Add
PPBI to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| PPBI > SEC Filings for PPBI > Form 10-K on 26-Mar-2009 | All Recent SEC Filings |
26-Mar-2009
Annual Report
Summary
Our principal business is attracting deposits from small businesses and consumers and investing those deposits together with funds generated from operations and borrowings, primarily in commercial business loans and various types of commercial real estate loans. In 2009, the Bank expects to fund substantially all of the loans that it originates or purchases through deposits, FHLB advances and internally generated funds. Deposit flows and cost of funds are influenced by prevailing market rates of interest primarily on competing investments, account maturities and the levels of savings in the Bank's market area. The Bank's ability to originate and purchase loans is influenced by the general level of product available. The Bank's results of operations are also affected by the Bank's provision for loan losses and the level of operating expenses. The Bank's operating expenses primarily consist of employee compensation and benefits, premises and occupancy expenses, and other general expenses. The Company's results of operations are also affected by prevailing economic conditions, competition, government policies and other actions of regulatory agencies.
Critical Accounting Policies
We have established various accounting policies that govern the application of accounting principles generally accepted in the United States of America in the preparation of the Company's financial statements in Item 8 hereof. The Company's significant accounting policies are described in the Note 1 to the Consolidated Financial Statements. Certain accounting policies require management to make estimates and assumptions that have a material impact on the carrying value of certain assets and liabilities; management considers these to be critical accounting policies. The estimates and assumptions management uses are based on historical experience and other factors, which management believes to be reasonable under the circumstances. Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at balance sheet dates and the Company's results of operations for future reporting periods.
We believe that the allowance for loan losses is the critical accounting policy that requires estimates and assumptions in the preparation of the Company's financial statements that are most susceptible to significant change. For further information, see "Business-Allowances for Loan Losses" and Note 1 to the Consolidated Financial Statements in Item 8 hereof.
Average Balance Sheet
The following tables set forth certain information relating to the Company for
the years ended December 31, 2008, 2007, and 2006. The yields and costs are
derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods shown. Average balances are measured
on a daily basis. The yields and costs include fees, which are considered
adjustments to yields.
For the Year Ended December 31,
2008 2007 2006
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
(dollars in thousands)
Assets:
Interest-earning assets:
Cash and cash
equivalents (1) $ 7,288 $ 34 0.47 % $ 432 $ 78 18.06 % $ 602 $ 126 20.93 %
Federal funds sold 1,081 22 2.04 % 1,448 72 4.97 % 1,123 54 4.81 %
Investment securities
(2) 80,906 4,365 5.40 % 76,080 4,010 5.27 % 53,519 2,654 4.96 %
Loans receivable, net
(3) 617,569 42,101 6.82 % 617,528 45,272 7.33 % 607,439 41,294 6.80 %
Total interest-earning
assets 706,844 46,522 6.58 % 695,488 49,432 7.11 % 662,683 44,128 6.66 %
Noninterest-earning
assets 32,612 39,326 31,893
Total assets $ 739,456 $ 734,814 $ 694,576
Liabilities and Equity:
Interest-bearing
liabilities:
Transaction accounts $ 96,917 1,448 1.49 % $ 94,220 1,773 1.88 % $ 91,169 1,669 1.83 %
Certificate accounts 314,603 13,005 4.13 % 272,176 13,848 5.09 % 231,420 10,185 4.40 %
Total interest-bearing
deposits 411,520 14,453 3.51 % 366,396 15,621 4.26 % 322,589 11,854 3.67 %
FHLB advances and other
borrowings 251,281 10,302 4.10 % 290,749 14,723 5.06 % 299,274 14,348 4.79 %
Subordinated debentures 10,310 649 6.29 % 10,310 822 7.97 % 10,310 801 7.77 %
Total interest-bearing
liabilities 673,111 25,404 3.77 % 667,455 31,166 4.67 % 632,173 27,003 4.27 %
Noninterest-bearing
liabilities 7,495 7,363 7,253
Total liabilities 680,606 674,818 639,426
Stockholders' equity 58,850 59,996 55,150
Total liabilities and
equity $ 739,456 $ 734,814 $ 694,576
Net interest income $ 21,118 $ 18,266 $ 17,125
Net interest rate spread
(4) 2.81 % 2.44 % 2.39 %
Net interest margin (5) 2.99 % 2.63 % 2.58 %
|
(2) Includes unamortized discounts and premiums.
