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 June 30, 2006

 

OR

o                                 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

 

 

PACIFIC PREMIER BANCORP, INC.
(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

(714) 431-4000
(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes    o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act).

Large accelerated filer o                  Accelerated filer o                  Non-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes o  No x

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 5,263,988 shares of common stock par value $0.01 per share, were outstanding as of August 11, 2006.

 

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
FOR THE QUARTER ENDED JUNE 30, 2006

		PART I   FINANCIAL INFORMATION
Item 1		Financial Statements.
		Consolidated Statements of Financial Condition:
		At June 30, 2006 and 2005 (unaudited)
		Consolidated Statements of Income:
		For the three and six months ended June 30, 2006 and 2005 (unaudited)
		Consolidated Statement of Stockholders’ Equity and Comprehensive Income:
		For the three and six months ended June 30, 2006 and 2005 (unaudited)
		Consolidated Statements of Cash Flows:
		For the six months ended June 30, 2006 and 2005 (unaudited)
		Notes to Consolidated Financial Statements (unaudited)
Item 2		Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3		Quantitative and Qualitative Disclosures About Market Risk
Item 4		Controls and Procedures
		PART II   OTHER INFORMATION
Item 1		Legal Proceedings
Item 1A		Risk Factors
Item 2		Unregistered Sales of Equity Securities and Use of Proceeds
Item 3		Defaults Upon Senior Securities.
Item 4		Submission of Matters to a Vote of Security Holders
Item 5		Other Information
Item 6		Exhibits

 

                       

Item 1.                          Financial Statements.

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands)

 

		June 30, 2006 (Unaudited)			December 31, 2005
ASSETS
Cash and due from banks		$	4,011		$	10,055
Federal funds sold		24,500			24,000
Cash and cash equivalents		28,511			34,055
Investment securities available for sale		35,508			35,850
Investment securities held to maturity:
FHLB Stock, at cost		14,927			13,945
Loans:
Loans held for sale, net		264			456
Loans held for investment, net of allowance of $2,967 (2006) and $2,767 (2005)		604,309			602,937
Accrued interest receivable		3,291			3,007
Foreclosed real estate		363			211
Premises and equipment		6,304			5,984
Current income taxes		262			133
Deferred income taxes		7,010			5,188
Bank Owned Life Insurance		10,079			—
Other assets		3,517			967
Total Assets		$	714,345		$	702,733
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposit accounts
Noninterest bearing		$	25,986		$	21,803
Interest bearing:
Transaction accounts		69,088			60,015
Retail certificates of deposit		185,104			188,014
Wholesale/brokered certifcates of deposit		45,344			58,104
Total Deposits		325,522			327,936
Borrowings		317,300			307,835
Subordinated debentures		10,310			10,310
Accrued expenses and other liabilities		5,745			6,073
Total Liabilities		$	658,877		$	652,154
COMMITMENTS AND CONTINGENCIES		—			—
STOCKHOLDERS’ EQUITY
Common stock, $.01 par value; 15,000,000 shares authorized; 5,263,988 (2006) and 5,228,438 (2005) shares issued and outstanding		$	53		$	53
Additional paid-in capital		67,618			67,198
Accumulated deficit		(11,412		)	(16,059		)
Accumulated other comprehensive loss, net of tax of $553 (2006) and $428 (2005)		(791		)	(613		)
Total Stockholders’ Equity		$	55,468		$	50,579
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	714,345		$	702,733

 

Accompanying notes are an integral part of these consolidated financial statements.

