This Quarterly Report on Form 10-Q contains information and statements that are considered "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections and statements of our beliefs concerning future events, business plans, objectives, expected operating results and the assumptions upon which those statements are based. Forward-looking statements include without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and are typically identified with words such as "may," "could," "should," "will," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan," or words or phrases of similar meaning. We caution that the forward-looking statements are based largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond our control. Actual results, performance or achievements could differ materially from those contemplated, expressed, or implied by the forward-looking statements.
The following factors, among others, could cause our financial performance to differ materially from that expressed in such forward-looking statements:
· The strength of
local economies in which we conduct operations;
· The effects of, and changes in, trade, monetary and fiscal policies and laws,
including interest rate policies of the
Reserve System (the "Federal Reserve");
· Inflation/deflation, interest rate, market and monetary fluctuations;
· The timely development of competitive new products and services and the
acceptance of these products and services by new and existing customers;
· The willingness of users to substitute competitors' products and services for
our products and services;
· The impact of changes in financial services policies, laws and regulations,
including those concerning taxes, banking, securities and insurance, and the
application thereof by regulatory bodies;
· Technological changes;
· The effect of the SDTB, FAB and Infinity acquisitions and other acquisitions
we have made or may make, if any, including, without limitation, the failure
to achieve the expected revenue growth and/or expense savings from such acquisitions;
· Changes in the level of our nonperforming assets and charge-offs;
· The effect of changes in accounting policies and practices, as may be adopted
from time-to-time by bank regulatory agencies, the
Accounting Oversight Board, the FASB or other accounting standards setters;
· Possible OTTI of securities held by us;
· The impact of current governmental efforts to restructure
financial regulatory system, including enactment of the
Reform and Consumer Protection Act (the "Dodd-Frank Act");
· Changes in consumer spending, borrowing and savings habits;
· The effects of our lack of a diversified loan portfolio, including the risks
of geographic and industry concentrations;
· Ability to attract deposits and other sources of liquidity;
· Changes in the financial performance and/or condition of our borrowers;
· Changes in the competitive environment among financial and bank holding
companies and other financial service providers;
· Geopolitical conditions, including acts or threats of terrorism, actions taken
terrorism and/or military conflicts, which could impact business and economic
· Unanticipated regulatory or judicial proceedings; and
· Our ability to manage the risks involved in the foregoing.
If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this Quarterly Report on Form 10-Q and other reports and registration statements filed by us with the
SEC. Therefore, we caution you not to place undue reliance on our forward-looking information and statements. We will not update the forward-looking information and statements to reflect actual results or changes in the factors affecting the forward-looking information and statements. For information on the factors that could cause actual results to differ from the expectations stated in the forward-looking statements, see "Risk Factors" under Part I, Item 1A of our 2013 Annual Report. Forward-looking information and statements should not be viewed as predictions, and should not be the primary basis upon which investors evaluate us. Any investor in our common stock should consider all risks and uncertainties disclosed in our filings with the SEC, all of which are accessible on the SEC'swebsite at http://www.sec.gov.
This discussion should be read in conjunction with our Management Discussion and Analysis of Financial Condition and Results of Operations included in our 2013 Annual Report, plus the unaudited consolidated financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. The results for the three months ended
March 31, 2014are not necessarily indicative of the results expected for the year ending December 31, 2014. The Corporation is a California-based bank holding company incorporated in the state of Delawareand registered as a bank holding company under the Bank Holding Company Act of 1956, as amended ("BHCA"). Our wholly owned subsidiary, Pacific Premier Bank, is a Californiastate-chartered commercial bank. As a bank holding company, the Corporation is subject to regulation and supervision by the Federal Reserve. We are required to file with the Federal Reserve quarterly and annual reports and such additional information as the Federal Reserve may require pursuant to the BHCA. The Federal Reserve may conduct examinations of bank holding companies, such as the Corporation, and its subsidiaries. The Corporation is also a bank holding company within the meaning of the CaliforniaFinancial Code. As such, the Corporation and its subsidiaries are subject to examination by, and may be required to file reports with, the California Department of Business Oversight-Division of Financial Institutions("DBO"). A bank holding company, such as the Corporation, is required to serve as a source of financial strength to its subsidiary depository institutions and to commit resources to support such institutions in circumstances where it might not do so absent such a policy. The Federal Reserve, under the BHCA, has the authority to require a bank holding company to terminate any activity or to relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the Federal Reserve's determination that such activity or control constitutes a serious risk to the financial soundness and stability of any bank subsidiary of the bank holding company. As a Californiastate-chartered commercial bank which is a member of the Federal Reserve, the Bank is subject to supervision, periodic examination and regulation by the DBO and the Federal Reserve. The Bank's deposits are insured by the FDICthrough the Deposit Insurance Fund. In general terms, insurance coverage is unlimited for non-interest bearing transaction accounts and up to $250,000per depositor for all other accounts in accordance with the Dodd-Frank Act. As a result of this deposit insurance function, the FDICalso has certain supervisory authority and powers over the Bank. If, as a result of an examination of the Bank, the regulators should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of the Bank's operations are unsatisfactory or that the Bank or our management is violating or has violated any law or regulation, various remedies are available to the regulators. Such remedies include the power to enjoin unsafe or unsound practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in capital, to restrict growth, to assess civil monetary penalties, to remove officers and directors and ultimately to request the FDICto terminate the Bank's deposit insurance. As a California-chartered commercial bank, the Bank is also subject to certain provisions of Californialaw. We provide banking services within our targeted markets in Californiato 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. Additionally, through our HOA Banking and Lending and Franchise Capitalunits we can provide customized cash management, electronic banking services and credit facilities to HOAs, HOA management companies and Franchise owners nationwide. At March 31, 2014, the Bank operated 13 full-service depository branches in Californialocated in the cities of Encinitas, Huntington Beach, Irvine, Los Alamitos, Newport Beach, Palm Springs, Palm Desert, Point Loma, San Bernardino, San Diegoand Seal Beach. Our corporate headquarters are located in Irvine, California. Through our branches and our web site at www.ppbi.com, we offer a broad array of deposit products and services for both business and consumer customers, including checking, money market and savings accounts, cash management services, electronic banking, and on-line bill payment. We also offer a variety of loan products, including 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 with retail deposits obtained through its branches, advances from the FHLB, lines of credit, and wholesale and brokered certificates of deposits. Our principal source of income is the net spread between interest earned on loans and investments and the interest costs associated with deposits and borrowings used to finance the loan and investment portfolios. Additionally, the Bank generates fee income from loan and investment sales and various products and services offered to both depository and loan customers.
CRITICAL ACCOUNTING POLICIES
Management has established various accounting policies that govern the application of U.S. GAAP in the preparation of our financial statements. Our significant accounting policies are described in the Notes to the Consolidated Financial Statements in our 2013 Annual Report. There have been no significant changes to our Critical Accounting Policies as described in our 2013 Annual Report. Certain accounting policies require management to make estimates and assumptions which have a material impact on the carrying value of certain assets and liabilities; management considers these to be critical accounting policies. The estimates and assumptions management uses are based on historical experience and other factors, which management believes to be reasonable under the circumstances. Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at balance sheet dates and our results of operations for future reporting periods. We consider the ALLL to be a critical accounting policy that requires judicious estimates and assumptions in the preparation of our financial statements that is particularly susceptible to significant change. For further information, see "Allowances for Loan Losses" discussed in Note 6 to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q and in our 2013 Annual Report.