(3) Amount is net of deferred loan origination fees, unamortized discounts, premiums and allowance for estimated loan losses and includes loans held for sale and nonperforming loans. Loan fees were approximately $929,000, $847,000, and $1.1 million, for the years ended December 31, 2008, 2007, and 2006, respectively.
(4) Net interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average interest-earning assets.
Rate Volume Analysis. The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected our interest income and interest expense during the periods indicated. Information is provided in each category with respect to: (i) changes attributable to changes in volume (changes in volume multiplied by prior rate); (ii) changes attributable to changes in interest rates (changes in interest rates multiplied by prior volume); and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to interest rates.
Year Ended December 31, 2008 Year Ended December 31, 2007
Compared to Compared to
Year Ended December 31, 2007 Year Ended December 31, 2006
Increase (decrease) due to Increase (decrease) due to
Average Average Average Average
Volume Rate Net Volume Rate Net
(in thousands)
Interest-earning
assets:
Cash and cash
equivalents $ 102 $ (146 ) $ (44 ) $ (32 ) $ (16 ) $ (48 )
Federal funds sold (14 ) (36 ) (50 ) 17 1 18
Investment securities 259 96 355 1,180 176 1,356
Loans receivable, net 3 (3,174 ) (3,171 ) 695 3,283 3,978
Total
interest-earning
assets 350 (3,260 ) (2,910 ) 1,860 3,444 5,304
Interest-bearing
liabilities:
Interest-bearing
deposits 49 (374 ) (325 ) 57 47 104
Retail certificates
of deposit 1,847 (2,140 ) (293 ) 1,942 1,721 3,663
Wholesale/brokered
certificates of
deposit 132 (682 ) (550 )
Borrowings (1,840 ) (2,581 ) (4,421 ) (416 ) 791 375
Subordinated
debentures - (173 ) (173 ) - 21 21
Total
interest-bearing
liabilities 188 (5,950 ) (5,762 ) 1,583 2,580 4,163
Changes in net
interest income $ 162 $ 2,690 $ 2,852 $ 277 $ 864 $ 1,141
|
Comparison of Operating Results for the Year Ended December 31, 2008 and December 31, 2007
General. For the year ended December 31, 2008, the Company reported net income of $701,000 or $0.11 per diluted share, compared with net income of $3.6 million or $0.55 per diluted share for the same period in 2007. The $2.9 million, or 80.6%, decrease in net income in 2008 compared to 2007 was primarily the result of a charge of $3.6 million (pre-tax), or $0.34 per diluted shares (after-tax), associated with the termination of the mutual funds investment held by the Bank and of an other-than-temporary impairment ("OTTI") charge of $1.3 million, or $0.13 per diluted share (after-tax), that was recorded on private label MBSs that the Bank received when it redeemed its shares in the mutual funds in the second quarter of 2008.
Interest Income. Interest income for the year ended December 31, 2008 was $46.5 million, compared to $49.4 million for the year ended December 31, 2007. The decrease of $2.9 million, or 5.9%, is primarily due to interest income on loans receivable decreasing $3.1 million to $42.1 million for the year ended December 31, 2008 from $45.3 million for the year ended December 31, 2007. The decrease in interest income on loans was primarily the result of a decrease in the average yield of 0.51% from 7.33% in 2007 to 6.82% in 2008. The decrease in loan yield is primarily due to the re-pricing of our short-term adjustable-rate income property loans as general market interest rates in the marketplace have declined during 2008.
Interest Expense. Interest expense for the year ended December 31, 2008 was $25.4 million, compared to $31.2 million for the year ended December 31, 2007. The $5.8 million, or 18.5%, decrease was primarily due to a decrease of 93 basis points in the average cost of interest-bearing liabilities resulting from the lower interest rate environment during 2008.
