | (35,465 | ) | ||||
Proceeds from (repayment of) other borrowings | - | 25,163 | ||||||
Repurchase of common stock | (384 | ) | (2,069 | ) | ||||
Net cash used in financing activities | (2,062 | ) | (2,477 | ) | ||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (1,598 | ) | (10,722 | ) | ||||
CASH AND CASH EQUIVALENTS, beginning of period | 9,707 | 34,021 | ||||||
CASH AND CASH EQUIVALENTS, end of period | $ | 8,109 | $ | 23,299 | ||||
SUPPLEMENTAL CASH FLOW DISCLOSURES | ||||||||
Interest paid | $ | 5,512 | $ | 4,931 | ||||
Income taxes paid | $ | 475 | $ | - | ||||
NONCASH OPERATING ACTIVITIES DURING THE PERIOD | ||||||||
Restricted stock vested | $ | 91 | $ | - | ||||
NONCASH INVESTING ACTIVITIES DURING THE PERIOD | ||||||||
Transfers from loans to foreclosed real estate | $ | 55 | $ | - |
Accompanying notes are an integral part of these consolidated financial statements.
PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARY
March 31, 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”). All significant intercompany accounts and transactions have been eliminated in consolidation.
In the opinion of management, the unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company’s financial position as of March 31, 2009, and the results of its operations, changes in stockholders’ equity, comprehensive income and cash flows for the three months ended March 31, 2009 and 2008. Operating results for the three months ended March 31, 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, for the year ended December 31, 2008.
The Company accounts for its investments in its wholly owned special purpose entity, PPBI Trust I, using the equity method under which the subsidiary’s net earnings are recognized in the Company’s statement of income.
Note 2 – Recently Issued Accounting Pronouncements
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative and Hedging Activities, an amendment of FASB Statement No. 133”. SFAS No. 161 requires enhanced disclosures about a company’s derivative and hedging activities. These enhanced disclosures will discuss (a) how and why a company uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under FASB Statement No. 133 and its related interpretations and (c) how derivative instruments and related hedged items affect a company’s financial position, results of operations and cash flows. SFAS No. 161 is effective for fiscal years beginning on or after November 15, 2008, with earlier adoption allowed. The Company is currently evaluating the impact of adopting SFAS No. 161.
In May 2008, FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” The new standard is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with United States generally accepted accounting principles for nongovernmental entities. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” The Company does not anticipate the adoption of SFAS No. 162 to have a material impact of its financial position, results of operations or cash flow.
In June 2008, FASB issued EITF Issue No. 07-5 (EITF 07-5), “Determining whether an Instrument (or Embedded Feature) is indexed to an Entity's Own Stock.” EITF No. 07-5 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early application is not permitted. Paragraph 11(a) of SFAS No. 133 - specifies that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to the Company's own stock and (b) classified in stockholders' equity in the statement of financial position would not be considered a derivative financial instrument. EITF 07-5 provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer's own stock and thus able to qualify for the SFAS No. 133 paragraph 11(a) scope exception. The adoption of EITF 07-5 had no material impact on our financial statements.
In October 2008, the FASB issued Financial Accounting Standards Board Staff Position FSP FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active.” The FSP clarifies the application of SFAS No. 157, “Fair Value Measurements,” in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The FSP is effective immediately, and includes prior periods for which financial statements have not been issued, and therefore the Company is subject to the provisions under the FSP effective September 30, 2008. The implementation of FSP FAS 157-3 did not affect the Company’s fair value measurements as of December 31, 2008.
In April 2009, the FASB issued Financial Accounting Standards Board Staff Position FSP FAS 115-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” This FSP amends the application of SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities” which makes the other-than-temporary impairment guidance more operational and improves the presentation of other-than-temporary impairments in the financial statements. This FSP applies to other-than-temporary impairments of debt and equity securities and requires a company to assert that (a) it does not have the intent to sell the security in question and (b) it is more likely than not have to sell the security in question before recovery of its cost basis to avoid an impairment being considered, other-than-temporary. This FSP also changes the amount of impairment losses recognized in earnings by separating impairments into two components: (i) the amount of impairments related to credit losses and (ii) the amount related to other factors. The amount of impairment related to credit losses is reflected as a charge to earnings, while the amount related to other factors is reflected as an adjustment to shareholders’ equity through comprehensive income. The FSP is effective for interim and annual reporting periods after June 15, 2009, early adoption is permitted for periods ending after March 15, 2009. The implementation of FSP FAS 115-2 did not have a material impact in its financial position, results of operations or cash flow.
Note 3 – Regulatory Matters
It is our goal to maintain capital levels within the regulatory “well capitalized” category. The Company’s (on a consolidated basis) and the Bank’s capital amounts and ratios are presented in the following tables:
To be adequately | To be well | |||||||||||||||||||||||
Actual | capitalized | capitalized | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
At March 31, 2009 (Unaudited) | ||||||||||||||||||||||||
Total Capital (to risk-weighted assets) | ||||||||||||||||||||||||
Bank | $ | 71,822 | 12.01 | % | $ | 47,834 | 8.00 | % | $ | 59,793 | 10.00 | % | ||||||||||||
Consolidated | 72,888 | 12.09 | % | N/A | N/A | N/A | N/A | |||||||||||||||||
Tier 1 Capital (to adjusted tangible assets) | ||||||||||||||||||||||||
Bank | 65,426 | 8.89 | % | 29,427 | 4.00 | % | 36,784 | 5.00 | % | |||||||||||||||
Consolidated | 66,492 | 9.04 | % | N/A | N/A | N/A | N/A | |||||||||||||||||
Tier 1 Risk-Based Capital (to risk-weighted assets) | ||||||||||||||||||||||||
Bank | 65,426 | 10.94 | % | 23,917 | 4.00 | % | 35,876 | 6.00 | % | |||||||||||||||
Consolidated | 66,492 | 11.03 | % | N/A | N/A | N/A | N/A | |||||||||||||||||
At December 31, 2008 | ||||||||||||||||||||||||
Total Capital (to risk-weighted assets) | ||||||||||||||||||||||||
Bank | $ | 70,761 | 11.68 | % | $ | 48,457 | 8.00 | % | $ | 60,571 | 10.00 | % | ||||||||||||
Consolidated | 73,741 | 12.07 | % | N/A | N/A | N/A | N/A | |||||||||||||||||
Tier 1 Capital (to adjusted tangible assets) | ||||||||||||||||||||||||
Bank | 64,880 | 8.71 | % | 29,808 | 4.00 | % | 37,261 | 5.00 | % | |||||||||||||||
Consolidated | 67,859 | 8.99 | % | N/A | N/A | N/A | N/A | |||||||||||||||||
Tier 1 Risk-Based Capital (to risk-weighted assets) | ||||||||||||||||||||||||
Bank | 64,880 | 10.71 | % | 24,229 | 4.00 | % | 36,343 | 6.00 | % | |||||||||||||||
Consolidated | 67,859 | 11.11 | % | N/A | N/A | N/A | N/A |
Note 4 – Borrowings
At March 31, 2009, total borrowings of the Company amounted to $182.3 million. The borrowings were comprised of Federal Home Loan Bank (“FHLB”) term and overnight borrowings of $138.0 million and $5.5 million, respectively, $10.3 million Trust Preferred Securities at 3.84%, and three inverse putable reverse repurchase agreements totaling $28.5 million at an average rate of 2.43% secured by approximately $32.2 million of mortgage backed securities issued by the Federal Home Loan Mortgage Corporation, Government National Mortgage Association, and Federal National Mortgage Association. The Bank’s $143.5 million in FHLB advances had a weighted average interest rate of 4.74% and the term advances had a weighted average maturity of 0.89 year as of March 31, 2009. As of such date, advances from the FHLB were collateralized by pledges of certain real estate loans with an aggregate principal balance of $538.0 million and FHLB stock totaling $12.7 million. As of March 31, 2009, the Bank was able to borrow up to 45% of its total assets as of December 31, 2008 under the line, which amounted to $332.9 million, a decrease of $6.3 million from the year ended December 31, 2008. FHLB advances consisted of the following as of March 31, 2009:
Weighted | ||||||||||||
Percent | Average Annual | |||||||||||
FHLB Advances Maturing in: | Amount | of Total | Interest Rate | |||||||||
(dollars in thousands) | ||||||||||||
One month or less | $ | 5,500 | 3.83 | % | 0.21 | % | ||||||
Over six months to one year | 100,000 | 69.69 | % | 4.92 | % | |||||||
Over one year | 38,000 | 26.48 | % | 4.92 | % | |||||||
Total FHLB advances | $ | 143,500 | 100.00 | % | 4.74 | % |
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 3.84% per annum as of March 31, 2009.
