UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

ý                                 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2005

 

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)

 

 

1600 SUNFLOWER AVENUE, 2^ND 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.

ý Yes    o No

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2) Yes o No ý

 

 

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: 5,258,738 shares of common stock par value $0.01 per share, were outstanding as of May 10, 2005.

 

 

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

FOR THE QUARTER ENDED MARCH 31, 2005

 

	PART I   FINANCIAL INFORMATION
Item 1	Consolidated Statements of Financial Condition:
	March 31, 2005 (unaudited) and December 31, 2004
	Consolidated Statements of Income:
	For the Three months ended March 31, 2005 and 2004 (unaudited)
	Consolidated Statement of Stockholders’ Equity and Comprehensive Income:
	For the Three months ended March 31, 2005 and 2004 (unaudited)
	Consolidated Statements of Cash Flows:
	For the Three months ended March 31, 2005 and 2004 (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 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)

 

		March 31,			December 31,
		2005			2004
		(Unaudited)
ASSETS
Cash and due from banks		$	4,542		$	3,003
Federal funds sold		2,100			13,000
Cash and cash equivalents		6,642			16,003
Investment securities available for sale		36,170			36,455
Investment securities held to maturity:
FHLB Stock, at cost		10,697			8,389
Loans:
Loans held for sale, net		510			532
Loans held for investment, net		520,798			469,822
Accrued interest receivable		2,341			1,938
Foreclosed real estate		264			351
Premises and equipment		5,132			5,244
Income taxes receivable		229			188
Deferred income taxes		3,486			3,473
Other assets		950			729
Total Assets		$	587,219		$	543,124
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposit accounts
Noninterest bearing		$	11,325		$	11,732
Interest bearing:
Transaction accounts		66,403			63,438
Certificates of deposit		212,682			213,717
Total Deposits		290,410			288,887
Borrowings		238,100			196,400
Subordinated debentures		10,310			10,310
Accrued expenses and other liabilities		2,891			3,499
Total Liabilities		$	541,711		$	499,096
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Common stock, $.01 par value; 15,000,000 shares authorized; 5,258,738 shares issued and outstanding at March 31, 2005 and 5,258,738 shares issued and outstanding at December 31, 2004.		$	53		$	53
Additional paid-in capital; common stock and warrants		67,564			67,564
Accumulated deficit		(21,646		)	(23,280		)
Accumulated other comprehensive loss, net of tax of $324 (2005) and $217 (2004)		(463		)	(309		)
Total Stockholders’ Equity		$	45,508		$	44,028
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	587,219		$	543,124

 

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
		March 31, 2005			March 31, 2004
INTEREST INCOME:
Loans		$	6,767		$	4,053
Other interest-earning assets		440			1,212
Total interest income		7,207			5,265
INTEREST EXPENSE:
Interest-bearing deposits		1,680			1,218
Other borrowings		1,266			232
Subordinated debentures		135			8
Total interest expense		3,081			1,458
NET INTEREST INCOME		4,126			3,807
PROVISION FOR LOAN LOSSES		145			57
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		3,981			3,750
NONINTEREST INCOME:
Loan servicing fee income		152			144
Bank and other fee income		128			141
Net gain from loan sales		69			—
Net gain from investment securities		—			1,573
Other income		277			101
Total noninterest income		626			1,959
NONINTEREST EXPENSE:
Compensation and benefits		1,889			1,622
Premises and occupancy		322			363
Data processing		83			79
Net (gain) loss on foreclosed real estate		(9		)	18
Other expense		532			689
Total noninterest expense		2,817			2,771
INCOME BEFORE INCOME TAXES		1,790			2,938
PROVISION FOR INCOME TAXES		156			12
NET INCOME		$	1,634		$	2,926
INCOME PER SHARE:
Basic income per share		$	0.31		$	0.56
Diluted income per share		$	0.24		$	0.44
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		5,258,738			5,255,072
Diluted		6,694,388			6,575,431

 

 

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

 

2

 

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

(Dollars in thousands)

(UNAUDITED) 

 