Net Interest Income. Our primary source of revenue is net interest income, which is the difference between interest income on earning assets and interest expense on interest-bearing liabilities. Net interest income and net interest margin are affected by several factors including: (1) the level of, and the relationship between, the dollar amount of interest-earning assets and interest-bearing liabilities, (2) the relationship between repricing or maturity of our variable-rate and fixed-rate loans and securities, and our deposits and borrowings, and (3) the magnitude of our non-interest earning assets, including non-accrual loans and foreclosed real estate.
Net interest income before provision for loan losses was $21.1 million and $18.3 million for the years ended December 31, 2008 and 2007, respectively.
Provision for Loan Losses. The provision for loan losses increased to $2.2 million for the year ended December 31, 2008 from $1.7 million for the year ended December 31, 2007. The increase in the current year provision of $590,000 million, or 35.7%, for loan losses was primarily due to increases in the Bank's net charge-off of $370,000 and its unallocated allowance of $201,000. Net charge-offs in 2008 were $966,000 compared to $596,000 for 2007. The increase in the unallocated allowance is attributable to management's expectation that, with the weakening economy and the constraints on the financial markets, our borrowers and their businesses and/or the collateral securing our loans could be adversely impacted and this may affect our borrowers' ability to repay their loans.
Noninterest Income. Noninterest income was a loss $2.2 million for the year ended December 31, 2008, compared to income of $6.4 million for the year ended December 31, 2007. The decrease of $8.5 million, or 134.2%, was primarily due to the aforementioned $1.3 million OTTI charge, the loss of $3.6 million from the sale of the mutual fund investments and a decrease in income generated by loan sales of $3.6 million, compared to the same period in 2007.
Noninterest Expense. Noninterest expense for the year ended December 31, 2008 was $16.0 million compared to $17.2 million for the year ended December 31, 2007. The $1.2 million, or 7.4%, decrease in noninterest expense was principally due to decreases in compensation and benefits of $1.5 million and legal and audit expenses of $204,000 in 2008 compared to 2007. The decrease in compensation and benefits for the year is attributable primarily to management's staff reductions, which occurred during the fourth quarter of 2007 and in the first quarter of 2008. The reductions in staff were in connection with the Bank's overall lower loan production levels in 2008 as compared to 2007. The number of full-time equivalent employees at the Bank at December 31, 2008 was 93 compared to 105 at December 31, 2007. The decrease in legal expense is primarily due to a lawsuit that was settled in June 2007 that cost the Bank a total of $250,000 in legal and settlement fees during the year of 2007, with no such expense in 2008.
Income Taxes. The provision for income taxes decreased to $33,000 for the year ended December 31, 2008 compared to $2.1 million for the year ended December 31, 2007. The Company had income before income taxes of $734,000 for the year ended December 31, 2008 compared to income before income taxes of $5.7 million for the year ended December 31, 2007.
Comparison of Operating Results for the Year Ended December 31, 2007 and December 31, 2006
General. For the year ended December 31, 2007, the Company reported net income of $3.6 million or $0.55 per diluted share, compared with net income of $7.4 million or $1.11 per diluted share for the same period in 2006. The $3.8 million, or 51.3%, decrease in net income in 2007 compared to 2006 was primarily the result of increases in the provision for loan losses and compensation and benefit expense of $1.1 million and $1.2 million, respectively, as well as the reversal of the valuation allowance for deferred taxes in 2006 of $2.4 million.
For both the years ended December 31, 2007 and 2006 the Bank's gain on loan sales was $3.7 million. During 2007 and 2006, the Bank sold loans secured by multi-family properties totaling $232.2 million and $196.6 million, respectively, for a gain on sale of $3.6 million and $3.4 million, respectively. During the third quarter of 2007 there were changes in the secondary market for multi-family loans which have required the Bank to adjust its pricing on these product types. Additionally, the Southern California apartment market is seeing a significant slowdown in sales activity as a gap between buyer and seller expectations has created a "wait and see" market. Due to the above changes in the multi-family loan market, we expect that future gains on loan sales to be substantially reduced or eliminated.