Under FIN 46R, “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51,” the Corporation is not allowed to consolidate PPBI Trust I into the Company’s financial statements. The resulting effect on the Company’s consolidated financial statements is to report the Subordinated Debentures as a component of liabilities. Prior to the issuance of FIN 46R, bank holding companies typically consolidated these entities and reported the Trust Preferred Securities as a component of liabilities.
Note 6 – Earnings Per Share
Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing income available to common stockholders including common stock equivalents, such as outstanding stock options and warrants, by the weighted average number of common shares and common stock equivalents outstanding for the period. Stock options totaling 602,550 shares for the three months ended March 31, 2009, and 317,925 shares for the three months ended March 31, 2008, respectively, were excluded from the computations of diluted earnings per share due to their exercise price exceeding the average market price for their respective periods.
The table below set forth the Company’s unaudited earnings per share calculations for the three months ended March 31, 2009 and 2008.
For the Three Months Ended March 31, | ||||||||||||||||||||||||
2009 | 2008 | |||||||||||||||||||||||
Net | Per Share | Net | Per Share | |||||||||||||||||||||
Earnings | Shares | Amount | Earnings | Shares | Amount | |||||||||||||||||||
(in thousands, except per share data) | ||||||||||||||||||||||||
Net Earnings | $ | 537 | $ | 846 | ||||||||||||||||||||
Basic Earnings available to common stockholders | 537 | 4,852,895 | $ | 0.11 | 846 | 5,083,243 | $ | 0.17 | ||||||||||||||||
Effect of warrants and dilutive stock options | - | 1,185,234 | - | 1,306,905 | ||||||||||||||||||||
Diluted Earnings available to common stockholders plus assumed conversions | $ | 537 | 6,038,129 | $ | 0.09 | $ | 846 | 6,390,148 | $ | 0.13 |
Note 7 – Fair Value of Financial Instruments
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurement” (“SFAS 157”). This statement defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The statement establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. The standard is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position (FSP) No. FAS 157-2, “Effective Date of FASB Statement No. 157.” This FSP delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. Adoption of SFAS 157 did not have a material impact on the Company.
SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 establishes a three-tiered value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations. The three levels of inputs are defined as follows:
Level 1 – unadjusted quoted prices for identical assets or liabilities in active markets accessible by the Company
Level 2 – inputs that are observable in the marketplace other than those inputs classified as Level 1
Level 3 – inputs that are unobservable in the marketplace and significant to the valuation
SFAS 157 requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs. If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation.
The Company’s financial assets and liabilities measured at fair value on a recurring basis include securities available for sale, loans held for sale, and impaired loans. Securities available for sale include mortgage-backed securities and equity securities. Loans held for sale include the guarantee portion of our saleable Small Business Association (“SBA”) loans. Impaired loans include loans that are in a non-accrual status and where the Bank has reduced the principal to the value of the underlying collateral less the anticipated selling cost.
Marketable Securities. Where possible, the Company utilizes quoted market prices to measure debt and equity securities; such items are classified as Level 1 in the hierarchy and include equity securities, US government bonds and securities issued by federally sponsored agencies. When quoted market prices for identical assets are unavailable or the market for the asset is not sufficiently active, varying valuation techniques are used. Common inputs in valuing these assets include, among others, benchmark yields, issuer spreads, forward mortgage-backed securities trade prices and recently reported trades. Such assets are classified as Level 2 in the hierarchy and typically include private label mortgage-backed securities and corporate bonds. Pricing on these securities are provided to the Company by a pricing service vendor. In the Level 3 category, the Company is classifying all the securities that its pricing service vendor cannot price due to lack of trade activity in these securities.
Loans held for sale. The fair value of loans held for sale is determined, when possible, using quoted secondary-market prices. If no such quoted price exists, the fair value of a loan is determined using quoted prices for a similar asset or assets, adjusted for the specific attributes of that loan.
A loan is considered impaired when it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement. Impairment is measured based on the fair value of the underlying collateral or the discounted expected future cash flows. The Company measures impairment on all non-accrual loans for which it has reduced the principal balance to the value of the underlying collateral less the anticipated selling cost. As such, the Company records impaired loans as non-recurring Level 2 when the fair value of the underlying collateral is based on an observable market price or current appraised value. When current market prices are not available or the Company determines that the fair value of the underlying collateral is further impaired below appraised values, the Company records impaired loans as Level 3. At March 31, 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 tables present information about the Company’s assets measured at fair value on a recurring basis:
Fair Value Measurement Using | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Assets at Fair Value | |||||||||||||
(in thousands) | ||||||||||||||||
Assets | ||||||||||||||||
Marketable securities | $ | 39,420 | $ | 25,640 | $ | 1,139 | $ | 66,199 | ||||||||
Total assets | $ | 39,420 | $ | 25,640 | $ | 1,139 | $ | 66,199 |
Fair Value Measurement Using | ||||||||||||||||
Significant Other Unobservable Inputs | ||||||||||||||||
(Level 3) | ||||||||||||||||
U.S. | Govt. Sponsored | Private | ||||||||||||||
Treasuries | Agencies | Label | Total | |||||||||||||
(in thousands) | ||||||||||||||||
Beginning Balance, January 1, 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 | - | - | (475 | ) | (475 | ) | ||||||||||
Ending Balance, March 31, 2009 | $ | - | $ | - | $ | 1,139 | $ | 1,139 |
The following fair value hierarchy table presents information about the Company’s assets measured at fair value on a nonrecurring basis:
Fair Value Measurement Using | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Assets at Fair Value | |||||||||||||
(in thousands) | ||||||||||||||||
Assets | ||||||||||||||||
Impaired Loans | $ | - | $ | 7,593 | $ | - | $ | 7,593 | ||||||||
Loans held for sale | 652 | 652 | ||||||||||||||
Other real estate owned | - | 55 | - | 55 | ||||||||||||
Total assets | $ | - | $ | 8,300 | $ | - | $ | 8,300 |
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115” (“SFAS 159”). The standard provides companies with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The new standard is effective for the Company on January 1, 2008. The Company did not elect the fair value option for any financial assets or liabilities as of January 1, 2008. Adoption of SFAS 159 did not have a material impact on the Company.