1

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(UNAUDITED)

		For the Three Months Ended						For the Six Months Ended
		June 30, 2006			June 30, 2005			June 30, 2006			June 30, 2005
INTEREST INCOME:
Loans		$	10,076		$	7,588		$	19,846		$	14,355
Other interest-earning assets		660			473			1,263			912
Total interest income		10,736			8,061			21,109			15,267
INTEREST EXPENSE:
Interest on Transaction accounts		416			278			761			537
Interest on Certificates of deposit		2,352			1,633			4,716			3,054
Total deposit interest expense		2,768			1,911			5,477			3,591
Other borrowings		3,540			1,749			6,401			3,015
Subordinated debentures		197			149			381			283
Total interest expense		6,505			3,809			12,259			6,889
NET INTEREST INCOME		4,231			4,252			8,850			8,378
PROVISION FOR LOAN LOSSES		104			90			103			235
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		4,127			4,162			8,747			8,143
NONINTEREST INCOME:
Loan servicing fee income		406			336			744			488
Bank and other fee income		132			131			234			259
Net gain from loan sales		472			25			858			94
Other income		210			788			329			1,065
Total noninterest income		1,220			1,280			2,165			1,906
NONINTEREST EXPENSE:
Compensation and benefits		2,317			1,811			4,548			3,700
Premises and occupancy		558			321			1,102			643
Data processing		90			80			185			163
Net (gain) loss on foreclosed real estate		(38		)	(16		)	43			(25		)
Legal and audit		126			245			262			348
Marketing expense		215			65			348			108
Office and postage expense		105			101			197			184
Other expense		365			280			727			582
Total noninterest expense		3,738			2,887			7,412			5,703
INCOME BEFORE INCOME TAXES		1,609			2,555			3,500			4,346
(BENEFIT) PROVISION FOR INCOME TAXES		(1,298		)	502			(1,147		)	658
NET INCOME		$	2,907		$	2,053		$	4,647		$	3,688
INCOME PER SHARE:
Basic income per share		$	0.55		$	0.39		$	0.88		$	0.70
Diluted income per share		$	0.43		$	0.31		$	0.70		$	0.56
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		5,265,329			5,258,738			5,259,775			5,258,738
Diluted		6,689,734			6,558,718			6,685,576			6,628,863

 

Accompanying notes are an integral part of these consolidated financial statements.

 

2

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005

(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, 2004		5,258,738		$	53		$	67,564		($23,280	)	($309	)				$	44,028
Net income		—		—			—			3,688		—		$	3,688		3,688
Unrealized loss on investments, net of tax of ($91)		—		—			—			—		(132	)	(132		)	(132		)
Total comprehensive income														$	3,556
Shares repurchased		(2,500	)	(25		)	(26		)								(51		)
Stock options exercised		2,500		25			15			—		—					40
Balance at June 30, 2005		5,258,738		$	53		$	67,553		($19,592	)	($441	)				$	47,573

 

		Common Stock Shares		Amount			Additional Paid-in Capital			Accumulated Deficit		Accumulated Other Comprehensive Loss		Comprehensive Income (Loss)			Total Stockholders’ Equity
Balance at December 31, 2005		5,228,438		$	53		$	67,198		($16,059	)	($613	)				$	50,579
Net income		—		—			—			4,647		—		$	4,647		4,647
Unrealized loss on investments, net of tax of ($126)		—		—			—			—		(178	)	(178		)	(178		)
Total comprehensive income														$	4,469
Shares repurchased		(750	)														—
Restricted stock issued		32,550					363										363
Restricted stock forfeited		(2,750	)														—
Stock options exercised		6,500		—			57			—		—					57
Balance at June 30, 2006		5,263,988		$	53		$	67,618		($11,412	)	($791	)				$	55,468

 

Accompanying notes are an integral part of these consolidated financial statements.

 

3

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(UNAUDITED)