Interest Income. Interest income for the year ended December 31, 2007 was $49.4 million, compared to $44.1 million for the year ended December 31, 2006. The increase of $5.3 million, or 12.0%, is primarily due to interest income on loans receivable increasing $4.0 million to $45.3 million for the year ended December 31, 2007 from $41.3 million for the year ended December 31, 2006. The increase in interest income on loans was primarily the result of an increase in the average loan balance of $10.1 million from $607.4 million in 2006 to $617.5 million in 2007 combined with an increase of 53 basis points in the average yield on these loans from 6.80% for 2006 to 7.33% for 2007. The increase in loan yield is primarily due to the re-pricing of our short-term adjustable-rate income property loans and the origination of higher yielding loans during 2007.
Interest Expense. Interest expense for the year ended December 31, 2007 was $31.2 million, compared to $27.0 million for the year ended December 31, 2006. The $4.2 million, or 15.4%, increase primarily reflects an increase in the average balance of deposits of $43.8 million, during the year, combined with a 40 basis point increase in the average cost of interest-bearing liabilities that was due to a higher interest rate environment.
Net Interest Income. Our primary source of revenue is net interest income, which is the difference between interest income on earning assets and interest expense on interest-bearing liabilities. Net interest income and net interest margin are affected by several factors including: (1) the level of, and the relationship between, the dollar amount of interest-earning assets and interest-bearing liabilities, (2) the relationship between repricing or maturity of our variable-rate and fixed-rate loans and securities, and our deposits and borrowings, and (3) the magnitude of our non-interest earning assets, including non-accrual loans and foreclosed real estate. Net interest income before provision for loan losses was $18.3 million and $17.1 million for the years ended December 31, 2007 and 2006, respectively.
Provision for Loan Losses. The provision for loan losses increased to $1.7 million for the year ended December 31, 2007 from $531,000 for the year ended December 31, 2006. The increase in the current year provision of $1.1 million, or 210.9%, for loan losses was primarily due to an increase in the Bank's net charge-off of $558,000, as well as an increase in the unallocated allowance of $553,000. Net charge-offs in 2007 were $596,000 compared to $38,000 for 2006. In the fourth quarter of 2007, the Bank charged-off the unsecured portion of six SBA loans totaling $600,000 due to the deterioration of the clients' businesses. The increase in the unallocated allowance is due to the Bank's management belief that the overall national economy is weakening and may affect our borrowers' ability to repay their loans.
Noninterest Income. Noninterest income was $6.4 million for the year ended December 31, 2007, compared to $6.5 million for the year ended December 31, 2006. The decrease of $156,000, or 2.3%, was primarily due to a decrease in loan servicing income of $459,000 due to fewer prepayment penalties collected in 2007 compared to 2006. Partially offsetting the decrease from loan servicing income was an increase in other income and bank fee income of $175,000 and $105,000, respectively.
Noninterest Expense. Noninterest expense for the year ended December 31, 2007 was $17.2 million compared to $15.2 million for the year ended December 31, 2006. The $2.0 million, or 13.2%, increase in noninterest expense was principally due to increases in compensation and benefits of $1.2 million, legal and audit expenses of $184,000, and other expenses of $343,000 in 2007 compared to 2006. The increase in compensation and benefits for the year is attributable primarily to the Bank's branch expansion and the hiring of additional business bankers during the latter part of 2006 and the early part of 2007. During the fourth quarter of 2007, the Bank laid-off 10 employees due to the reduction in our loan volume. The number of employees at the Bank at December 31, 2007 was 105, compared to 106 at December 31, 2006.
Income Taxes. The provision for income taxes increased to $2.1 million for the year ended December 31, 2007 compared to $450,000 for the year ended December 31, 2006. The Company had income before income taxes of $5.7 million for the year ended December 31, 2007 compared to income before income taxes of $7.9 million for the year ended December 31, 2006. In 2006, the Company eliminated its remaining valuation allowance for deferred taxes which reduced its provision by $2.4 million. The elimination of the deferred tax valuation allowance is due to management's forecast of taxable earnings, based on assumptions regarding the Company's growth in the near future.
Comparison of Financial Condition at December 31, 2008 and December 31, 2007
Total assets of the Company were $740.0 million as of December 31, 2008, compared to $763.4 million as of December 31, 2007. The $23.4 million, or 3.1%, decrease in total assets is primarily due to a decrease in federal funds sold of $24.2 million.