		Common Stock Shares		Amount			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Comprehensive Income (Loss)			Total Stockholders’ Equity
Balance at December 31, 2003		5,255,072		$	53		$	67,546		$	(30,021	)	$	(246	)				$	37,332
Net income		—		—			—			2,926			—			$	2,926		2,926
Unrealized loss on investments, net of tax of ($49)		—		—			—			—			176			176			176
Total comprehensive income		—		—			—			—			—			$	3,102		—
Balance at March 31, 2004		5,255,072		$	53		$	67,546		$	(27,095	)	$	(70	)				$	40,434

 

		Common Stock Shares		Amount			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income(Loss)			Comprehensive Income			Total Stockholders’ Equity
Balance at December 31, 2004		5,258,738		$	53		$	67,564		$	(23,280	)	$	(309	)				$	44,028
Net income		—		—			—			1,634			—			$	1,634		1,634
Unrealized loss on investments, net of tax of ($107)		—		—			—			—			(154		)	(154		)	(154		)
Total comprehensive income		—		—			—			—			—			$	1,480		—
Balance at March 31, 2005		5,258,738		$	53		$	67,564		$	(21,646	)	$	(463	)				$	45,508

 

 

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)

 

		Three Months Ended
		March 31,
		2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income		$	1,634		$	2,926
Adjustments to Net Income:
Depreciation expense		93			127
Provision for loan losses		145			63
Loss on sale, provision, and write-down of foreclosed real estate		32			38
Net unrealized loss and amortization on investment securities		131			83
Loss on sale of investment securities available for sale		—			13
Gain on sale of loans held for investment		(69		)	—
Net accretion on Participation Contract		—			(902		)
Gain on sale and termination of residual assets of Participation Contract		—			(1,586		)
Proceeds from the sales of and principal payments from loans held for sale		(2		)	37
Change in current and deferred income tax receivable		(54		)	(56		)
Decrease in accrued expenses and other liabilities		(608		)	(58		)
Increase in other assets		(624		)	(606		)
Net cash provided by operating activities		678			79
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from sale and principal payments on loans held for investment		18,347			16,141
Purchase, origination and advances of loans held for investment		(69,429		)	(64,024		)
Principal payments on securities		—			840
Proceeds from sale of foreclosed real estate		109			328
Proceeds from sale or maturity of securities		—			2,000
Proceeds from Participation Contract		—			539
Proceeds from sale and termination of residual assets of Participation Contract		—			6,300
Decrease (increase) in premises and equipment		19			(25		)
Purchase of FHLB stock		(2,308		)	(845		)
Net cash used in investing activities		(53,262		)	(38,746		)
CASH FLOW FROM FINANCING ACTIVITIES
Net increase in deposit accounts		1,523			30,296
Proceeds from FHLB advances		49,600			11,400
(Repayment of) proceeds from other borrowings		(7,900		)	8,400
Issuance of subordinated debentures		—			10,310
Net cash provided by financing activities		43,223			60,406
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(9,361		)	21,739
CASH AND CASH EQUIVALENTS, beginning of period		16,003			2,440
CASH AND CASH EQUIVALENTS, end of period		$	6,642		$	24,179
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid		$	3,141		$	1,465
Income taxes paid		$	310		$	—
NONCASH INVESTING ACTIVITIES DURING THE PERIOD:
Transfers from loans to foreclosed real estate		$	54		$	88

 

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

 

4

 

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2005

(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 March 31, 2005 and the results of its operations and its cash flows for the three months ended March 31, 2005 and 2004.  Operating results for the three months ended March 31, 2005 are not necessarily indicative of the results that may be expected for any other interim period or the full year ending December 31, 2005.

 

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, 2004.

 

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.