Note 8 – Subsequent Events
On May 5, 2009, the Company filed a registration statement on Form S-3 with the SEC. The registration statement relates to the resale of shares of common stock issuable upon exercise of the warrants to purchase 1,166,400 shares of our common stock that were issued by the Company in January 2002.
FORWARD-LOOKING STATEMENTS
The statements contained herein that are not historical facts are forward-looking statements based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting the Company will be the same as those anticipated by management. Actual results may differ from those projected in the forward-looking statements. These forward-looking statements include, among others, statements with respect to the Company’s beliefs, plans, objectives, goals, guidelines, expectations, anticipations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors (many of which are beyond the Company’s control). The words “may”, “could”, “should”, “would”, “believe”, “anticipate”, “estimate”, “expect”, “intend”, “plan” and similar expressions are intended to identify forward-looking statements. These forward-looking statements involve risks and uncertainties. These include, but are not limited to, the following risks: (1) changes in the performance of the financial markets, (2) changes in the demand for and market acceptance of the Company’s products and services, (3) changes in general economic conditions including interest rates, presence of competitors with greater financial resources, and the impact of competitive products and pricing, (4) the effect of the Company’s policies, (5) the continued availability of adequate funding sources, and (6) various legal, regulatory and litigation risks.
GENERAL
The following presents management’s discussion and analysis of the consolidated financial condition and operating results of the Company for the three months ended March 31, 2009 and 2008. The discussion should be read in conjunction with the Company’s Management Discussion and Analysis included in the 2008 Annual Report on Form 10-K, plus the unaudited consolidated financial statements and the notes thereto appearing elsewhere in this report. The results for the three months ended March 31, 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 banking holding company under the Bank Holding Company Act of 1956, as amended ("BHCA”), for Pacific Premier Bank, a California state chartered commercial bank. The Bank is subject to examination and regulation by the California Department of Financial Institutions (“DFI”), the Board of Governors of the Federal Reserve System (the “Federal Reserve”), and by the Federal Deposit Insurance Corporation (“FDIC”). Additionally, the Corporation is subject to regulation and supervision by the Federal Reserve. The primary business of the Company is community banking.
The Bank was founded in 1983 as a state chartered savings and loan, became a federally chartered stock savings bank in 1991 and in March 2007, converted to a California state chartered commercial bank. The Bank is a member of the FHLB of San Francisco, which is a member bank of the Federal Home Loan Bank System, and the Federal Reserve. As of March 31, 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 account, which expires at the end of 2009, unless extended or made permanent.
We provide banking services within our targeted markets in Southern California to businesses, including the owners and employees of those businesses, professionals, real estate investors and non-profit organizations, as well as consumers in the communities we serve. The Bank operates six depository branches in Southern California located in the cities of Costa Mesa, Huntington Beach, Los Alamitos, Newport Beach, San Bernardino, and Seal Beach. The Company’s corporate headquarters are located in Costa Mesa, California. Through our branches and our web site at www.PPBI.net on the Internet, we offer a broad array of deposit products and services for both businesses, and consumer customers including checking, money market and savings accounts, cash management services, electronic banking, and on-line bill payment. We offer a wide array of loan products, such as commercial business loans, lines of credit, commercial real estate loans, U.S. Small Business Administration (“SBA”) loans, residential home loans, and home equity loans. The Bank funds its lending and investment activities with retail deposits obtained through its branches, advances from the FHLB of San Francisco, lines of credit, and wholesale and brokered certificates of deposits.
The Company’s principal sources of income are the net spread between interest earned on loans and investments and the interest costs associated with deposits and other borrowings used to finance its loan and investment portfolio. Additionally, the Bank generates fee income from loan sales and various products and services offered to both depository and loan customers.
Recent Developments
The global and U.S. economies, and the economies of the local communities in which we operate, have continued to experience a rapid decline in the first quarter of 2009. The financial markets, and the financial services industry in particular, suffered significant disruption in 2008, resulting in many institutions failing or requiring, government intervention to avoid failure. These conditions were brought about primarily by dislocations in the U.S. and global credit markets, including a significant and rapid deterioration of the mortgage lending and related real estate markets.
The United States, state and foreign governments have taken or are considering extraordinary actions in an attempt to deal with the global financial crisis and the severe decline in the economy. In the United States, the federal government has adopted Emergency Economic Stabilization Act of 2008 (enacted on October 3, 2008) and the American Recovery and Reinvestment Act of 2009 (enacted on February 17, 2009). Among other matters, these laws:
· | provide for the government to invest additional capital into banks and otherwise facilitate bank capital formation (commonly referred to as the Troubled Asset Relief Program or “TARP”); |
· | increase the limits on federal deposit insurance; and |
· | provide for various forms of economic stimulus, including to assist homeowners in restructuring and lowering mortgage payments on qualifying loans. |
Other laws, regulations, and programs at the federal, state and even local levels are under consideration that seek to address the economic climate and/or the financial institutions industry. The effect of these initiatives cannot be predicted at this time.
CRITICAL ACCOUNTING POLICIES
Management has established various accounting policies which govern the application of accounting principles generally accepted in the United States of America in the preparation of the Company’s financial statements. The Company’s significant accounting policies are described in the Notes to the Consolidated Financial Statements in our 2008 Annual Report on Form 10-K. Certain accounting policies require management to make estimates and assumptions which have a material impact on the carrying value of certain assets and liabilities; management considers these to be critical accounting policies. The estimates and assumptions management uses are based on historical experience and other factors, which management believes to be reasonable under the circumstances. Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at balance sheet dates and the Company’s results of operations for future reporting periods.
Management believes that the allowance for loan losses is the critical accounting policy that requires estimates and assumptions in the preparation of the Company’s financial statements that is most susceptible to significant change. For further information, see “Allowances for Loan Losses” discussed later in this report and in our 2008 Annual Report on Form 10-K.
FINANCIAL CONDITION
Total assets of the Company were $737.3 million as of March 31, 2009, compared to $740.0 million as of December 31, 2008. The $2.7 million, or 0.36%, decrease in total assets was primarily due to a $9.5 million and $1.6 million decrease in net loans held for investment and cash and cash equivalents, respectively, which was partially offset by an increase of $9.6 million in securities available for sale.