Total liabilities of the Company were $682.4 million at December 31, 2008 compared to $702.7 million at December 31, 2007. The $20.3 million, or 2.9%, decrease was primarily due to a decrease of $88.1 million in borrowings, which was partially offset by an increase in deposits of $70.4 million. Total deposits at December 31, 2008 were $457.1 million compared to $386.7 million at December 31, 2007.
At December 31, 2008 and 2007, our stockholders' equity amounted to $57.5 million and $60.7 million, respectively. The decrease of $3.2 million, or 5.3%, in stockholders' equity is primarily due to the repurchase and retirement of 260,037 shares of common stock at a cost of $2.1 million, or at an average cost of $7.95 per share, and the decrease in accumulated adjustment to stockholder's equity of $2.1 million due to the temporary decrease in value of our investment portfolio.
Liquidity
Our primary sources of funds are principal and interest payments on loans, deposits, FHLB advances and other borrowings. While maturities and scheduled amortization of loans are a predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. We seek to maintain a level of liquid assets to ensure a safe and sound operation. Our liquid assets are comprised of cash and unpledged investments. Our average liquidity ratios were 10.86%, 9.98% and 7.20% for the years ended December 31, 2008, 2007, and 2006, respectively. The liquidity ratio is calculated by dividing the sum of cash balances plus unpledged securities by the sum of deposits that mature in one year or less plus transaction accounts and FHLB advances. Our liquidity is monitored daily.
We believe the level of liquid assets is sufficient to meet current and anticipated funding needs. Liquid assets of the Bank represented approximately 8.5%, 9.0% and 9.2%of total assets at December 31, 2008, 2007 and 2006, respectively. At December 31, 2008, the Bank had five unsecured lines of credit with other correspondent banks totaling $35.0 million to purchase federal funds as business needs dictate. We also have a line of credit with the FHLB allowing us to borrow up to 45% of the Bank's total assets as of September 30, 2008 or $339.2 million, $181.4 million of which was outstanding as of December 31, 2008. The FHLB advance line is collateralized by eligible loan collateral and FHLB stock. At December 31, 2008, we had approximately $508.4 million of loans pledged to secure FHLB borrowings.
At December 31, 2008, we had zero in outstanding commitments to originate or purchase loans compared to zero and $685,000 at December 31, 2007 and 2006, respectively.
The Bank's loan to deposit and borrowing ratio was 93.3%, 90.9% and 91.9% as of December 31, 2008, 2007 and 2006, respectively. Certificates of deposit, which are scheduled to mature in one year or less from December 31, 2008, totaled $360.9 million. We expect to retain a substantial portion of the maturing certificates of deposit at maturity.
The Bank has a policy in place that permits the purchase of brokered funds, in an amount not to exceed 20% of total assets, as a secondary source for funding. At December 31, 2008, the balance of brokered time deposits was approximately $19.2 million.
The Corporation is a company separate and apart from the Bank that must provide for its own liquidity. The Corporation's primary sources of liquidity are dividends upstreamed from the Bank. There are statutory and regulatory provisions that limit the ability of the Bank to pay dividends to the Corporation. Management believes that such restrictions will not have a material impact on the ability of the Corporation to meet its ongoing cash obligations.
The Financial Code provides that a bank may not make a cash distribution to its shareholders in excess of the lesser of a (a) bank's retained earnings; or (b) bank's net income for its last three fiscal years, less the amount of any distributions made by the bank or by any majority-owned subsidiary of the bank to the shareholders of the bank during such period. However, a bank may, with the approval of the DFI, make a distribution to its shareholders in an amount not exceeding the greatest of (x) its retained earnings; (y) its net income for its last fiscal year; or (z) its net income for its current fiscal year. In the event that the DFI determines that the shareholders' equity of a bank is inadequate or that the making of a distribution by the bank would be unsafe or unsound, the DFI may order the bank to refrain from making a proposed distribution. The amount available for distribution from the Bank to the Corporation was approximately $9.4 million at December 31, 2008.
Capital Resources
The Company and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can trigger certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial condition and results of operations. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
At December 31, 2008 and 2007, the Bank's leverage capital amounted to $64.9 million and $65.3 million, respectively, and its risk-based capital amounted to $70.8 million and $69.9 million, respectively. As a result, the Bank exceeded . . .
|
|