January 30, 2014, the Bank acquired Infinity, a national lender to franchisees in the QSR industry, pursuant to the terms of a definitive agreement entered into by the Corporation, the Bank and Infinity on November 15, 2013. As a result of the Infinity Acquisition, the Bank acquired and recorded at the acquisition date assets with a fair value of approximately $80.2 million, including $78.8 millionin loans. Also as a result of the Infinity Acquisition, the Bank recorded equity of $9.0 millionin connection with the Corporation's stock issued to Infinity shareholders as part of the acquisition consideration and assumed at acquisition date liabilities with a fair value of approximately $68.3 million, including a $67.6 millioncredit facility that was paid off in conjunction with the closing of the acquisition. The fair values of the assets acquired and liabilities assumed were determined based on the requirements of FASB ASC Topic 820: Fair Value Measurements and Disclosures. The acquisition of Infinity is expected to further diversify our loan portfolio with commercial and industrial and owner-occupied commercial real estate loans, to deploy excess liquidity into higher yielding assets, to positively impact our net interest margin and to further leverage our strong capital base. The QSR franchisee lending business is a niche market that provides attractive growth opportunities for the Company in the future. Infinity had no delinquent loans or adversely classified assets as of the acquisition date; and the acquisition is expected to be accretive to our 2014 earnings per share.
June 25, 2013, the Bank acquired SDTB, a San Diego, California, based state-chartered bank, pursuant to the terms of a definitive agreement entered into by the Corporation, the Bank and SDTB on March 6, 2013. As a result of the SDTB Acquisition, the Bank acquired and recorded at the acquisition date assets with a fair value of approximately $211.2 million, including: · $124.8 millionin investment securities; · $42.7 millionof gross loans; · $30.3 millionof cash and cash equivalents; · $5.6 millionin goodwill; · $5.8 millionin bank owned life insurance; · $4.1 millionof other types of assets; and · $2.8 millionof a core deposit intangible.
Also as a result of the SDTB Acquisition, the Bank recorded equity of
The fair values of the assets acquired and liabilities assumed were determined based on the requirements of FASB ASC Topic 820: Fair Value Measurements and Disclosures. The acquisition was an opportunity for the Company to acquire a banking network that complemented our existing banking franchise and expanded into a new market area. Additionally, the SDTB acquisition improved the Company's deposit base by lowering our cost of deposits and providing an opportunity to accelerate future core deposit growth in the
San Diego, California, market area.
March 15, 2013, the Bank acquired FAB, a Dallas, Texas, based Texas-chartered bank, pursuant to the terms of a definitive agreement entered into by the Bank and the FAB on October 15, 2012. As a result of the FAB Acquisition, the Bank acquired and recorded at the acquisition date assets with a fair value of approximately $424.2 million, including: · $222.4 millionin investment securities; · $167.7 millionof cash and cash equivalents; · $26.4 millionof gross loans; · $11.9 millionin goodwill; · $5.8 millionof other types of assets; and · $1.9 millionof a core deposit intangible.
Also as a result of the FAB Acquisition, the Bank recorded equity of
The fair values of the assets acquired and liabilities assumed were determined based on the requirements of FASB ASC Topic 820: Fair Value Measurements and Disclosures. The FAB acquisition was an opportunity for the Company to acquire a highly efficient, consistently profitable and niche-focused business that complimented our banking franchise. Additionally, this acquisition improved the Company's deposit base by lowering our cost of deposits and providing a platform to accelerate future core deposit growth from HOAs.
RESULTS OF OPERATIONS
In the first quarter of 2014, we reported net income of
$2.6 million, or $0.15per share on a diluted basis, compared with net income for the first quarter of 2013 of $2.0 million, or $0.13per share on a diluted basis. For the three months ended March 31, 2014, the Company's return on average assets was 0.64% and return on average equity was 5.77%, compared with a return on average assets of 0.67% and a return on average equity of 5.65% for the three months ended March 31, 2013.
Net Interest Income
Our earnings are derived predominately from net interest income, which is the difference between the interest income earned on interest-earning assets, primarily loans and securities, and the interest expense incurred on interest-bearing liabilities, primarily deposits and borrowings. The spread between the yield on interest-earning assets and the cost of interest-bearing liabilities and the relative dollar amounts of these assets and liabilities principally affect net interest income. Net interest income totaled
$16.6 millionin the first quarter of 2014 up $3.7 millionor 29.0%, compared to the first quarter of 2013. The increase in net interest income was primarily related to an increase in interest-earning assets of $436.1 million, primarily related to the acquisition of FAB and SDTB in the first and second quarters of 2013, respectively, and organic loan growth. The increase was partially offset by a lower net interest margin, which decreased 32 basis points from the first quarter of 2013 to the first quarter of 2014. The decrease in the net interest margin was related to the rate on interest-earning assets decreasing more rapidly than the cost of interest-bearing liabilities. The decrease in interest-earning assets of 44 basis points is mainly attributable to a higher mix of lower yielding investment securities, which were acquired from FAB and SDTB, and a decrease in our weighted average loan portfolio rate. The weighted average loan portfolio rate at the end of the first quarter of 2014 was 5.0%, 30 basis points lower than the weighted average loan portfolio rate at the end of the first quarter of 2013 and primarily reflected lower rates on loan originations during the period. Partially offsetting the lower yield on average interest-earning assets was a decrease in deposit costs of 13 basis points primarily resulting from an improved mix of lower cost deposits acquired from FAB and SDTB and lower pricing on certificates of deposit. The following tables present for the periods indicated the average dollar amounts from selected balance sheet categories calculated from daily average balances and the total dollar amount, including adjustments to yields and costs, of:
· Interest income earned from average interest-earning assets and the resultant
· Interest expense incurred from average interest-bearing liabilities and
resultant costs, expressed as rates.
The tables below set forth our net interest income, net interest rate spread and net interest rate margin for the periods indicated. The net interest rate margin reflects the relative level of interest-earning assets to interest-bearing liabilities and equals our net interest rate spread divided by average interest-earning assets for the periods indicated.