Investment Securities Available for Sale
Investment securities available for sale totaled $66.2 million at March 31, 2009 compared to $56.6 million at December 31, 2008. The increase was primarily due to the purchase of securities totaling $11.1 million which was partially offset by investment principal received of approximately $2.0 million. The investment securities consist of $163,000 in US Treasuries, $39.3 million in government sponsored entities (“GSE”) mortgage backed securities, and $26.7 million of private label mortgage backed securities. Thirty five of the private label mortgage-backed securities totaling $1.6 million are rated below investment grade, which is any rating below “BBB”. In addition, $32.2 million of the GSE securities have been pledged as collateral for the Bank’s $28.5 million of reverse repurchase agreements.
A summary of the Company’s investment securities held for sale as of March 31, 2009 and December 31, 2008 is as follows:
March 31, 2009 | ||||||||||||||||
Amortized | Unrealized | Unrealized | Estimated | |||||||||||||
Cost | Gain | Loss | Fair Value | |||||||||||||
(in thousands) | ||||||||||||||||
Securities available for sale: | ||||||||||||||||
U.S. Treasury Notes | $ | 148 | $ | 15 | $ | - | $ | 163 | ||||||||
Government Sponsored Entity Mortgage-backed securities | 37,809 | 1,457 | (9 | ) | 39,257 | |||||||||||
Private Label Mortgage-backed securities - investment grade | 29,340 | 511 | (4,664 | ) | 25,187 | |||||||||||
Private Label Mortgage-backed securities - non-investment grade | 3,050 | - | (1,458 | ) | 1,592 | |||||||||||
Total securities available for sale | $ | 70,347 | $ | 1,983 | $ | (6,131 | ) | $ | 66,199 | |||||||
FHLB stock | $ | 12,731 | $ | - | $ | - | $ | 12,731 | ||||||||
Federal Reserve Bank stock | 1,599 | - | - | 1,599 | ||||||||||||
Total equities held at cost | $ | 14,330 | $ | - | $ | - | $ | 14,330 | ||||||||
Total securities | $ | 84,677 | $ | 1,983 | $ | (6,131 | ) | $ | 80,529 |
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 Entity 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 | |||||||
FHLB stock | $ | 12,731 | $ | - | $ | - | $ | 12,731 | ||||||||
Federal Reserve Bank stock | 1,599 | - | - | 1,599 | ||||||||||||
Total equities held at cost | $ | 14,330 | $ | - | $ | - | $ | 14,330 | ||||||||
Total securities | $ | 75,823 | $ | 1,016 | $ | (5,903 | ) | $ | 70,936 |
Investment Securities Held for Sale by Contractual Maturity | ||||||||||||||||||||||||||||||||||||||||
As of March 31, 2009 | ||||||||||||||||||||||||||||||||||||||||
One Year or Less | More than One to Five Years | More than Five to Ten Years | More than TenYears | Total | ||||||||||||||||||||||||||||||||||||
Carrying | Carrying | Carrying | Carrying | Carrying | ||||||||||||||||||||||||||||||||||||
Value | Yield | Value | Yield | Value | Yield | Value | Yield | Value | Yield | |||||||||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||
US Treasury Notes | $ | - | 0.00 | % | $ | 80 | 3.53 | % | $ | 83 | 4.15 | % | $ | - | 0.00 | % | $ | 163 | 3.84 | % | ||||||||||||||||||||
Government Sponsored Entity Mortgage-backed securities | $ | 2 | 6.63 | % | $ | - | 0.00 | % | $ | 283 | 5.27 | % | $ | 38,972 | 5.77 | % | 39,257 | 5.77 | % | |||||||||||||||||||||
Private Label Mortgage-backed securities - investment grade | $ | - | 0.00 | % | $ | 340 | 1.24 | % | $ | 14,281 | 6.07 | % | $ | 10,566 | 7.77 | % | 25,187 | 6.72 | % | |||||||||||||||||||||
Private Label Mortgage-backed securities - non-investment grade | $ | - | 0.00 | % | $ | - | 0.00 | % | $ | - | 0.00 | % | $ | 1,592 | 9.11 | % | 1,592 | 9.11 | % | |||||||||||||||||||||
Total securities available for sale | $ | 2 | 6.63 | % | $ | 420 | 1.68 | % | $ | 14,647 | 6.04 | % | $ | 51,130 | 6.29 | % | $ | 66,199 | 6.20 | % |
The Company reviewed individual securities classified as available for sale to determine whether a decline in fair value below the amortized cost basis is other-than-temporary. If it is probable that the Company will be unable to collect all amounts due according to contractual terms of the debt security not impaired at acquisition, an other-than-temporary impairment shall be considered to have occurred. If an other-than-temporary impairment occurs, the cost basis of the security would have been written down to its fair value as the new cost basis and the write down accounted for as a realized loss. During 2008, the Company took a $1.3 million other-than-temporary impairment charge after management determined that 19 securities were impaired. No additional securities were deemed other-than-temporary impaired during the quarter-ended March 31, 2009.
Loans
Gross loans outstanding totaled $620.0 million at March 31, 2009 compared to $628.8 million at December 31, 2008. The decrease was primarily due to loan payoffs of $9.7 million, which was partially offset by the purchase of $4.0 million of performing multi-family loans and the origination of commercial and industrial business 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.