 

5

 

The pro forma effects of applying SFAS No. 123 are disclosed below (dollars in thousands, except per share data):

 

		For the Three Months Ended
		March 31, 2005			March 31, 2004
		(Unaudited)
Net income to common stockholders:
As reported		$	1,634		$	2,926
Stock-based compensation that would have been reported using the fair value method of SFAS 123		—			63
Pro forma		$	1,634		$	2,863
Basic earnings per share:
As reported		$	0.31		$	0.56
Pro forma		$	0.31		$	0.54
Diluted earnings per share:
As reported		$	0.24		$	0.44
Pro forma		$	0.24		$	0.44

 

 

                In January 2003, FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB NO. 51” (“FIN 46”) and in December 2003, FASB issued a revision (“FIN 46R”).  FIN 46 and FIN 46R address the requirements for consolidation by business enterprises of variable interest entities.  Subsidiary business trusts formed by bank holding companies to issue trust preferred securities and lend the proceeds to the parent holding company have been determined to not meet the definition of a variable interest entity and therefore must be deconsolidated for financial reporting purposes.  Bank holding companies have previously consolidated these entities and reported the trust preferred securities as liabilities in the consolidated financial statements.  The Company adopted this statement at the time of the issuance of the junior subordinated debentures in March 2004, which did not have a material impact on the Company’s financial statements as subordinated debentures are reported as a component of liabilities.  See Note 4 — Subordinated Debentures.

 

                In December 2004, the FASB staff issued a revision to SFAS No. 123, “Accounting for Stock-Based Compensation,” SFAS No. 123R, “Share-Based Payment.”  SFAS No. 123R focuses primarily on transactions in which the entity exchanges its equity instruments for employee services and generally establishes standards for the accounting for transactions in which an entity obtains goods or services in share-based payment transactions.  SFAS No. 123R requires that the cost resulting from all share-based payment transactions be recognized in the financial statements over the period during which an employee is required to provide service in exchange for the award.  SFAS No. 123R establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value based method in accounting for share-based transactions with employees.  SFAS No. 123R is effective as of the beginning of the first interim reporting period that begins after June 15, 2005.  On April 14, 2005, the effective date was amended by the Securities and Exchange Commission.  As a result, SFAS No. 123R is now effective for most public companies for annual (rather than interim) periods that begin after June 15, 2005.  Therefore, we will begin to expense options in the first quarter of 2006, unless further amended by the Securities and Exchange Commission.  Management is currently evaluating the effect of adoption of SFAS No. 123R, but does not expect adoption to have a material effect on the firm’s financial condition, results of operations, or cash flows.

 

6

 

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 March 31, 2005 (Unaudited)
Total Capital (to risk-weighted assets)		$	52,945		13.02	%	$	32,528		8.00	%	$		40,660		10.00	%
Tier 1 Capital (to adjusted tangible assets)		50,498			8.65	%	23,364			4.00	%	29,205				5.00	%
Tier 1 Risk-Based Capital (to risk-weighted assets)		52,945			12.42	%	16,264			4.00	%	24,396				6.00	%
At December 31, 2004
Total Capital (to risk-weighted assets)		$	51,316		13.59	%	$	30,206		8.00	%	$	37,758			10.00	%
Tier 1 Capital (to adjusted tangible assets)		49,072			9.09	%	21,600			4.00	%	27,001				5.00	%
Tier 1 Risk-Based Capital (to risk-weighted assets)		51,316			13.00	%	15,103			4.00	%	22,655				6.00	%

 

 

Note 3 — Borrowings

 

At March 31, 2005, the Bank had one advance on its $100 million credit facility with Salomon Brothers due September 2005, at a rate of 3.46%, in the amount of $8.4 million, which is secured by $9.1 million in mortgage-backed securities.  At March 31, 2005, the Bank also had one advance against its credit facility, secured by mutual funds pledged to Pershing Bank, in the amount of $2.1 million at a rate of 3.50%.  Additionally, the Company had $227.6 million in Federal Home Loan Bank (“FHLB”) advances with a weighted average interest rate of 2.71% and a weighted average maturity of 0.55 years, as of March 31, 2005.  Advances from the FHLB are collateralized by pledges of certain real estate loans with an aggregate principal balance of $369.7 million.  As of March 31, 2005, the Bank was able to borrow up to 40% of its total assets as of February 28, 2005 under the line, which amounted to $227.7 million, an increase of $37.1 million from the prior quarter.  FHLB advances consisted of the following as of March 31, 2005:

 

							Weighted
							Average
FHLB Advances Maturing in:		Amount			% of Total		Interest Rate
		(dollars in thousands)
One month or less		$	68,600		30.14	%	2.94	%
Over one month to three months		24,000			10.54	%	1.85	%
Over three months to six months		35,000			15.38	%	2.84	%
Over six months to one year		35,000			15.38	%	2.51	%
Over one year		65,000			28.56	%	2.83	%
Total FHLB Advances		$	227,600		100.00	%	2.71	%

 

 

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% for an effective rate of 5.41% as of March 31, 2005.