		Six Months Ended
		June 30,
		2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	4,647		$	3,688
Adjustments to net income:
Depreciation expense		190			172
Provision for loan losses		104			235
Loss on sale and disposal of premises and equipment		8			—
Loss on sale, provision, and write-down of foreclosed real estate		47			60
Net unrealized loss and amortization on investment securities		164			140
Gain on sale of loans held for investment		(858		)	(94		)
Proceeds from the sales of, and principal payments from, loans held for sale		176			(8		)
Change in current and deferred income tax receivable		(1,951		)	(313		)
Decrease in accrued expenses and other liabilities		(328		)	895
Federal Home Loan Bank stock dividend		(333		)	(170		)
Income from bank owned life insurance		(79		)	—
Increase in other assets		(2,834		)	(857		)
Net cash (used in) provided by operating activities		(1,047		)	3,748
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale and principal payments on loans held for investment		136,541			38,536
Purchase, origination and advances of loans held for investment		(137,538		)	(120,952		)
Proceeds from sale of foreclosed real estate		196			144
(Increase) decrease in premises and equipment		(518		)	(47		)
Purchase of bank owned life insurance		(10,000		)	—
Purchase of FHLB stock		(649		)	(2,671		)
Net cash used in investing activities		(11,968		)	(84,990		)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in deposit accounts		(2,414		)	8,879
(Repayment of) proceeds from FHLB advances		(535		)	70,926
Proceeds from other borrowings		10,000			7,100
Proceeds from exercise of stock options		57			(11		)
Proceeds from issuance of restricted stock		363			0
Net cash provided by financing activities		7,471			86,894
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(5,544		)	5,652
CASH AND CASH EQUIVALENTS, beginning of period		34,055			16,003
CASH AND CASH EQUIVALENTS, end of period		$	28,511		$	21,655
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid		$	13,078		$	6,784
Income taxes paid		$	1,345		$	1,021
NONCASH INVESTING ACTIVITIES DURING THE PERIOD:
Transfers from loans to foreclosed real estate		$	395		$	100

 

Accompanying notes are an integral part of these consolidated financial statements.

 

4

 

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(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, F.S.B. (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 June 30, 2006 and 2005, the results of its operations, changes in stockholders’ equity, comprehensive income and cash flows for the three and six months ended June 30, 2006 and 2005.  Operating results for the three and six months ended June 30, 2006 are not necessarily indicative of the results that may be expected for any other interim period or the full year ending December 31, 2006.

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, 2005.

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.

The pro forma effects of applying SFAS No. 123 are disclosed for the periods shown below:

		For the Three Months Ended						For the Six Months Ended
		June 30, 2006			June 30, 2005			June 30, 2006			June 30, 2005
		(dollars in thousands, except per share data)
Net income to common stockholders:
As reported		$	2,907		$	2,053		$	4,647		$	3,688
Stock-based compensation that would have been reported using the fair value method of SFAS 123		—			—			—			—
Pro forma		$	2,907		$	2,053		$	4,647		$	3,688
Basic earnings per share:
As reported		$	0.55		$	0.39		$	0.88		$	0.70
Pro forma		$	0.55		$	0.39		$	0.88		$	0.70
Diluted earnings per share:
As reported		$	0.43		$	0.31		$	0.70		$	0.56
Pro forma		$	0.43		$	0.31		$	0.70		$	0.56

 

 

5

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In February 2006, the Financial Accounting Standards Board, (“FASB”), issued Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments” (“SFAS 155”), which provides the following: 1) permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, 2) clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” 3) establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, 4) clarifies that concentrations of credit in the form of subordination are not embedded derivatives, and 5) amends Statement of Financial Accounting Standards No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities a replacement of FASB Statement 125” to eliminate the prohibition of a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 for accounting for certain hybrid financial instruments is effective for us beginning January 1, 2007. Adoption of SFAS 155 is not expected to have a material impact on the Company.

In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156, Accounting for Servicing of Financial Assets (“SFAS 156”), which provides the following: 1) revised guidance on when a servicing asset and servicing liability should be recognized, 2) requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable, 3) permits an entity to elect to measure servicing assets and servicing liabilities at fair value each reporting date and report changes in fair value in earnings in the period in which the changes occur, 4) upon initial adoption, permits a one-time reclassification of available-for-sale securities to trading securities for securities which are identified as offsetting the entity’s exposure to changes in the fair value of servicing assets or liabilities that a servicer elects to subsequently measure at fair value, and 5) requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional footnote disclosures. SFAS 156 is effective for us beginning January 1, 2007 with the effects of initial adoption being reported as a cumulative-effect adjustment to retained earnings. The impact to retained earnings of the Company as a result of the initial adoption of SFAS 156 is expected to be immaterial.