A summary of the Company’s loan originations, loan purchases, loan sales and principal repayments for the three months ended March 31, 2009 and 2008 are as follows:
For the Three Months Ended | ||||||||
March 31, 2009 | March 31, 2008 | |||||||
(in thousands) | ||||||||
Beginning balance, gross | $ | 628,099 | $ | 626,692 | ||||
Loans originated and purchased: | ||||||||
Real Estate: | ||||||||
Multi-family | 4,051 | 7,090 | ||||||
Commercial real estate | - | 17,315 | ||||||
Business Loans: | ||||||||
Commercial Owner Occupied (1) | - | 4,430 | ||||||
Commercial and Industrial (1) | 2,100 | 7,101 | ||||||
SBA (1) | - | 582 | ||||||
Other | 850 | 532 | ||||||
Total loans originated and purchased | 7,001 | 37,050 | ||||||
Total | 635,100 | 663,742 | ||||||
Less: | ||||||||
Principal repayments | 16,671 | 45,506 | ||||||
Change in undisbursed loan funds | (2,259 | ) | (3,726 | ) | ||||
Charge-offs | 645 | - | ||||||
Loan Sales | - | 5,878 | ||||||
Transfers to Real Estate Owned | 55 | - | ||||||
Total Gross loans | 619,988 | 616,084 | ||||||
Less ending balance loans held for sale (gross) | (652 | ) | (870 | ) | ||||
Ending balance loans held for investment (gross) | $ | 619,336 | $ | 615,214 | ||||
(1) Includes lines of credit |
The following table sets forth the composition of the Company’s loan portfolio in dollar amounts and as a percentage of the portfolio at the dates indicated:
March 31, 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 | $ | 289,803 | 46.74 | % | 6.30 | % | $ | 287,592 | 45.74 | % | 6.30 | % | ||||||||||||
Commercial | 161,409 | 26.03 | % | 6.99 | % | 165,978 | 26.40 | % | 6.94 | % | ||||||||||||||
Construction | - | 0.00 | % | 0.00 | % | - | 0.00 | % | 0.00 | % | ||||||||||||||
Land | 2,550 | 0.41 | % | 0.00 | % | - | 0.00 | % | 0.00 | % | ||||||||||||||
One-to-four family (1) | 8,922 | 1.44 | % | 8.67 | % | 9,925 | 1.58 | % | 8.78 | % | ||||||||||||||
Business Loans: | ||||||||||||||||||||||||
Commercial Owner Occupied | 107,714 | 17.37 | % | 7.05 | % | 112,406 | 17.88 | % | 7.13 | % | ||||||||||||||
Commercial and Industrial | 43,604 | 7.03 | % | 7.19 | % | 43,235 | 6.88 | % | 6.75 | % | ||||||||||||||
SBA | 4,620 | 0.74 | % | 5.67 | % | 4,942 | 0.79 | % | 6.35 | % | ||||||||||||||
Other Loans | 1,366 | 0.22 | % | 2.13 | % | 4,689 | 0.75 | % | 5.63 | % | ||||||||||||||
Total Gross loans | $ | 619,988 | 100.00 | % | 6.66 | % | $ | 628,767 | 100.00 | % | 6.68 | % | ||||||||||||
(1) Includes second trust deeds. |
The following table sets forth the repricing characteristics of the Company’s multi-family, commercial real estate and commercial owner occupied loan portfolio in dollar amounts as of March 31, 2009:
Weighted | ||||||||||||||||
Number | Average | Months to | ||||||||||||||
of Loans | Amount | Interest Rate | Reprice | |||||||||||||
(dollars in thousands) | ||||||||||||||||
1 Year and less (1) | 197 | $ | 156,595 | 6.107 | % | 3.21 | ||||||||||
Over 1 Year to 3 Years | 112 | 160,510 | 6.815 | % | 22.89 | |||||||||||
Over 3 Years to 5 Years | 122 | 137,699 | 6.708 | % | 45.22 | |||||||||||
Over 5 Years to 7 Years | 11 | 21,042 | 6.685 | % | 70.52 | |||||||||||
Over 7 Years to 10 Years | 24 | 24,544 | 6.944 | % | 99.02 | |||||||||||
Fixed | 51 | 61,085 | 7.021 | % | - | |||||||||||
Total | 517 | $ | 561,475 | 6.615 | % | 216.33 | ||||||||||
(1) Includes three and five year hybrid loans that have reached their initial repricing date. |
Allowance for Loan Losses
The allowance for loan losses totaled $6.4 million as of March 31, 2009 and $5.9 million as of December 31, 2008. The increase in the allowance for loan losses was primarily due to loans classified as “special mention” and “substandard” of $9.1 million and $6.1 million, respectively. Net nonaccrual loans and other real estate owned were $7.6 million and $55,000, respectively, at March 31, 2009, compared to $5.2 million and $37,000, respectively, as of December 31, 2008. The increase in net nonaccrual loans was primarily due to two commercial real estate loans totaling $2.4 million consisting of a loan for $1.0 million which was current as of quarter-end, but the property securing the loan was in foreclosure earlier in the quarter. The other loan totaling $1.4 million was 90 days past due at March 31, 2009, is in escrow for $2.0 million and is schedule to close sometime in the second quarter. The allowance for loan losses as a percent of nonperforming loans decreased to 84% as of March 31, 2009 from 113% at December 31, 2008. The ratio of nonperforming assets to total assets at March 31, 2009 was 1.04%, compared to 0.71% at December 31, 2008.
The Bank’s methodology for assessing the appropriateness of the allowance consists of several key elements, including the formula allowance. The formula allowance is calculated by applying loss factors to all loans held for investment.
The loss factors for each segment of the loan portfolio, except for loans secured by single family residences originated prior to 2002, are derived by using the average of the last 10 years and 15 years historical charge-off rates by loan types for commercial banks and savings institutions headquartered in California as collected by the FDIC as the base rate. Then the following internal and external risk factors are added to the average:
Internal Factors
- | Changes in lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices; |
- | Changes in the nature and volume of the loan portfolio and in the terms of loans, as well as new types of lending; |
- | Changes in the experience, ability, and depth of lending management and other relevant staff that may have an impact on the Bank’s loan portfolio; |
- | Changes in volume and severity of past due and classified loans, and in volumes of non-accruals, troubled debt restructurings, and other loan modifications; |
- | Changes in the quality of the Bank’s loan review system and the degree of oversight by the Board; and |
- | The existence and effect of any concentrations of credit, and changes in the level of such concentrations. |
External Factors
- | Changes in national, state and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments (includes trends in real estate values and the interest rate environment); |
- | Changes in the value of the underlying collateral for collateral-dependent loans; and |
- | The effect of external factors, such as competition, legal, regulatory requirements on the level of estimated credit losses in the Bank’s current loan portfolio. |
The factor amount for each of the nine above-described risk factors are determined by the Chief Credit Officer and approved by the Credit and Investment Review Committee on a quarterly basis.
For the homogeneous single-family residential loan portfolio, the allowance for loan and lease loss factors for pre-2002 originations of first and second deeds of trust loans are based upon the Bank’s 10 year historical loss experience from charge-offs and real estate owned and the migration history analysis. For loans secured by single family residences made after 2001, the factor is calculated using the average of the FDIC charge-off for 10 and 15 years plus the nine credit risk factors mentioned above.
Given the composition of the Company’s loan portfolio, the $6.4 million allowance for loan losses was considered adequate to cover losses inherent in the Company’s loan portfolio at March 31, 2009. However, no assurance can be given that the Company will not, in any particular period, sustain loan losses that exceed the amount reserved, or that subsequent evaluation of the loan portfolio, in light of the prevailing factors, including economic conditions which may adversely affect the Company’s market area or other circumstances, will not require significant increases in the loan loss allowance. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such agencies may require the Bank to recognize additional provisions to increase the allowance or take charge-offs in anticipation of future losses.
The table below summarizes the activity of the Company’s allowance for loan losses for the three months ended March 31, 2009 and 2008:
Three Months Ended March 31, | ||||||||
2009 | 2008 | |||||||
(in thousands) | ||||||||
Balance, beginning of period | $ | 5,881 | $ | 4,598 | ||||
Provision for loan losses | 1,160 | 183 | ||||||
Charge-offs | ||||||||
Real estate: | ||||||||
One-to-four family | (99 | ) | - | |||||
Business Loans: | ||||||||
Commercial and Industrial | (356 | ) | - | |||||
SBA loans | (227 | ) | - | |||||
Total charge-offs | (682 | ) | - | |||||
Recoveries | ||||||||
Real estate: | ||||||||
One-to-four family | 21 | 4 | ||||||
Business Loans: | ||||||||
SBA loans | 12 | - | ||||||
Other loans | 4 | 3 | ||||||
Total recoveries | 37 | 7 | ||||||
Net charge-offs | (645 | ) | 7 | |||||
Balance, end of period | $ | 6,396 | $ | 4,788 |
Composition of Nonperforming Assets
The table below summarizes the Company’s composition of nonperforming assets as of the dates indicated. Net nonperforming assets totaled $7.6 million at March 31, 2009 and $5.2 million as of December 31, 2008, or 1.04% and 0.71% of total assets, respectively. The increase in nonperforming assets was primarily due to an increase in nonperforming commercial real estate loans during the period ended March 31, 2009.