 

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.

 

7

 

Note 5 — Earnings Per Share

 

The tables below set forth the Company’s unaudited earnings per share calculations for the three months ended March 31, 2005 and 2004.

 

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 117,597 and 42,372 shares for March 31, 2005 and March 31, 2004, respectively, were excluded from the computation of diluted earnings per share due to their exercise price exceeded the average market price.

 

The earnings per share reconciliation is as follows (dollars in thousands, except per share data):

 

 

		For the Three Months Ended March 31,
		2005								2004
		Net					Per Share			Net					Per Share
		Earnings			Shares		Amount			Earnings			Shares		Amount
		(Unaudited)
Net Earnings		$	1,634							$	2,926
Basic EPS Earnings Available to common stockholders		$	1,634		5,258,738		$	0.31		$	2,926		5,255,072		$	0.56
Effect of Warrants and Dilutive Stock Options		—			1,435,650					—			1,320,359
Diluted EPS Earnings Available to common stockholders plus assumed conversions		$	1,634		6,694,388		$	0.24		$	2,926		6,575,431		$	0.44

 

 

 

Note 6 —Sale of portions of the Participation Contract

 

In March 2004, the Company sold its share of the residual interest in the 1998-1 component of the Participation Contract for $6.3 million.  The gain on sale was $1.6 million.  In August 2004, the 1997-2 component of the Participation Contract was terminated early and the performing assets sold. The gain on the sale was $387,000. In November 2004, the final residual interest component of the Participation Contract, the 1997-3 residual, was terminated early and the performing assets sold. The gain on the sale was $437,000.

 

Note 7 — Valuation Allowance for Deferred Income Taxes

 

The Company benefited from a reduction in its valuation allowance for deferred taxes in the three months ended March 31, 2005 and 2004 of $500,000 and $1.1 million, respectively.  The Company’s valuation allowance for deferred taxes was $3.5 million at March 31, 2005. The decrease in the deferred tax valuation allowance is due to management’s forecast of taxable earnings, based on assumptions regarding the Company’s growth, in the near future. As the Company recognizes continuous taxable income and if the earning projections show that the Company will have the ability to use its net operating loss carry-forwards, then all or part of the remaining valuation allowance for deferred taxes of $3.5 million will be eliminated.

 

8

 

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

 

FORWARD-LOOKING STATEMENTS

 

The following presents management’s discussion and analysis of the consolidated financial condition and operating results of the Company for the three months ended March 31, 2005 and 2004.  The discussion should be read in conjunction with the Company’s Management Discussion and Analysis included in the 2004 Annual Report on Form 10-K, plus the unaudited consolidated financial statements and the notes thereto appearing elsewhere in this report.  The results for the three months ended March 31, 2005 are not necessarily indicative of the results expected for the year ending December 31, 2005.

 

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.

 

GENERAL

 

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 currently allowable under federal laws by the Savings Association Insurance Fund (“SAIF”), which is a separate 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 currently operates three full-service branches in Southern California located in the cities of San Bernardino, Seal Beach and Huntington Beach.   The Bank offers a variety of products and services for consumers and small businesses, which include checking, savings, money market accounts and certificates of deposit.  Additionally, the Bank’s lending activities are focused on generating loans secured by multi-family and commercial real estate properties throughout Southern California. 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 2004 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.

 

9

 

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 (Benefit) for Income Taxes” discussed later in this document and in our 2004 Annual Report on Form 10-K.

 

FINANCIAL CONDITION

 

Total assets of the Company were $587.2 million as of March 31, 2005 compared to $543.1 million as of December 31, 2004.  The $44.1 million or 8.1% increase in total assets is primarily the result of a $50.1 million increase in loans held for investment offset by a decrease in cash of $9.3 million.