Note 2 — Regulatory Matters

The Bank’s capital amounts and ratios are presented in the following table:

		Actual					To be adequately capitalized					To be well capitalized
		Amount			Ratio		Amount			Ratio		Amount			Ratio
		(dollars in thousands)
At June 30, 2006 (Unaudited)
Total Capital (to risk-weighted assets)		$	60,301		11.73	%	$	41,142		8.00	%	$	51,428		10.00	%
Tier 1 Capital (to adjusted tangible assets)		57,533			8.13	%	28,323			4.00	%	35,403			5.00	%
Tier 1 Risk-Based Capital (to risk-weighted assets)		57,533			11.19	%	20,571			4.00	%	30,857			6.00	%
At December 31, 2005
Total Capital (to risk-weighted assets)		$	57,135		11.78	%	$	38,793		8.00	%	$	48,492		10.00	%
Tier 1 Capital (to adjusted tangible assets)		54,376			7.79	%	27,935			4.00	%	34,919			5.00	%
Tier 1 Risk-Based Capital (to risk-weighted assets)		54,376			11.21	%	19,397			4.00	%	29,095			6.00	%

 

6

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Note 3 — Borrowings

At June 30, 2006, the Bank had no advances on its $100 million credit facility with Salomon Brothers.  At June 30, 2006, the Bank had one advance in the amount of $1.0 million at a rate of 6.00% per annum against its $18.6 million credit facility, secured by mutual funds pledged to Pershing LLC.  The Bank also had Fed Funds purchased in the amount of $10.0 million at a rate of 5.56% per annum.  Additionally, the Company had $306.3 million in Federal Home Loan Bank (“FHLB”) advances with a weighted average interest rate of 5.07% and a weighted average maturity of 0.32 years as of June 30, 2006.  As of such date, advances from the FHLB are collateralized by pledges of certain real estate loans with an aggregate principal balance of $478.3 million.  As of June 30, 2006, the Bank was able to borrow up to 45% of its total assets as of March 31, 2006 under the line, which amounted to $306.4 million, a decrease of $8.34 million from the quarter ended March 31, 2006.  FHLB advances consisted of the following as of June 30, 2006:

							Weighted
					Percent		Average Annual
FHLB Advances Maturing in:		Amount			of Total		Interest Rate
		(dollars in thousands)
One month or less		$	71,300		23.28	%	5.18	%
Over one month to three months		50,000			16.32	%	5.03	%
Over three months to six months		140,000			45.71	%	4.86	%
Over six months to one year		25,000			8.16	%	5.63	%
Over one year		20,000			6.53	%	5.63	%
Total FHLB advances		$	306,300		100.00	%	5.07	%

 

Note 4 — 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 fund the payment of $10.0 million of Floating Rate Trust Preferred Securities which were 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 7.82% per annum as of June 30, 2006.

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 5 — 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 93,897 and 94,147 shares for June 30, 2006 and June 30, 2005, respectively, were excluded from the computation of diluted earnings per share due to their exercise price exceeding the average market price.

7

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The table below set forth the Company’s unaudited earnings per share calculations for the three and six months ended June 30, 2006 and 2005.

		For the Three Months Ended June 30,
		2006								2005
		Net					Per Share			Net					Per Share
		Earnings			Shares		Amount			Earnings			Shares		Amount
		(dollars in thousands)
Net Earnings		$	2,907							$	2,053
Basic EPS Earnings available to common stockholders		$	2,907		5,265,329		$	0.55		$	2,053		5,258,738		$	0.39
Effect of Warrants and dilutive stock options		—			1,424,405					—			1,299,980
Diluted EPS Earnings Available to common stockholders plus assumed conversions		$	2,907		6,689,734		$	0.43		$	2,053		6,558,718		$	0.31

 

 