At March 31, | At December 31, | |||||||
2009 | 2008 | |||||||
Nonperforming assets: | (dollars in thousands) | |||||||
Real Estate: | ||||||||
One-to-four family | $ | 333 | $ | 637 | ||||
Multi-family | - | 350 | ||||||
Commercial | 5,627 | 3,188 | ||||||
Business loans: | ||||||||
Commercial owner occupied | 317 | - | ||||||
Commercial and industrial | 15 | - | ||||||
SBA | 1,300 | 1,025 | ||||||
Other loans | - | - | ||||||
Total nonaccrual loans | 7,592 | 5,200 | ||||||
Foreclosed real estate owned ("OREO") | 55 | 37 | ||||||
Total nonperforming assets (1) | $ | 7,647 | $ | 5,237 | ||||
Restructured Loans | $ | 827 | $ | - | ||||
Allowance for loan losses as a percent of | ||||||||
gross loans receivable (2) | 1.03 | % | 0.94 | % | ||||
Allowance for loan losses as a percent of | ||||||||
total nonperforming loans, gross | 84.25 | % | 113.10 | % | ||||
Nonperforming loans as a | ||||||||
percent of gross loans receivable | 1.22 | % | 0.83 | % | ||||
Nonperforming assets as a | ||||||||
percent of total assets | 1.04 | % | 0.71 | % |
(1) | Nonperforming assets consist of nonperforming loans and OREO. Nonperforming loans include all loans 90 days or more past due and loans that are less than 90 days and, in the opinion of management, there is reasonable doubt as to the collectability are classified as non-accruing. |
(2) | Gross loans include loans receivable that are held for investment and held for sale. |
Liabilities and Stockholders’ Equity
Total liabilities of the Company decreased from $682.4 million at December 31, 2008 to $679.1 million at March 31, 2009. The decrease was primarily due to a decrease in borrowings of $37.9 million which was partially offset by an increase in total deposits of $36.2 million during the three months ended March 31, 2009.
The Company had $172.0 million in borrowings as of March 31, 2009, compared to $209.9 million in such 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 $538.0 million and FHLB stock totaling $12.7 million at March 31, 2009. See “Note 4 –Borrowings” above. The Bank may borrow up to 45% of its assets under the FHLB line. As of March 31, 2009, the maximum amount that the Bank may borrow through the FHLB was $330.8 million, based on the Bank’s assets as of December 31, 2008. The total cost of the Company’s borrowings for the three months period ended March 31, 2009 was 4.07%, a decrease of 33 basis points compared to the same period in 2008.
The Corporation had $10.3 million of subordinated debentures as of March 31, 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 March 31, 2009 was 4.00%, compared to 6.98% for the same period in 2008.
Total deposits were $493.4 million as of March 31, 2009, compared to $457.1 million at December 31, 2008, an annualized increase of 31.7%. The increase in deposits was comprised of increases in retail certificate of deposits and transaction accounts of $44.1 million and $7.7 million, respectively, which were partially offset by a decrease in brokered certificates of deposits of $17.5 million. The total average annualized cost of deposits for the three months ended March 31, 2009 was 3.09%, compared to 4.08% for the same period in 2008.
During the three months ended March 31, 2009, our average annualized cost of funds was 3.37%, a decrease of 85 basis points compared to the same period in 2008.
Total equity was $58.2 million as of March 31, 2009, compared to $57.5 million at December 31, 2008, an increase of $663,000. The increase in equity was primarily due to the net income of $537,000 and an increase in the accumulated adjustment to stockholders’ equity of $434,000 due to an increase in value of the Company’s investment portfolio. This increase was partially offset by 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
Highlights for the three months ended March 31, 2009 and 2008
The Company recorded a first quarter net income of $537,000 or $0.09 per diluted share, compared to net income of $846,000, or $0.13 per diluted share, for the first 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 options whose exercise price exceeds the closing market price as of March 31, 2009, outstanding. See “Item 1. Financial Statements-Note 6 – Earnings Per Share”.
Return on average assets (ROAA) for the three months ended March 31, 2009 was 0.29% compared to 0.45% for the same period in 2008. The Company's return on average equity (ROAE) for the three months ended March 31, 2009 was 3.73% compared to 5.57% for the three months ended December 31, 2008. The Company’s basic book value per share increased to $12.15, at March 31, 2009, reflecting an annualized increase of 13.97% from December 31, 2008. The increase was primarily due to the decrease in total equity related to the repurchase and retirement of the Company stock at a cost below our book value during the first quarter of 2009, and an increase in accumulated adjustment to stockholders’ equity of $434,000 due to an increase in value of the Company’s investment portfolio. The Company’s diluted book value per share increased to $9.89, at March 31, 2009, reflecting an annualized increase of 12.08% from December 31, 2008. Options whose exercise price exceeds the closing market price as of March 31, 2009 are excluded from the diluted book value calculation.
Net Interest Income
The Company’s earnings are derived predominately from net interest income, which is the difference between the interest income earned on interest-earning assets, primarily loans and securities, and the interest expense incurred on interest-bearing liabilities, primarily deposits and borrowings. The net interest margin is the net interest income divided by the average interest-earning assets.
For the three months ended March 31, 2009, net interest income was $5.3 million compared to $4.8 million for the same period a year earlier. The increase was predominately attributable to a 20.2% decrease in interest expense for the three months ended March 31, 2009, compared to the same period in 2008. For the three months ended March 31, 2009, interest expense totaled $5.7 million compared to $7.1 million for the same period in 2008. The reduction in interest expense for the 2009 period was primarily due to decreases in deposit expense and borrowing costs associated with the Bank’s FHLB and other borrowings of 99 basis points and 33 basis points, respectively, over the prior year period. Partially offsetting the decrease in interest expense was a decrease in interest income for the three months ended March 31, 2009 of $992,000 compared to the same period in the prior year. The decrease in interest income was primarily attributable to the repricing of our adjustable rate loans downward. Our weighted average loan yield for the quarter ended March 31, 2009 was 6.60%, a decrease of 39 basis points from 6.99% for the same period a year earlier.