STATISTICAL INFORMATION Average Balance Sheet Three Months Ended Three Months Ended Three Months Ended March 31, 2014 December 31, 2013 March 31, 2013 Average Average Average Average Average Average Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost Assets (dollars in thousands) Interest-earning assets: Cash and cash equivalents $ 70,341 $ 27 0.16 %
$ 62,647$ 24 0.15 % $ 69,143 $ 370.22 % Federal funds sold 192 - - 26 - - 27 - - Investment securities 243,847 1,410 2.31 283,334 1,646 2.32 134,895 802 2.38 Loans receivable, net (1) 1,254,407 16,585 5.36 1,183,209 16,303 5.47 928,577 13,396 5.85
assets 1,568,787 18,022 4.65 % 1,529,216 17,973 4.67 % 1,132,642 14,235 5.09 % Noninterest-earning assets 87,095 78,684 38,911 Total assets
$ 1,655,882 $ 1,607,900 $ 1,171,553Liabilities and Equity Interest-bearing deposits: Interest checking $ 137,658 $ 38 0.11 % $ 119,092$ 41 0.14 % $ 34,761 $ 80.09 % Money market 435,188 314 0.29 428,363 307 0.28 263,923 175 0.27 Savings 75,904 28 0.15 76,980 28 0.14 80,954 35 0.18 Time 329,026 689 0.85 294,292 592 0.80 350,304 801 0.93 Total interest-bearing deposits 977,776 1,069 0.44 918,727 968 0.42 729,942 1,019 0.57 FHLB advances and other borrowings 85,019 243 1.16 122,786 262 0.85 44,769 240 2.17 Subordinated debentures 10,310 75 2.95 10,310 77 2.96 10,310 77 3.03 Total borrowings 95,329 318 1.35 133,096 339 1.01 55,079 317 2.33 Total interest-bearing liabilities 1,073,105 1,387 0.52 % 1,051,823 1,307 0.49 % 785,021 1,336 0.69 % Noninterest-bearing deposits 389,513 364,735 237,081 Other liabilities 10,951 17,887 9,766 Total liabilities 1,473,569 1,434,445 1,031,868 Stockholders' equity 182,313 173,455 139,685 Total liabilities and equity $ 1,655,882 $ 1,607,900 $ 1,171,553Net interest income $ 16,635 $ 16,666 $ 12,899Net interest rate spread (2) 4.13 % 4.18 % 4.40 % Net interest margin (3) 4.30 % 4.32 % 4.62 % Ratio of interest-earning assets to interest-bearing liabilities 146.19 % 145.39 % 144.28 % (1) Average balance includes loans held for sale and nonperforming loans and is net of deferred loan origination fees, unamortized discounts and premiums, and allowance for loan losses. (2) Represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities. (3) Represents net interest income divided by average interest-earning assets. Changes in our net interest income are a function of changes in both volumes and rates of interest-earning assets and interest-bearing liabilities. The following table presents the impact the volume and rate changes have had on our net interest income for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, we have provided information on changes to our net interest income with respect to:
· Changes in interest rates (changes in interest rates multiplied by prior
· Changes in volume (changes in volume multiplied by prior rate); and
· The net change or the combined impact of volume and rate changes allocated
proportionately to changes in volume and changes in interest rates. Three Months Ended March 31, 2014 Compared to Three Months Ended March 31, 2013 Increase (decrease) due to Rate Volume Net (in thousands) Interest-earning assets Cash and cash equivalents
$ (11 )$ 1 $ (10 )Investment securities (25 ) 633 608 Loans receivable, net (1,190 ) 4,379 3,189
Total interest-earning assets
Interest checking $ 2
$ 28 $ 30Money market 14 125 139 Savings (5 ) (2 ) (7 ) Time (66 ) (46 ) (112 ) FHLB advances and other borrowings (146 ) 149
Subordinated debentures (2 ) -
Total interest-bearing liabilities
Change in net interest income
$ 3,736Provision for Loan Losses We recorded a $949,000provision for loan losses during the first quarter of 2014, up from $296,000for the first quarter of 2013. The increase in the provision for loan losses in the first quarter of 2014 was attributable to both the changing profile of our loan portfolio and the net charge-off of $464,000of loans primarily acquired from our FDIC-assisted acquisitions. Net loan charge-offs in the first quarter of 2014 were up $168,000from the first quarter of 2013. Substantially all of the charge-offs in the first quarter of 2014 were attributable to loans that we acquired from our FDIC-assisted transactions. For purchased credit impaired loans, charge-offs are recorded when there is a decrease in the estimated cash flows of the credit from original cash flow estimates. Purchased credit impaired loans were recorded at their estimated fair value, which incorporated our estimated expected cash flows until the ultimate resolution of these credits. To the extent actual or projected cash flows are less than originally estimated, additional provisions for loan losses or charge-offs will be recognized into earnings or against the allowance, if applicable. To the extent actual or projected cash flows are more than originally estimated, the increase in cash flows is prospectively recognized in loan interest income. Due to the accounting rules associated with our purchased credit impaired loans, each quarter we are required to re-estimate cash flows which could cause volatility in our reported net interest margin and provision for loans losses. During the first quarter of 2014, there were no charge-offs associated with purchased credit impaired loans, compared to $57,000for the same period in 2013. Our Loss Mitigation Departmentcontinues collection efforts on loans previously written down and/or charged-off to maximize potential recoveries. See "Allowance for Loan Losses" discussed below in this Quarterly Report on Form 10-Q.
Noninterest income for the first quarter of 2014 was
$2.1 million, $328,000or 19.0% from the first quarter of 2013. The increase was primarily related to higher loan servicing fees of $530,000, primarily associated with the $500,000fee related to the assumption of an existing loan in the first quarter of 2014, partially offset by lower net gains on sales of loans of $175,000and other income of $146,000, primarily related to the $180,000market value loss on loans held for sale that were moved to loans held for investment during the first
quarter of 2014. Noninterest Expense
Noninterest expense totaled
$13.5 millionfor the first quarter of 2014, up $2.4 millionor 21.1%, compared to the first quarter of 2013. The increase in expense primarily related to increased costs associated with the acquisitions of FAB during the first quarter of 2013, SDTB in the second quarter of 2013 and IFH in the first quarter of 2014, together with our organic growth. On a year-over-year basis, the increase primarily related to the following:
the addition of employees from the acquisitions, as well as employees added in
lending and credit areas to increase our loan production of commercial and
industrial ("C&I") loans, commercial real estate ("CRE") loans, SBA loans, HOA
loans, warehouse facilities and construction loans;
deposit transaction accounts related to acquisitions and organic growth;
related to a
processing system provider for a new, more cost effective provider; and
Partially offsetting these increases was a decrease in merger-related expense of
Income Taxes For the first quarter of 2014, our effective tax rate was 37.3%, compared with 37.4% for the first quarter of 2013. At
March 31, 2014, we had no valuation allowance against our deferred tax asset of $9.2 millionbased on management's analysis that the asset was more-likely-than-not to be realized.
March 31, 2014, assets totaled $1.7 billion, up $31.1 millionor 1.8% from December 31, 2013, and up $338.6 millionor 24.1% from March 31, 2013. The increase in assets during the first quarter of 2014 was primarily related to the acquisition of IFH, which added assets at the acquisition date of $80.2 millionand $5.5 millionin goodwill, partially offset by a decrease in investment securities available for sale of $53.9 million. The increase in assets from March 31, 2013was primarily related to the acquisition of SDTB, which added assets at the acquisition date of $211.2 million, and IFH, as well as organic loan growth. In addition, during the period, loans increased $379.9 millioninclusive of loans acquired, cash and cash equivalents increased $25.0 million, and goodwill from acquisitions increased $11.1 million. These increases were partially offset by a decrease in investment securities available for sale of $99.0 million.
Net loans held for investment totaled
$1.3 billionat March 31, 2014, an increase of $84.8 millionor 6.9% from December 31, 2013, and an increase of $382.9 millionor 41.0% from March 31, 2013. The increase in loan balances for the first quarter of 2014 was primarily related to increases in C&I loans of $84.8 million, primarily from the acquisition of IFH, which included $78.8 millionin loans at acquisition date, construction loans of $16.8 millionand commercial owner occupied loans of $2.8 million, partially offset by decreases in multi-family loans of $10.5 million, warehouse facilities loans of $6.5 millionand one-to-four family loans of $3.8 million. The increase in loans from March 31, 2013was impacted by $78.8 millionof loans acquired from IFH and $42.7 millionof loans acquired from SDTB at their respective acquisition dates. The remainder of the increase was primarily associated with organic growth and purchases of loans. The increase in loans from March 31, 2013included increases in real estate loans of $244.1 million, C&I loans of $131.3 millionand commercial owner occupied loans of $57.3 million, partially offset by a decrease in warehouse facility loans of $57.9 million.