		For the Six Months Ended June 30,
		2006								2005
		Net					Per Share			Net					Per Share
		Earnings			Shares		Amount			Earnings			Shares		Amount
		(dollars in thousands)
Net Earnings		$	4,647							$	3,688
Basic EPS Earnings available to common stockholders		$	4,647		5,259,775		$	0.88		$	3,688		5,258,738		$	0.70
Effect of Warrants and dilutive stock options		—			1,425,801					—			1,370,125
Diluted EPS Earnings Available to common stockholders plus assumed conversions		$	4,647		6,685,576		$	0.70		$	3,688		6,628,863		$	0.56

 

Note 6 — Valuation Allowance for Deferred Income Taxes

Based on the Company’s quarterly analysis of its valuation allowance for deferred taxes, the Company reversed the valuation allowance, as the deferred tax assets were determined, more likely than not, to be realized based on recent earnings.  The reversal of the remaining valuation allowance for its deferred taxes resulted in a tax benefit of $1.9 million for the quarter ended June 30, 2006. Besides the aforementioned benefit, the Company benefited from a reduction in its valuation allowance for deferred taxes for the six months ended June 30, 2006 and for the three and six months ended June 30, 2005 of $2.4 million, $500,000, and $1.0 million, respectively

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

The statements contained herein that are not historical facts are forward-looking statements based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company.  There can be no assurance that future developments affecting the Company will be the same as those anticipated by management.  Actual results may differ from those projected in the forward-looking statements.  These forward-looking statements involve risks and uncertainties.  These include, but are not limited to, the following risks: (1) changes in the performance of the financial markets,  (2) changes in the demand for and market acceptance of the Company’s products and services,  (3) changes in general economic conditions including interest rates, presence of competitors with greater financial resources, and the impact of competitive projects and pricing,  (4) the effect of the Company’s policies,  (5) the continued availability of adequate funding sources,  and  (6) various legal, regulatory and litigation risks.

8

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GENERAL

The following presents management’s discussion and analysis of the consolidated financial condition and operating results of the Company for the three and six months ended June 30, 2006 and 2005.  The discussion should be read in conjunction with the Company’s Management Discussion and Analysis included in the 2005 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 and six months ended June 30, 2006 are not necessarily indicative of the results expected for the year ending December 31, 2006.

The Corporation, a Delaware corporation organized in 1997, is a unitary savings and loan holding company that owns 100% of the capital stock of the Bank, the Corporation’s principal operating subsidiary.  The primary business of the Company is community banking.

The Bank was founded in 1983 as a state chartered savings and loan and became a federally chartered stock savings bank in 1991.  The Bank is a member of the FHLB of San Francisco, which is a member bank of the Federal Home Loan Bank System.  The Bank’s deposit accounts are insured up to the $100,000 maximum amount, except for retirement accounts which are insured up to the $250,000 maximum currently allowable under federal laws by the Deposit Insurance Fund, which is an insurance fund administered by the Federal Deposit Insurance Corporation (“FDIC”).  The Bank is subject to examination and regulation by the Office of Thrift Supervision (“OTS”), its primary federal regulator, and by the FDIC.

The Company is a financial services organization committed to serving consumers and small businesses in Southern California. The Bank operates five depository branches in Southern California located in the cities of San Bernardino, Seal Beach, Huntington Beach, Los Alamitos, and Costa Mesa, a Small Business Administration (“SBA”) loan production office in Pasadena and our corporate headquarters in Costa Mesa, California.  In the fourth quarter of 2006, we will be opening our sixth depository branch in the city of Newport Beach.  The Bank, through its branches and web site at www.PPBI.net on the internet, offers a broad array of deposit products and services for both commercial and consumer customers including checking, money market and savings accounts, cash management services, electronic banking, and on-line bill payment.  Additionally, the Bank offers a wide array of loan products, such as commercial business loans, lines of credit, commercial real estate loans, SBA loans, residential home loans, and home equity loans. The Bank funds its lending and investment activities primarily 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 various products and services offered to both depository and loan customers.

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 2005 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 and the valuation allowance on deferred taxes are the critical accounting policies that require estimates and assumptions in the preparation of the Company’s financial statements that are most susceptible to significant change. For further information, see “Allowances for Loan Losses” and “Provision for Income Taxes” discussed later in this document and in our 2005 Annual Report on Form 10-K.

 

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