The net interest margin for the three months ended March 31, 2009 was 3.00% compared to 2.74% for the same period a year ago. The increase was primarily attributable to decreases in the average cost of liabilities of 84 basis points for the three months ended March 31, 2009, compared to the same period in 2008, which was partially offset by a decrease in the average loan yield of 56 basis points for the three months ended March 31, 2009. The changes in the cost of funds and loan yields are primarily attributable to the Federal Reserve Board’s reduction of the Fed Fund Rate over a 15 month period by 500 basis points starting in September of 2007 in response to the economic downturn and their affects on the repricing of the Bank’s adjustable loan portfolio, maturing deposits, and short-term borrowings. As of March 31, 2009, the Bank had $5.5 million in short-term FHLB advances, $201.6 million of certificate of deposits, and $45.8 million of loans that could reprice in the next quarter.
The following table sets forth the Company’s average balance sheets and the related weighted average yields and costs on average interest-earning assets and interest-bearing liabilities, for the three months ended March 31, 2009 and 2008. The yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods shown. Average balances are measured on a daily basis. The yields and costs include fees that are considered adjustments to yields.
Three Months Ended | Three Months Ended | |||||||||||||||||||||||
March 31, 2009 | March 31, 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 | $ | 9,390 | $ | 4 | 0.17 | % | $ | 274 | $ | 10 | 14.60 | % | ||||||||||||
Federal funds sold | 5,743 | 4 | 0.28 | % | 937 | 7 | 2.99 | % | ||||||||||||||||
Investment securities | 71,780 | 778 | 4.34 | % | 76,413 | 989 | 5.18 | % | ||||||||||||||||
Loans receivable | 616,182 | 10,165 | 6.60 | % | 626,078 | 10,938 | 6.99 | % | ||||||||||||||||
Total interest-earning assets | 703,095 | 10,951 | 6.23 | % | 703,702 | 11,944 | 6.79 | % | ||||||||||||||||
Non-interest-earning assets | 34,803 | 40,304 | ||||||||||||||||||||||
Total assets | $ | 737,898 | $ | 744,006 | ||||||||||||||||||||
Liabilities and Equity | ||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Transaction accounts | $ | 93,340 | $ | 255 | 1.09 | % | $ | 96,947 | $ | 434 | 1.79 | % | ||||||||||||
Retail certificates of deposit | 367,470 | $ | 3,304 | 3.60 | % | 256,493 | 3,072 | 4.79 | % | |||||||||||||||
Wholesale/brokered certificates of deposit | 20,210 | 152 | 3.01 | % | 38,301 | 492 | 5.14 | % | ||||||||||||||||
Total interest-bearing deposits | 481,020 | 3,711 | 3.09 | % | 391,741 | 3,998 | 4.08 | % | ||||||||||||||||
Borrowings | 182,693 | 1,861 | 4.07 | % | 272,908 | 2,937 | 4.30 | % | ||||||||||||||||
Subordinated debentures | 10,310 | 103 | 4.00 | % | 10,310 | 180 | 6.98 | % | ||||||||||||||||
Total borrowings | 193,003 | 1,964 | 4.07 | % | 283,218 | 3,117 | 4.40 | % | ||||||||||||||||
Total interest-bearing liabilities | 674,023 | 5,675 | 3.37 | % | 674,959 | 7,115 | 4.22 | % | ||||||||||||||||
Non-interest-bearing liabilities | 6,285 | 8,335 | ||||||||||||||||||||||
Total liabilities | 680,308 | 683,294 | ||||||||||||||||||||||
Equity | 57,590 | 60,712 | ||||||||||||||||||||||
Total liabilities and equity | $ | 737,898 | $ | 744,006 | ||||||||||||||||||||
Net interest income | $ | 5,276 | $ | 4,829 | ||||||||||||||||||||
Net interest rate spread | 2.86 | % | 2.57 | % | ||||||||||||||||||||
Net interest margin | 3.00 | % | 2.74 | % | ||||||||||||||||||||
Ratio of interest-earning assets to interest-bearing liabilities | 104.31 | % | 104.26 | % |
The following table sets forth the effects of changing rates and volumes (changes in the average balances) on the Company’s net interest income. Information is provided with respect to (i) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume); (ii) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate); and (iii) the net change.
Three Months Ended March 31, 2009 | ||||||||||||
Compared to | ||||||||||||
Three Months Ended March 31, 2008 | ||||||||||||
Increase (decrease) due to | ||||||||||||
Rate | Volume | Net | ||||||||||
(in thousands) | ||||||||||||
Interest-earning assets: | ||||||||||||
Cash and cash equivalents | $ | 71 | $ | (77 | ) | $ | (6 | ) | ||||
Federal funds sold | 41 | (44 | ) | (3 | ) | |||||||
Investment securities | (57 | ) | (154 | ) | (211 | ) | ||||||
Loans receivable, net | (170 | ) | (602 | ) | (772 | ) | ||||||
Total interest-earning assets | $ | (115 | ) | $ | (877 | ) | $ | (992 | ) | |||
Interest-bearing liabilities: | ||||||||||||
Transaction accounts | $ | (16 | ) | $ | (163 | ) | $ | (179 | ) | |||
Retail certificates of deposit | 4,034 | (3,802 | ) | 232 | ||||||||
Wholesale/brokered certificates of deposit | (181 | ) | (159 | ) | (340 | ) | ||||||
Borrowings | (926 | ) | (150 | ) | (1,076 | ) | ||||||
Subordinated debentures | - | (77 | ) | (77 | ) | |||||||
Total interest-bearing liabilities | $ | 2,911 | $ | (4,351 | ) | $ | (1,440 | ) | ||||
Change in net interest income | $ | (3,026 | ) | $ | 3,474 | $ | 448 |
Provision for Loan Losses
The Bank’s provision for loan losses was $1.2 million for the three months ended March 31, 2009, compared to $183,000 for the same period in 2008. The increase in the provision for the three months ended March 31, 2009 was primarily due to increases in the Bank’s loss reserve factors due to the unfavorable business climate and an increase in the Bank’s charge-offs compared to the same period in 2008. Net charge-offs in the three months ended March 31, 2009 were $645,000 compared to net recoveries of $7,000 for the same period in 2008. The increase in the Bank’s loss reserve factors is due to management’s expectation that, with the weakening economy, our borrowers and/or the collateral securing our loans could be adversely impacted. The Bank’s Loss Mitigation Department continues collection efforts on loans previously written-down and/or charged-off to maximize potential recoveries. See “Allowance for Loan Losses.”
Noninterest Income
Noninterest income for the three months ended March 31, 2009 was $630,000 compared to $679,000 for the same period in 2008. The decrease in the noninterest income for the three months ended March 31, 2009 was primarily due to decreases in gain on the Company’s sale of loans of $67,000 and other income of $135,000 compared to the same period in 2008, which was partially offset by gains in loan servicing fee income and bank fee income of $54,000 and $97,000, respectively, compared to the same period in 2008.
Noninterest Expense
Noninterest expenses were $3.9 million for the three months ended March 31, 2009 compared to $4.0 million for the same period in 2008. The decrease in noninterest expense for the three months was the result of a decrease in compensation and benefits expense of $388,000 which was partially offset by an increase in FDIC insurance premiums of $220,000. The decrease in compensation and benefits for the quarter was attributable to management’s staff reductions, which occurred in late February 2008, and a reduction in the annual incentive bonus accrual. The number of employees with the Bank at March 31, 2009 was 90 compared to 92 at March 31, 2008.