The following table sets forth the composition of our loan portfolio in dollar amounts, as a percentage of the portfolio and gives the weighted average interest rate by loan category at the dates indicated:
March 31, 2014 December 31, 2013 March 31, 2013 Weighted Weighted Weighted Percent Average Percent Average Percent Average Amount of Total Interest Rate Amount of Total Interest Rate Amount of Total Interest Rate (dollars in thousands) Business loans: Commercial and industrial
$ 271,87720.5 % 5.33 % $ 187,03515.0 % 5.01 % $ 140,59214.9 % 5.16 % Commercial owner occupied (1) 223,848 16.9 % 5.39 % 221,089 17.8 % 5.33 % 166,571 17.6 % 5.90 % SBA 11,045 0.8 % 5.85 % 10,659 0.9 % 5.92 % 5,116 0.5 % 6.04 % Warehouse facilities 81,033 6.1 % 3.91 % 87,517 7.0 % 4.07 % 138,935 14.7 % 4.79 % Real estate loans: Commercial non-owner occupied 333,490 25.2 % 5.33 % 333,544 26.9 % 5.33 % 256,015 27.1 % 5.59 % Multi-family 223,200 16.8 % 4.73 % 233,689 18.8 % 4.82 % 139,100 14.7 % 5.69 % One-to-four family (2) 141,469 10.7 % 4.41 % 145,235 11.7 % 4.43 % 87,109 9.2 % 4.67 % Construction 29,857 2.2 % 5.19 % 13,040 1.0 % 5.18 % - 0.0 % 0.00 % Land 6,170 0.5 % 4.59 % 7,605 0.6 % 4.73 % 7,863 0.8 % 4.83 % Other loans 3,480 0.3 % 5.78 % 3,839 0.3 % 5.82 % 4,690 0.5 % 6.09 % Total gross loans (3) 1,325,469 100.0 % 5.00 % 1,243,252 100.0 % 4.95 % 945,991 100.0 % 5.30 % Less loans held for sale - 3,147
Total gross loans held for investment 1,325,469
1,240,105 942,348 Less: Deferred loan origination costs/(fees) and premiums/(discounts) (97 ) 18 (520 ) Allowance for loan losses (8,685 ) (8,200 ) (7,994 ) Loans held for
$ 1,316,687 $ 1,231,923 $ 933,834(1) Majority secured by real estate. (2) Includes second trust deeds. (3) Total gross loans for March 31, 2014are net of (i) the unaccreted mark-to-market discounts on Canyon National loans of $1.8 million, on Palm Desert National loans of $2.2 million, and on SDTB loans of $115,000and (ii) the mark-to-market premium on FAB loans of $53,000.
Gross loans increased
gross loans during the first quarter of 2014 was primarily from loan
million, partially offset by loan repayments of
undisbursed loan funds of
the first quarter of 2014, our loan originations were diversified across loan type and included
$46.8 millionin C&I loans which contained $8.1 millionin HOA loans and $6.8 millionin franchise business loans, $22.8 millionin commercial
non-owner occupied loans,
multifamily loans and
$5.2 millionin SBA loans. The decrease in gross loans in the first quarter of 2013 was primarily from a change in undisbursed loan funds, net of $107.0 millionand principal repayments of $45.2 million, partially offset by loan originations of $89.8 millionand loans acquired from First Associations of $26.4 million.
The following table sets forth loan originations, purchases, sales and principal repayments relating to our gross loans for the periods indicated:
Three Months Ended March 31, 2014 March 31, 2013 (in thousands) Beginning balance gross loans
$ 1,243,252 $ 986,194Loans originated: Business loans: Commercial and industrial 46,786 12,133 Commercial owner occupied (1) 1,800 3,582 SBA 5,199 4,373 Warehouse facilities 1,150 42,710 Real estate loans: Commercial non-owner occupied 22,806 25,970 Multi-family 7,574 783 One-to-four family (2) 450 180 Construction loans 20,428 - Other loans 12 106 Total loans originated 106,205 89,837 Loans purchased: Business loans: Commercial and industrial 69,543 26,421 Commercial owner occupied 11,105 - Total loans purchased 80,648 26,421 Total loan production 186,853 116,258 Principal repayments (77,555 ) (45,244 ) Sales of loans (9,508 ) (5,048 ) Change in undisbursed loan funds, net (17,651 ) (107,003 ) Charge-offs (501 ) (480 ) Change in mark-to-market discounts from acquisitions 579 1,314 Net increase (decrease) in gross loans 82,217 (40,203 ) Ending balance gross loans $ 1,325,469 $ 945,991(1) Majority secured by real estate. (2) Includes second trust deeds. The following table sets forth the weighted average interest rates, weighted average number of months to reprice and the periods to repricing for our gross loan portfolio at the date indicated: March 31, 2014 Weighted Weighted Number Average Average Months Periods to Repricing of Loans Amount Interest Rate to Reprice (dollars in thousands) 1 Year and less 893 $ 423,0715.15 % 1.23 Over 1 Year to 3 Years 73 77,373 4.50 % 28.59 Over 3 Years to 5 Years 310 383,699 4.70 % 48.64 Over 5 Years to 7 Years 56 121,809 4.54 % 75.38 Over 7 Years to 10 Years 15 15,799 4.92 % 103.44 Total adjustable 1,347 1,021,751 4.86 % 31.59 Fixed 919 303,718 5.49 % Total 2,266 $ 1,325,4695.00 %
Delinquent Loans. When a borrower fails to make required payments on a loan and does not cure the delinquency within 30 days, we normally record a notice of default and, after providing the required notices to the borrower, commence foreclosure proceedings. If the loan is not reinstated within the time permitted by law, we may sell the property at a foreclosure sale. At these foreclosure sales, we generally acquire title to the property. At
March 31, 2014, loans delinquent 30 or more days as a percentage of total gross loans was 0.12%, down from 0.17% at December 31, 2013, and from 0.32% at March 31, 2013. The following table sets forth delinquencies in the Company's loan portfolio at the dates indicated: 30 - 59 Days 60 - 89 Days 90 Days or More (1) Total Principal Principal Principal Principal # of Balance # of Balance # of Balance # of Balance Loans of Loans Loans of Loans Loans of Loans Loans of Loans (dollars in thousands) At March 31, 2014 Business loans: Commercial and industrial - $ - 1 $ 32- $ - 1 $ 32Commercial owner occupied - - - - 2 446 2 446 SBA 1 46 - - 1 14 2 60 Real estate loans: Commercial non-owner occupied - - - - 2 918 2 918 One-to-four family 3 72 - - 3 49 6 121 Total 4 $ 118 1 $ 328 $ 1,42713 $ 1,577Delinquent loans to total gross loans 0.01 % 0.00 % 0.11 % 0.12 % At December 31, 2013 Business loans: Commercial owner occupied 2 $ 768 - $ - 1 $ 446 3 $ 1,214SBA - - - - 1 14 1 14 Real estate loans: Commercial non-owner occupied - - - - 2 560 2 560 One-to-four family 3 71 - - 4 123 7 194 Other 3 130 - - - - 3 130 Total 8 $ 969 - $ - 8 $ 1,14316 $ 2,112Delinquent loans to total gross loans 0.08 % 0.00 % 0.09 % 0.17 % At March 31, 2013 Business loans: Commercial and industrial 1 $ 9 - $ - 1 $ 218 2 $ 227Commercial owner occupied - - - - 1 245 1 245 SBA - - - - 1 72 1 72 Real estate loans: Commercial non-owner occupied - - - - 1 1,337 1 1,337 Multi-family - - 1 1,047 - - 1 1,047 One-to-four family 2 49 1 30 1 9 4 88 Total 3 $ 58 2 $ 1,0775 $ 1,88110 $ 3,016Delinquent loans to total gross loans 0.01 % 0.11 % 0.20 % 0.32 %
(1) All loans that are delinquent 90 days or more are on nonaccrual status and reported as part of nonperforming loans.
Allowance for Loan Losses. The ALLL represents an estimate of probable losses inherent in our loan portfolio and is determined by applying a systematically derived loss factor to individual segments of the loan portfolio. The adequacy and appropriateness of the ALLL and the individual loss factors are reviewed each quarter by management. The loss factor for each segment of our loan portfolio is generally based on our actual historical loss rate experience with emphasis on recent past periods to account for current economic conditions and supplemented by management judgment for certain segments where we lack loss history experience. We also consider historical charge-off rates for the last 10 and 15 years for commercial banks and savings institutions headquartered in
Californiaas collected and reported by the FDIC. The loss factor is adjusted by qualitative adjustment factors to arrive at a final loss factor for each loan portfolio segment. For additional information regarding the qualitative adjustments, please see "Allowances for Loan Losses" discussed in our 2013 Annual Report. The qualitative factors allow management to assess current trends within our loan portfolio and the economic environment to incorporate their effect when calculating the ALLL. The final loss factors are applied to pass graded loans within our loan portfolio. Higher factors are applied to loans graded below pass, including classified and criticized assets. No assurance can be given that we will not, in any particular period, sustain loan losses that exceed the amount reserved, or that subsequent evaluation of our loan portfolio, in light of the prevailing factors, including economic conditions which may adversely affect our market area or other circumstances, will not require significant increases in the loan loss allowance. In addition, regulatory agencies, as an integral part of their examination process, periodically review our ALLL and may require us to recognize additional provisions to increase the allowance or take charge-offs in anticipation of future losses. Our ALLL at March 31, 2014was $8.7 million, up from $8.2 millionat December 31, 2013and $8.0 millionat March 31, 2013. At March 31, 2014, given the composition of our loan portfolio, the ALLL was considered adequate to cover estimated losses inherent in the loan portfolio. Should any of the factors considered by management in evaluating the appropriate level of the ALLL change, the Company's estimate of probable loan losses could also change, which could affect the level of future provisions for loan losses. The following table sets forth the Company's ALLL and its corresponding percentage of the loan category balance and the percent of loan balance to total gross loans in each of the loan categories listed for the periods indicated: March 31, 2014 December 31, 2013 March 31, 2013 Allowance % of Loans Allowance % of Loans Allowance % of Loans Balance at End of as a % of in Category to as a % of in Category to as a % of in Category to Period Applicable to Amount Category Total Total Loans Amount Category Total Total Loans Amount Category Total Total Loans (dollars in thousands) Business loans: Commercial and industrial $ 2,3650.87 % 20.5 % $ 1,9681.05 % 15.0 % $ 2,2961.63 % 14.9 % Commercial owner occupied 1,754 0.78 % 16.9 % 1,818 0.82 % 17.8 % 1,665 1.00 % 17.6 % SBA 179 1.62 % 0.8 % 151 1.42 % 0.9 % 50 0.98 % 0.5 % Warehouse facilities 376 0.46 % 6.1 % 392 0.45 % 7.0 % 730 0.53 % 14.7 % Real estate loans: Commercial non-owner occupied 1,857 0.56 % 25.2 % 1,658 0.50 % 26.9 % 1,403 0.55 % 27.1 % Multi-family 805 0.36 % 16.8 % 817 0.35 % 18.8 % 506 0.36 % 14.7 % One-to-four family 919 0.65 % 10.7 % 1,099 0.76 % 11.7 % 1,174 1.35 % 9.2 % Construction 323 1.08 % 2.2 % 136 1.04 % 1.0 % - 0.00 % 0.0 % Land 81 1.31 % 0.5 % 127 1.67 % 0.6 % 121 1.54 % 0.8 % Other Loans 26 0.75 % 0.3 % 34 0.89 % 0.3 % 49 1.04 % 0.5 % Total $ 8,6850.66 % 100.0 % $ 8,2000.66 % 100.0 % $ 7,9940.85 % 100.0 % The ALLL as a percent of nonaccrual loans was 324.8% at March 31, 2014, down from 364.3% at December 31, 2013, but up from 257.7% at March 31, 2013. At March 31, 2014, the ratio of ALLL to total gross loans was 0.66%, equal to that at December 31, 2013, but down from 0.85% at March 31, 2013. Our ratio of ALLL plus the remaining unamortized credit discount on the loans acquired to total gross loans was 0.88% at March 31, 2014, down from 0.93% at December 31, 2013and 1.47% at March 31, 2013.
The following table sets forth the activity within the Company's ALLL in each of the loan categories listed for the periods indicated:
Three Months Ended March 31, 2014 2013 (dollars in thousands) Balance, beginning of period
$ 8,200 $ 7,994Provision for loan losses 949 296 Charge-offs: Business loans: Commercial and industrial (124 ) (58 ) SBA - (5 ) Real estate: Commercial non-owner occupied (365 ) (401 ) One-to-four family (12 ) (10 ) Other loans - (6 ) Total charge-offs (501 ) (480 ) Recoveries : Business loans: Commercial and industrial 5 7 SBA 2 19 Real estate: One-to-four family 30 43 Other loans - 115 Total recoveries 37 184 Net loan charge-offs (464 ) (296 ) Balance at end of period $ 8,685 $ 7,994Ratios: Net charge-offs to average total loans, net 0.15 % 0.13 % Allowance for loan losses to gross loans at end of period 0.66 % 0.85 % Investment Securities Investment securities available for sale totaled $202.1 millionat March 31, 2014, down $53.9 millionor 21.1% from December 31, 2013and down $99.0 millionor 32.9% from March 31, 2013. The decrease in securities available for sale during the first quarter of 2014 was primarily due to sales totaling $56.0 millionand principal pay downs of $6.2 million, partially offset by purchases of $5.5 millionand increase in market value of $3.4 million. The decrease in securities from March 31, 2013was primarily related to sales of $288.5 millionand principal pay downs of $34.1 million, partially offset by $124.8 millionadded from the acquisition of SDTB and $106.8 millionof investment security purchases. The purchase of investment securities primarily related to investing excess liquidity from our bank acquisitions, while the sales were made to help fund loan production and to improve our interest-earning asset mix by redeploying investment funds into loans. At March 31, 2014, the end of period yield on investment securities was 2.32%, up from 2.21% at December 31, 2013, and 1.73% at March 31, 2013. The following tables set forth the amortized cost, unrealized gains and losses, and estimated fair value of our investment securities portfolio at the dates indicated: March 31, 2014 Amortized Unrealized Unrealized Estimated Cost Gain Loss Fair Value (in thousands) Investment securities available for sale: Municipal bonds $ 77,062 $ 848 $ (586 ) $ 77,324Mortgage-backed securities 126,921 65 (2,168 ) 124,818 Total securities available for sale $ 203,983 $ 913 $ (2,754 ) $ 202,142December 31, 2013 Amortized Unrealized Unrealized Estimated Cost Gain Loss Fair Value (in thousands) Investment securities available for sale: U.S. Treasury $ 73$ 8 $ - $ 81 Municipal bonds 95,388 589 (1,850 ) 94,127 Mortgage-backed securities 165,857 12 (3,988 ) 161,881 Total securities available for sale $ 261,318 $ 609 $ (5,838 ) $ 256,089March 31, 2013 Amortized Unrealized Unrealized Estimated Cost Gain Loss Fair Value (in thousands) Investment securities available for sale: U.S. Treasury $ 74$ 11 $ - $ 85 Municipal bonds 154,543 1,783 (387 ) 155,939 Mortgage-backed securities 143,882 1,821 (567 ) 145,136 Total securities available for sale $ 298,499 $ 3,615 $ (954 ) $ 301,160
The following table sets forth the fair values and weighted average yields on our investment securities available for sale portfolio by contractual maturity at the date indicated: March 31, 2014 One Year More than One More than Five Years More than or Less to Five Years to Ten Years Ten Years Total Weighted Weighted Weighted Weighted Weighted Fair Average Fair Average Fair Average Fair Average Fair Average Value Yield Value Yield Value Yield Value Yield Value Yield (dollars in thousands) Investment securities available for sale: Municipal bonds $ - 0.00 %
$ 11,7291.07 % $ 37,5701.87 % $ 28,0252.94 % $ 77,3242.15 % Mortgage-backed securities - 0.00 % - 0.00 % 12,576 1.42 % 112,242 2.06 % 124,818 2.02 % Total investment securities available for sale - 0.00 % 11,729 1.07 % 50,146 1.75 % 140,267 2.24 % 202,142 2.07 % Stock: FHLB 6,131 6.66 % - 0.00 % - 0.00 % - 0.00 % 6,131 6.66 % Federal Reserve Bank/TIB 7,973 5.53 % - 0.00 % - 0.00 % - 0.00 % 7,973 5.53 % Total stock 14,104 6.02 % - 0.00 % - 0.00 % - 0.00 % 14,104 6.02 % Total securities $ 14,1046.02 % $ 11,7291.07 % $ 50,1461.75 % $ 140,2672.24 % $ 216,2462.32 % Each quarter, we review individual securities classified as available for sale to determine whether a decline in fair value below the amortized cost basis is other-than-temporary. If it is probable that we will be unable to collect all amounts due according to the contractual terms of the debt security, an OTTI write down is recorded against the security and a loss recognized. In determining if a security has an OTTI loss, we review downgrades in credit ratings and the length of time and extent that the fair value has been less than the cost of the security. We estimate OTTI losses on a security primarily through:
· An evaluation of the present value of estimated cash flows from the security
using the current yield to accrete beneficial interest and including
assumptions in the prepayment rate, default rate, delinquencies, loss severity
and percentage of nonperforming assets;
· An evaluation of the estimated payback period to recover principal;
· An analysis of the credit support available in the underlying security to
absorb losses; and
· A review of the financial condition and near term prospects of the issuer.
During the quarter ended
March 31, 2014, there were no OTTI charges and $13,000in recoveries, compared to $30,000of net OTTI charges during the same period last year.
Securities with OTTI credit losses recognized in noninterest income and associated OTTI non-credit losses recognized in accumulated other comprehensive loss during the periods indicated were as follows:
Three Months Ended Three Months Ended March 31, 2014 March 31, 2013 Non Credit Gain Non Credit Gain in Accumulated in Accumulated Other Other OTTI Credit Loss Comprehensive OTTI Credit Comprehensive Rating Number Fair Value (Recovery) Income (AOCI) Number Fair Value Loss Income (AOCI) (dollars in thousands) D - $ - $ - $ - 4
$ 446 $ 30$ 95 Various - - (13 ) - - - - - Total - $ - $ (13 ) $ - 4 $ 446 $ 30$ 95 There was no OTTI credit loss for any single debt security for the three months ended March 31, 2014, compared to $32,000for the three months ended March
31, 2013. Nonperforming Assets Nonperforming assets consist of loans on which we have ceased accruing interest (nonaccrual loans), restructured loans and OREO. It is our general policy to account for a loan as nonaccrual when the loan becomes 90 days delinquent or when collection of interest appears doubtful. At
March 31, 2014, nonperforming assets totaled $3.4 millionor 0.20% of total assets, essentially equal to $3.4 millionor 0.20% at December 31, 2013, but down from $4.7 millionor 0.33% at March 31, 2013. Compared to March 31, 2014, nonperforming loans increased $423,000and OREO decreased $434,000from December 31, 2013and nonperforming loans decreased $428,000and OREO decreased $809,000from March 31, 2013. The following table sets forth our composition of nonperforming assets at the dates indicated: March 31, December 31, March 31, 2014 2013 2013 (dollars in thousands) Nonperforming assets Business loans: Commercial and industrial $ 31$ - $ 333Commercial owner occupied 864 747 245 SBA (1) 14 14 121 Real estate: Commercial non-owner occupied 1,327 983 1,974 One-to-four family 438 507 429 Total nonaccrual loans 2,674 2,251 3,102 Other real estate owned: Land 752 1,186 1,561 Total other real estate owned 752 1,186 1,561 Total nonperforming assets, net $ 3,426 $ 3,437 $ 4,663Allowance for loan losses $ 8,685 $ 8,200 $ 7,994Allowance for loan losses as a percent of total nonperforming loans 324.79 % 364.28 % 257.70 % Nonperforming loans as a percent of gross loans 0.20 % 0.18 % 0.33 % Nonperforming assets as a percent of total assets 0.20 % 0.20 % 0.33 % (1) The SBA totals include the guaranteed amount of $72,000as of March 31, 2013.
Liabilities and Stockholders' Equity
Total liabilities were
$1.6 billionat March 31, 2014, compared to $1.5 billionat December 31, 2013and $1.2 billionat March 31, 2013. The increase of $17.5 millionfrom the year ended December 31, 2013was predominately related to increases in deposits of $128.9 million, partially offset by a decrease in FHLB advances and other borrowings of $108.6 million. The increase of $307.4 millionfrom March 31, 2013was primarily due to an increase in deposits of $249.5 million, FHLB advances and other borrowings of $51.3 millionand accrued expenses and other liabilities of $6.6 million. Deposits. Deposits totaled $1.4 billionat March 31, 2014, up $128.9 millionor 9.9% from December 31, 2013and $249.5 millionor 21.0% from March 31, 2013. During the first quarter of 2014, we had deposit increases in noninterest bearing checking of $46.1 million, certificates of deposit of $41.0 million, money market of $25.7 millionand checking of $16.4 million. Within the first quarter of 2014, transaction account increases of approximately $27 millionto $30 millionwere related to seasonal increases in existing HOA management accounts attributed to annual billings and the receipt of homeowners' dues. The increase in deposits since March 31, 2013was primarily related to the SDTB acquisition, which added deposits of $183.9 millionat a cost of 23 basis points at the acquisition date, partially offset by declines in deposit levels in the second through fourth quarters in 2013 of $63.3 million, mainly related to purposeful runoff of certificates of deposit, and the deposit activity in first quarter of 2014. At March 31, 2014, we had no brokered deposits.
The total weighted average cost of deposits at
The following table sets forth the distribution of the Company's deposit accounts at the dates indicated and the weighted average interest rates on each category of deposits presented:
March 31, 2014 December 31, 2013 March 31, 2013 % of Total Weighted % of Total Weighted % of Total Weighted Balance Deposits Average Rate
Balance Deposits Average Rate Balance Deposits
(dollars in thousands) Noninterest bearing checking
$ 412,87128.8 % 0.00 % $ 366,75528.1 % 0.00 % $ 316,53626.7 % 0.00 %
Checking 137,285 9.5 % 0.11 % 120,886 9.3 % 0.11 % 115,541 9.7 % 0.10 % Money market 453,261 31.6 % 0.30 %
427,577 32.7 % 0.29 % 323,709 27.3 % 0.28 % Savings 76,087 5.3 % 0.14 % 76,412 5.8 % 0.14 % 80,578 6.8 % 0.15 % Time deposit accounts: Less than 1.00% 131,274 9.1 % 0.51 % 120,583 9.2 % 0.39 % 164,843 13.9 % 0.55 % 1.00-1.99 211,725 14.8 % 1.06 % 181,046 13.9 % 1.06 % 169,616 14.3 % 1.15 % 2.00-2.99 11,266 0.8 % 2.85 % 11,503 0.8 % 2.83 % 12,560 1.1 % 2.80 % 3.00-3.99 694 0.0 % 3.20 % 795 0.1 % 3.28 % 1,144 0.1 % 3.44 % 4.00-4.99 3 0.0 % 4.93 % 2 0.0 % 4.93 % 288 0.0 % 4.24 % 5.00 and greater 737 0.1 % 5.25 % 727 0.1 % 5.25 % 904 0.1 % 5.26 % Total time
deposit accounts 355,699 24.8 % 0.92 % 314,656 24.1 % 0.88 % 349,355 29.5 % 0.94 %
deposits 1,022,332 71.2 % 0.48 % 939,531 71.9 % 0.45 % 869,183 73.3 % 0.51 % Total deposits
$ 1,435,203100.0 % 0.34 % $ 1,306,286100.0 % 0.33 % $ 1,185,719100.0 % 0.37 %
March 31, 2014, total borrowings amounted to $105.8 million, down $108.6 millionor 50.6% from December 31, 2013, but up $51.3 millionor 94.2% from March 31, 2013. The change in borrowings primarily related to overnight FHLB advances used to supplement the funding of loans as deposit levels fluctuate. Additionally, during the first quarter of 2014, repurchase agreement debt related to our HOA business decreased $1.6 millionto $17.0 million. This repurchase agreement debt was offered as a service to certain HOA depositors that adds protection for deposit amounts above FDICinsurance levels. Total borrowings at March 31, 2014represented 6.1% of total assets and had an end of period weighted average cost of 1.22%, compared with 12.5% of total assets at a weighted average cost of 0.63% at December 31, 2013and 3.9% of total assets at a weighted average cost of 2.29% at March 31, 2013. At March 31, 2014, total borrowings were comprised of the following:
· Three reverse repurchase agreements totaling
average rate of 3.26% and secured by approximately
sponsored entity MBS;
· HOA reverse repurchase agreements totaling
rate of 0.02% and secured by approximately
$29.2 millionof government sponsored entity MBS; and
· Subordinated Debentures used to fund the issuance of Trust Preferred
Securities in 2004 of
information about the
see Note 8 to the Consolidated Financial Statements in this report.
The following table sets forth certain information regarding the Company's borrowed funds at the dates indicated:
March 31, 2014 December 31, 2013 March 31, 2013 Weighted Weighted Weighted Balance Average Rate Balance Average Rate Balance Average Rate (dollars in thousands) FHLB advances
$ 50,0000.11 % $ 156,0000.06 % $ - 0.00 % Reverse repurchase agreements 45,506 2.05 % 48,091 1.98 % 44,191 2.11 % Subordinated debentures 10,310 2.99 % 10,310 2.99 % 10,310 3.05 % Total borrowings $ 105,8161.22 % $ 214,4010.63 % $ 54,5012.29 % Weighted average cost of borrowings during the quarter 1.35 % 1.01 % 2.33 % Borrowings as a percent of total assets 6.1 % 12.5 % 3.9 % Stockholders' Equity. Total stockholders' equity was $188.9 millionas of March 31, 2014, up from $175.2 millionat December 31, 2013and $157.6 millionat March 31, 2013. The current year increase of $13.6 millionin stockholders' equity was primarily related to equity consideration for the acquisition of IFH of $9.0 million, net income for the first three months of 2014 of $2.6 millionand favorable change in accumulated other comprehensive income of $2.0 million. The increase of $31.3 millionfrom March 31, 2013was primarily related to the Corporation's stock issued to SDTB and Infinity shareholders as part of the acquisition consideration of $14.4 millionfor SDTB and $9.0 millionfor Infinity and net income over the period of $9.7 million, partially offset by the unfavorable change in accumulated other comprehensive income of $2.7 million. Our book value per share increased to $10.96at March 31, 2014, up from $10.52at December 31, 2013and $10.21at March 31, 2013. At March 31, 2014, the Company's tangible common equity to tangible assets ratio was 9.30%, up from 8.94% at December 31, 2013, but down from 10.16% at March 31, 2013. Tangible common equity to tangible assets (the "tangible common equity ratio") is a non-GAAP financial measure derived from GAAP-based amounts. We calculate the tangible common equity ratio by excluding the balance of intangible assets from common shareholders' equity and dividing by tangible assets. We believe that this information is important to shareholders as tangible equity is a measure that is consistent with the calculation of capital for bank regulatory purposes, which excludes intangible assets from the calculation of risk-based ratios. PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES GAAP Reconciliation (dollars in thousands) March 31, December 31, March 31, 2014 2013 2013 Total stockholders' equity 188,860 175,226 157,589 Less: Intangible assets (29,324 ) (24,056 ) (16,317 ) Tangible common equity $ 159,536 $ 151,170 $ 141,272Total assets 1,745,282 1,714,187 1,406,655 Less: Intangible assets (29,324 ) (24,056 ) (16,317 ) Tangible assets $ 1,715,958 $ 1,690,131 $ 1,390,338
Tangible common equity ratio 9.30 % 8.94 % 10.16 %
CAPITAL RESOURCES AND LIQUIDITY
Our primary sources of funds are deposits, advances from the FHLB and other borrowings, principal and interest payments on loans, and income from investments. While maturities and scheduled amortization of loans are a predictable source of funds, deposit inflows and outflows as well as loan prepayments are greatly influenced by general interest rates, economic conditions, and competition.
Our primary sources of funds generated during the first three months of 2014 were from:
· Net increase of
· Proceeds of
· Proceeds of
· Net change of
· Principal payments of
We used these funds to:
· Repay FHLB advances and other borrowings of
· Purchase and originate loans held for investment of
· Acquire Infinity of
· Purchase securities available for sale of
Our most liquid assets are unrestricted cash and short-term investments. The levels of these assets are dependent on our operating, lending and investing activities during any given period. Our liquidity position is continuously monitored and adjustments are made to the balance between sources and uses of funds as deemed appropriate. At
March 31, 2014, cash and cash equivalents totaled $124.4 millionand the market value of our investment securities available for sale totaled $202.1 million. If additional funds are needed, we have additional sources of liquidity that can be accessed, including FHLB advances, Federal Funds lines, the Federal Reserve's lending programs and loan sales. As of March 31, 2014, the maximum amount we could borrow through the FHLB was $769.6 million, of which $488.1 millionwas available for borrowing based on collateral pledged of $607.6 millionin real estate loans. At March 31, 2014, we had $50.0 millionin FHLB borrowings against that available balance. At March 31, 2014, we also had unsecured lines of credit aggregating $62.3 million, which consisted of $59.0 millionwith other financial institutions from which to draw funds and $3.3 millionwith the Federal Reserve Bank. At March 31, 2014, no funds were drawn against these unsecured lines of credit. For the quarter ended March 31, 2014, our average liquidity ratio was 12.52%. The Company regularly models liquidity stress scenarios to ensure that adequate liquidity is available and has contingency funding plans in place which are reviewed and tested on a regular basis. To the extent that 2014 deposit growth is not sufficient to satisfy our ongoing commitments to fund maturing and withdrawable deposits, repay maturing borrowings, fund existing and future loans, or make investments, we may access funds through our FHLB borrowing arrangement, unsecured lines of credit or other sources.
The Bank has a policy in place that permits the purchase of brokered funds, in an amount not to exceed 5% of total deposits, as a secondary source for funding. At
The Corporation is a corporate entity separate and apart from the Bank that must provide for its own liquidity. The Corporation's primary sources of liquidity are dividends 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 Corporation has never declared or paid dividends on its common stock and does not anticipate declaring or paying any cash dividends in the foreseeable future. The Corporation's board of directors has authorized stock repurchase plans, which allow the Corporation to proactively manage its capital position and return excess capital to it stockholders. Shares purchased under such plans also provide the Corporation with shares of common stock necessary to satisfy obligations related to stock compensation awards. No shares were repurchased under our stock repurchase plans during the three months ended
March 31, 2014. See Part II, Item 2 - Unregistered Sales of Equity Securitiesand Use of Proceeds for additional information.
Contractual Obligations and Off-Balance Sheet Commitments
Contractual Obligations. The Company enters into contractual obligations in the normal course of business primarily as a source of funds for its asset growth and to meet required capital needs.
The following schedule summarizes maturities and payments due on our obligations and commitments, excluding accrued interest, as of the date indicated:
March 31, 2014 Less than More than 1 year 1 - 3 years 3 - 5 years 5 years Total (in thousands) Contractual obligations FHLB advances
$ 50,000$ - $ - $ - $ 50,000Other borrowings 17,006 - 28,500 - 45,506 Subordinated debentures - - - 10,310 10,310
of deposit 250,244 101,726 3,051 678 355,699 Operating leases 2,161 5,137 3,708 1,595 12,601 Total contractual cash
Off-Balance Sheet Commitments. We utilize off-balance sheet commitments in the normal course of business to meet the financing needs of our customers and to reduce our own exposure to fluctuations in interest rates. These financial instruments include commitments to originate real estate, business and other loans held for investment, undisbursed loan funds, lines and letters of credit, and commitments to purchase loans and investment securities for portfolio. The contract or notional amounts of those instruments reflect the extent of involvement we have in particular classes of financial instruments. Commitments to originate loans held for investment are agreements to lend to a customer as long as there is no violation of any condition established in the commitment. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Undisbursed loan funds and unused lines of credit on home equity and commercial loans include committed funds not disbursed. Letters of credit are conditional commitments we issue to guarantee the performance of a customer to a third party. As of
March 31, 2014, we had commitments to extend credit on existing lines and letters of credit of $246.0 million, compared to $337.2 millionat December 31, 2013and $236.7 millionat March 31, 2013.
The following table summarizes our contractual commitments with off-balance sheet risk by expiration period at the date indicated:
March 31, 2014 Less than More than 5 1 year 1 - 3 years 3 - 5 years years Total (in thousands) Other unused commitments Home equity lines of credit
$ 100 $ 2,051$ 100 $ 4,863 $ 7,114Commercial and industrial 40,599 21,738 5,093 34,944 102,374 Warehouse facilities - - - 101,817 101,817 Standby letters of credit 4,305 - - - 4,305 All other 3,137 26,810 5 452 30,404 Total commitments $ 48,141 $ 50,599 $ 5,198 $ 142,076 $ 246,014Regulatory Capital Compliance
The Corporation and the Bank are subject to risk-based capital regulations which quantitatively measure capital against risk-weighted assets, including certain off-balance sheet items. These regulations define the elements of the Tier 1 and Tier 2 components of total capital and establish minimum ratios of 4% for Tier 1 capital and 8% for total capital for capital adequacy purposes. Supplementing these regulations is a leverage requirement. This requirement establishes a minimum leverage ratio (at least 3% or 4%, depending upon an institution's regulatory status) which is calculated by dividing Tier 1 capital by adjusted quarterly average assets (after deducting goodwill). In addition, the Bank is subject to the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") which imposes a number of mandatory supervisory measures. Among other matters, FDICIA established five capital categories, ranging from "well capitalized" to "critically under capitalized." Such classifications are used by regulatory agencies to determine a bank's deposit insurance premium and approval of applications authorizing institutions to increase their asset size or otherwise expand business activities or acquire other institutions. Under FDICIA, a "well capitalized" bank must maintain minimum leverage, Tier 1 and total capital ratios of 5%, 6% and 10%, respectively. The Federal Reserve applies comparable tests for bank holding companies. At
March 31, 2014, the Bank and the Corporation, respectively, exceeded the requirements for "well capitalized" institutions under the tests pursuant to FDICIA and of the Federal Reserve.
The Bank's and the Company's capital amounts and ratios are presented in the following table along with the well capitalized requirement at the dates indicated:
Minimum Required for Capital Required to be Well Capitalized Under Actual Adequacy Purposes Prompt Corrective Action Regulations Amount Ratio Amount Ratio Amount Ratio (dollars in thousands) At March 31, 2014 Tier 1 Capital (to adjusted tangible assets) Bank
$ 167,29410.26 % $ 65,2294.00 % $ 81,5365.00 % Consolidated 170,096 10.45 % 65,085 4.00 % N/A N/A Tier 1 Risk-Based Capital (to risk-weighted assets) Bank 167,294 12.06 % 55,476 4.00 % 83,214 6.00 % Consolidated 170,096 12.23 % 55,624 4.00 % N/A N/A Total Capital (to risk-weighted assets) Bank 176,301 12.71 % 110,953 8.00 % 138,691 10.00 % Consolidated 179,104 12.88 % 111,249 8.00 % N/A N/A At December 31, 2013 Tier 1 Capital (to adjusted tangible assets) Bank $ 160,47310.03 % $ 64,0254.00 % $ 80,0315.00 % Consolidated 163,105 10.29 % 63,431 4.00 % N/A N/A Tier 1 Risk-Based Capital (to risk-weighted assets) Bank 160,473 12.34 % 52,021 4.00 % 78,031 6.00 % Consolidated 163,105 12.54 % 52,046 4.00 % N/A N/A Total Capital (to risk-weighted assets) Bank 168,673 12.97 % 104,042 8.00 % 130,052 10.00 % Consolidated 171,305 13.17 % 104,092 8.00 % N/A N/A At March 31, 2013 Tier 1 Capital (to adjusted tangible assets) Bank $ 145,64212.55 % $ 46,4234.00 % $ 58,0295.00 % Consolidated 147,953 12.84 % 46,100 4.00 % N/A N/A Tier 1 Risk-Based Capital (to risk-weighted assets) Bank 145,642 14.43 % 40,362 4.00 % 60,543 6.00 % Consolidated 147,953 14.61 % 40,500 4.00 % N/A N/A Total Capital (to risk-weighted assets) Bank 153,636 15.23 % 80,724 8.00 % 100,905 10.00 % Consolidated 155,947 15.40 % 81,000 8.00 % N/A N/A On July 2, 2013, the Federal Reserve issued a final rule implementing a revised regulatory capital framework for U.S. banks in accordance with the Basel III international accord and satisfying related mandates under the Dodd-Frank Act. Under the final rule, minimum capital requirements will increase for both quantity and quality of capital held by banking organizations. The final rule includes a new common equity tier 1 minimum capital requirement of 4.5% of risk-weighted assets and increases the minimum tier 1 capital requirement from 4.0% to 6.0% of risk-weighted assets. The minimum total risk-based capital requirement remains unchanged at 8.0% of total risk-weighted assets. In addition to these minimum capital requirements, the final rule requires banking organizations to hold a buffer of common equity tier 1 capital in an amount above 2.5% of total risk-weighted assets to avoid restrictions on capital distributions and discretionary bonus payments to executive officers. The final rule also establishes a standardized approach for determining risk-weighted assets. Under the final rule, risk weights for residential mortgage loans that apply under current capital rules will continue to apply and banking organizations with less than $15 billionin total assets may continue to include existing trust preferred securities as capital. The final rule allows banking organizations that are not subject to the advanced approaches rule, like us, to make a one-time election not to include most elements of accumulated other comprehensive income in regulatory capital and instead use the existing treatment under current capital rules. The minimum regulatory capital requirements and compliance with a standardized approach for determining risk-weighted assets of the final rule are effective for us on January 1, 2015. The capital conservation buffer framework transition period begins January 1, 2016, with full implementation effective January 1, 2019. The Company continues to evaluate the impact of the final Basel III capital rules, and based on management's initial review, we expect to exceed all capital requirements under the new rules. We will continue to evaluate and monitor our capital ratios under the new rules prior to the initial implementation date of January 1, 2015. The final rule also enhances the risk-sensitivity of the advanced approaches risk-based capital rule, including among others, revisions to better address counterparty credit risk and interconnectedness among financial institutions and incorporation of the Federal Reserve's market risk rule into the integrated capital framework. These provisions of the final rule generally apply only to large, internationally active banking organizations or banking organizations with significant trading activity and are not expected to directly impact us.