 

Investment Securities

 

A summary of the Company’s securities as of March 31, 2005 and December 31, 2004 is as follows (dollars in thousands):

 

		March 31, 2005
		Amortized			Unrealized			Unrealized			Estimated
		Cost			Gain			Loss			Market Value
Securities Available for Sale:
Mortgage-Backed Securities (1)		$	9,238		$	—		$	129		$	9,109
Mutual Funds (2)		27,719			—			658			27,061
Total securities available for sale		$	36,957		$	—		$	787		$	36,170
Securities Held to Maturity:
FHLB Stock		$	10,697		$	—		$	—		$	10,697
Total securities held to maturity		$	10,697		$	—		$	—		$	10,697
Total securities and Participation Contract		$	47,654		$	—		$	787		$	46,867

 

		December 31, 2004
		Amortized			Unrealized			Unrealized			Estimated
		Cost			Gain			Loss			Market Value
Securities Available for Sale:
Mortgage-Backed Securities		$	9,262		$	—		$	48		$	9,214
Mutual Funds		27,719			—			478			27,241
Total securities available for sale		$	36,981		$	—		$	526		$	36,455
Securities Held to Maturity:
FHLB Stock		$	8,389		$	—		$	—		$	8,389
Total securities held to maturity		$	8,389		$	—		$	—		$	8,389
Total securities and Participation Contract		$	45,370		$	—		$	526		$	44,844

 

(1)          Mortgage-backed securities consists of one collateralized mortgage obligation (“CMO”) secured by the Federal Home Loan Mortgage Corporation “(FHLMC”), with a carrying value of $9.1 million.  The CMO has been pledged as collateral for the $8.4 million advance on the Company’s secured line of credit.

(2)          The Company’s mutual fund investments are with Shay Assets Management Inc, within their AMF Adjustable Rate Mortgage fund and their AMF Intermediate Mortgage fund.  Both of these funds qualified for inclusion in the 20% risk-weighting capital category for the quarter ended March 31, 2005. $3.0 million of the mutual funds have been pledged to Pershing Bank on an advance of $2.1 million.

 

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Investment Securities by Contractual Maturity

As of March 31, 2005

(dollars in thousands)

 

		One Year					More than One					More than Five					More than
		or Less					to Five Years					to Ten Years					Ten Years					Total
		Carrying					Carrying					Carrying					Carrying					Carrying
		Value			Yield		Value			Yield		Value			Yield		Value			Yield		Value			Yield
Mortgage-Backed Securities		$	—		0.00	%	$	—		0.00	%	$	—		0.00	%	$	9,109		4.35	%	$	9,109		4.35	%
Mutual Fund		27,061			3.30	%	—			0.00	%	—			0.00	%	—			0.00	%	27,061			3.30	%
Total securities available for sale		27,061			3.30	%	—			0.00	%	—			0.00	%	9,109			4.35	%	36,170			3.56	%
FHLB Stock		10,697			4.45	%	—			0.00	%	—			0.00	%	—			0.00	%	10,697			4.45	%
Total securities held to maturity		10,697			4.45	%	—			0.00	%	—			0.00	%	—			0.00	%	10,697			4.45	%
Total securities		$	37,758		3.63	%	$	—		0.00	%	$	—		0.00	%	$	9,109		4.35	%	$	46,867		3.77	%

 

Loans

 

Gross loans outstanding totaled $522.6 million at March 31, 2005 compared to $471.6 million at December 31, 2004, which represents a 43.2% annualized growth rate. The Company’s multi-family loans and commercial real estate secured loans grew during the first quarter of 2005 at an annualized rate of 32.6% and 150.6%, respectively.

 

The Bank originated $49.7 million, $18.9 million, and $844,000, respectively, of adjustable rate multi-family and commercial real estate secured loans and commercial business loans for the three months ending March 31, 2005.  Principal repayments and loan sales totaled $10.3 million and $8.1 million, respectively, for the three months ending March 31, 2005.

 

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