Provision for Income Taxes
The Company had a tax provision for the three months ended March 31, 2009 of $280,000. For the same period in 2008, the Company had a tax provision of $464,000. The decrease in the tax provision for the three months ended March 31, 2009 was primarily due to a reduction in income before taxes of $493,000. The Company’s valuation allowance for deferred taxes was zero at March 31, 2009, as the deferred tax assets based on management’s analysis were determined, more likely than not, to be realized.
LIQUIDITY
The Bank’s primary sources of funds are principal and interest payments on loans, deposits and borrowings. While maturities and scheduled amortization of loans are a predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. The Bank’s average liquidity ratios were 9.40% and 10.12% for the quarters ended March 31, 2009 and 2008, respectively.
The Company’s cash flows are comprised of three primary classifications: operating activities, investing activities and financing activities. Net cash provided by operating activities were $1.4 million for the three months ended March 31, 2009, compared to net cash provided by operating activities of $10.3 million for the three months ended March 31, 2008. Net cash used in investing activities was $1.0 million for the three months ended March 31, 2009, compared to net cash used in investing activities of $18.6 million for the three months ended March 31, 2008. Net cash used in financing activities was $2.1 million for the three months ended March 31, 2009, compared to net cash used in financing activities of $2.5 million for the three months ended March 31, 2008.
The Company’s most liquid assets are unrestricted cash and short-term investments. The levels of these assets are dependent on the Company’s operating, lending and investing activities during any given period. At March 31, 2009, cash and cash equivalents totaled $8.1 million and the market-value of the Bank’s investments in mortgage-backed securities totaled $66.2 million. The Company has other sources of liquidity, if a need for additional funds arises, including the utilization of FHLB advances, Federal Funds lines, Federal Reserve Bank’s lending programs, and loan sales.
As of March 31, 2009, the Bank had commitments to extend credit of $15.3 million as compared to $14.4 million at December 31, 2008. There were no material changes to the Company’s commitments or contingent liabilities as of March 31, 2009 compared to the period ended December 31, 2008 as discussed in the notes to the audited consolidated financial statements of Pacific Premier Bancorp, Inc. for the year ended December 31, 2008 included in the Company’s Annual Report on Form 10-K, for such year.
CAPITAL RESOURCES
The regulatory agencies require a minimum ratio of qualifying total capital to risk-adjusted assets of 8.0 percent and a minimum ratio of Tier 1 capital to risk-adjusted assets of 4.0 percent. In addition to the risk-based guidelines, regulators require banking organizations to maintain a minimum amount of Tier 1 capital to total assets, referred to as the leverage ratio, of 4.0 percent. For a bank rated in the highest of the five categories used by regulators to rate banks, the minimum leverage ratio is 3.0 percent. In addition to these uniform risk-based capital guidelines that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios.
The table in “Item 1. Financial Statements - Note 3 - Regulatory Matters” reflects the Company’s and Bank’s capital ratios based on the end of the period covered by this report and the regulatory requirements to be adequately capitalized and well capitalized. As of March 31, 2009, the Bank met the capital ratios required to be considered well capitalized.
Management believes that there have been no material changes in the Company’s quantitative and qualitative information about market risk since December 31, 2008. For a complete discussion of the Company’s quantitative and qualitative market risk, see “Item 7A. Quantitative and Qualitative Disclosure About Market Risk” in the Company’s 2008 Annual Report on Form 10-K.
(a) Evaluation of Disclosure Controls and Procedures
The Company's Chief Executive Officer and its Chief Financial Officer, after evaluating the effectiveness of the Company's disclosure controls and procedures as defined in Rules 13a-15(c) and 15-d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report (the "Evaluation Date") have concluded that as of the Evaluation Date, the Company's disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities, particularly during the period in which this quarterly report was being prepared. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files under the Exchange Act is accumulated and communicated to its Management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in Internal Controls
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
The Company was not involved in any legal proceedings other than those occurring in the ordinary course of business, except for the “James Baker v. Century Financial, et al” which was discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. Management believes that none of these legal proceedings, individually or in the aggregate, will have a material adverse impact on the results of operations or financial condition of the Company.
There are no material changes from the risk factors set forth under Part 1A. “Risk Factors” in the Company’s 2008 Annual Report on Form 10-K, other than the addition of the following risk factors:
Difficult market conditions may adversely affect our industry, business, results of operations and access to capital.
Dramatic declines in the housing market over the past year, with falling home prices and increasing foreclosures, unemployment and under-employment, have negatively impacted the credit performance of mortgage loans and resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities as well as major commercial and investment banks. These write-downs, initially of mortgage-backed securities but spreading to credit default swaps and other derivative and cash securities, in turn, have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail. Reflecting concern about the stability of the financial markets generally and the strength of counterparties, many lenders and institutional investors have reduced or ceased providing funding to borrowers, including to other financial institutions. This market turmoil and tightening of credit have led to an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility and widespread reduction of business activity generally. The resulting lack of available credit and lack of confidence in the financial markets could materially and adversely affect our financial condition and results of operations and our access to capital. In particular, we may face the following risks in connection with these events:
· | Market developments may affect consumer confidence levels and may cause adverse changes in payment patterns, causing increases in delinquencies and default rates on loans and other credit facilities. |
· | The processes we use to estimate allowance for loan losses and reserves may no longer be reliable because they rely on complex judgments, including forecasts of economic conditions, which may no longer be capable of accurate estimation. |
· | Our ability to borrow from other financial institutions or raise additional capital on favorable terms or at all could be adversely affected by further disruptions in the capital markets or other events. |
· | We may be required to pay significantly higher FDIC premiums because market developments have significantly depleted the insurance fund of the FDIC and reduced the ratio of reserves to insured deposits. |
· | We expect to face increased regulation of our industry. Compliance with such regulation may increase our costs, limit our ability to pursue business opportunities, and increase compliance challenges. |
Total Number | Total number of | Maximum number | ||||||||||||||
of shares | Average | shares repurchased | of shares that may | |||||||||||||
Month of | purchased/ | price paid | as part of the publicly | yet be purchased | ||||||||||||
Purchase | returned | per share | announced program | under the program | ||||||||||||
Jan-09 | - | $ | - | - | 267,163 | |||||||||||
Feb-09 | 100,000 | 3.84 | 100,000 | 167,163 | ||||||||||||
Mar-09 | - | - | - | 167,163 | ||||||||||||
Total/Average | 100,000 | $ | 3.84 | 100,000 | 167,163 |
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.,
May 14, 2009 | By: | /s/ Steven R. Gardner |
Date Steven R. Gardner
President and Chief Executive Officer
(principal executive officer)
May 14, 2009 | /s/ John Shindler |
Date John Shindler
Executive Vice President and Chief Financial Officer
(principal financial and accounting officer)
Index of Exhibits
Exhibit No. Description of Exhibit
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |