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EX-32 - PPBI 10-Q 2010 Q1 EX 32 - PACIFIC PREMIER BANCORP INCppbi_10q-2010q1ex32.htm
EX-31.1 - PPBI 10-Q 2010 Q1 EX 31.1 - PACIFIC PREMIER BANCORP INCppbi_10q-2010q1ex311.htm
EX-31.2 - PPBI 10-Q 2010 Q1 EX 31.2 - PACIFIC PREMIER BANCORP INCppbi_10q-2010q1ex312.htm

Washington, DC 20549
(Mark One)
For the quarterly period ended March 31, 2010
For the transition period from _______ to _______
Commission File Number 0-22193
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S Employer Identification No.)
(Address of principal executive offices and zip code)
(714) 431-4000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [ X ] No [_]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [_] No [_]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “accelerated filer”, “large accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act).
Large accelerated filer
[ ]
Accelerated filer
[ ]
Non-accelerated filer
[ ]
Smaller reporting company
[ X ]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes [ ] No [X]
The number of shares outstanding of the registrant's common stock as of May 12, 2010 was 10,033,836.



(dollars in thousands, except share data)
March 31, 2010
December 31, 2009
March 31, 2009
Cash and due from banks
  $ 49,541     $ 59,677     $ 8,081  
Federal funds sold
    29       29       28  
Cash and cash equivalents
    49,570       59,706       8,109  
Investment securities available for sale
    120,270       123,407       66,199  
FHLB stock/Federal Reserve Bank stock, at cost
    14,330       14,330       14,330  
Loans held for sale, net
    -       -       652  
Loans held for investment
    547,051       575,489       619,336  
Allowance for loan losses
    (9,169 )     (8,905 )     (6,396 )
Loans held for investment, net
    537,882       566,584       612,940  
Accrued interest receivable
    3,592       3,520       3,768  
Other real estate owned
    6,169       3,380       55  
Premises and equipment
    8,697       8,713       9,386  
Deferred income taxes
    11,546       11,465       9,891  
Bank owned life insurance
    12,060       11,926       11,527  
Other assets
    3,528       4,292       409  
  $ 767,644     $ 807,323     $ 737,266  
Deposit accounts:
Noninterest bearing
  $ 38,084     $ 33,885     $ 31,378  
Interest bearing:
Transaction accounts
    174,644       161,872       66,596  
Retail certificates of deposit
    397,121       417,377       385,822  
Wholesale/brokered certificates of deposit
    3,052       5,600       9,554  
Total deposits
    612,901       618,734       493,350  
FHLB advances and other borrowings
    66,500       91,500       172,000  
Subordinated debentures
    10,310       10,310       10,310  
Accrued expenses and other liabilities
    3,812       13,277       3,395  
    693,523       733,821       679,055  
Preferred Stock, $.01 par value; 1,000,000 shares authorized; no shares outstanding
    -       -       -  
Common stock, $.01 par value; 15,000,000 shares authorized; 10,033,836 shares at March 31, 2010 and December 31, 2009, and 4,803,451 shares at March 31, 2009 issued and outstanding
    100       100       47  
Additional paid-in capital
    79,928       79,907       64,373  
Accumulated deficit
    (4,308 )     (4,764 )     (3,767 )
Accumulated other comprehensive loss, net of tax of $1,118 at March 31, 2010, $1,218 at December 31, 2009, and $1,707 at March 31, 2009
    (1,599 )     (1,741 )     (2,442 )
    74,121       73,502       58,211  
  $ 767,644     $ 807,323     $ 737,266  

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

(dollars in thousands, except per share data)
Three Months Ended
March 31, 2010
March 31, 2009
  $ 9,155     $ 10,165  
Investment securities and other interest-earning assets
    1,029       787  
Total interest income
    10,184       10,952  
Interest-bearing deposits:
Interest on transaction accounts
    413       255  
Interest on certificates of deposit
    2,168       3,456  
Total interest-bearing deposits
    2,581       3,711  
FHLB advances and other borrowings
    868       1,861  
Subordinated debentures
    75       103  
Total interest expense
    3,524       5,675  
    6,660       5,277  
    1,056       1,160  
    5,604       4,117  
Loan servicing fees
    70       159  
Deposit fees
    188       212  
Net loss from sales of loans
    (1,015 )     -  
Net gain from sales of investment securities
    87       -  
Other-than-temporary impairment loss on investment securities, net
    (326 )     2  
Other income
    270       257  
Total noninterest income (loss)
    (726 )     630  
Compensation and benefits
    2,013       2,009  
Premises and occupancy
    626       658  
Data processing and communications
    184       155  
Other real estate owned operations, net
    295       (6 )
FDIC insurance premiums
    348       286  
Legal and audit
    125       132  
Marketing expense
    149       189  
Office and postage expense
    123       80  
Other expense
    459       427  
Total noninterest expense
    4,322       3,930  
    556       817  
    100       280  
  $ 456     $ 537  
  $ 0.05     $ 0.11  
  $ 0.04     $ 0.09  
    10,033,836       4,852,895  
    11,021,014       6,038,129  

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

(dollars in thousands)
Common Stock Shares
Additional Paid-in Capital
Accumulated Deficit
Accumulated Other Comprehensive Income (Loss)
Comprehensive Income
Total Stockholders’ Equity
Balance at December 31, 2008
    4,903,451     $ 48     $ 64,680     $ (4,304 )   $ (2,876 )         $ 57,548  
Comprehensive Income:
Net income
                            537               537       537  
Unrealized holding gains on securities
 arising during the period, net of tax
Net unrealized gain on securities, net of tax
                                    434       434       434  
Total comprehensive income
Share-based compensation expense
                    76                               76  
Common stock repurchased and retired
    (100,000 )     (1 )     (383 )                             (384 )
Balance at March 31, 2009
    4,803,451     $ 47     $ 64,373     $ (3,767 )   $ (2,442 )           $ 58,211  
Balance at December 31, 2009
    10,033,836     $ 100     $ 79,907     $ (4,764 )   $ (1,741 )           $ 73,502  
Comprehensive Income:
Net income
                            456               456       456  
Unrealized holding gains on securities
 arising during the period, net of tax
Reclassification adjustment for net loss on sale
of securities included in net income, net of tax
Net unrealized gain on securities, net of tax
                                    142       142       142  
Total comprehensive income
Share-based compensation expense
                    21                               21  
Balance at March 31, 2010
    10,033,836     $ 100     $ 79,928     $ (4,308 )   $ (1,599 )           $ 74,121  

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

(in thousands)
Three Months Ended
March 31,
Net income
  $ 456     $ 537  
Adjustments to net income:
Depreciation and amortization expense
    247       252  
Provision for loan losses
    1,056       1,160  
Share-based compensation expense
    21       76  
Loss on sale and disposal of premises and equipment
    12       24  
Loss on sale of other real estate owned
    27       -  
Write down of other real estate owned
    226       (6 )
Amortization of premium/discounts on securities held for sale, net
    129       19  
Gain on sale of investment securities available for sale
    (87 )     -  
Other-than-temporary impairment loss (recovery) on investment securities, net
    326       (2 )
Loss on sale of loans held for investment
    1,015       -  
Proceeds from the sales of and principal payments from loans held for sale
    -       16  
Deferred income tax provision (benefit)
    (81 )     613  
Change in accrued expenses and other liabilities, net
    (1,227 )     (1,675 )
Income from bank owned life insurance, net
    (134 )     (132 )
Change in accrued interest receivable and other assets, net
    416       474  
Net cash provided by operating activities
    2,402       1,356  
Proceeds from sale and principal payments on loans held for investment
    28,670       17,372  
Net change in undisbursed loan funds
    (2,471 )     (2,259 )
Purchase and origination of loans held for investment
    (2,922 )     (7,001 )
Proceeds from sale of other real estate owned
    489       45  
Principal payments on securities available for sale
    3,216       1,963  
Purchase of securities available for sale
    (32,795 )     (10,986 )
Proceeds from sale or maturity of securities available for sale
    24,351       -  
Purchases of premises and equipment
    (243 )     (26 )
Net cash provided by (used in) investing activities
    18,295       (892 )
Net  increase in deposit accounts
    (5,833 )     36,222  
Repayment of FHLB advances and other borrowings
    (25,000 )     (37,900 )
Repurchase of common stock
    -       (384 )
Net cash used in financing activities
    (30,833 )     (2,062 )
    (10,136 )     (1,598 )
CASH AND CASH EQUIVALENTS, beginning of period
    59,706       9,707  
  $ 49,570     $ 8,109  
Interest paid
  $ 3,403     $ 5,512  
Income taxes paid
  $ 150     $ 475  
Restricted stock vested
  $ -     $ 91  
Transfers from loans to foreclosed real estate
  $ 3,530     $ 55  

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

March 31, 2010
The consolidated financial statements include the accounts of Pacific Premier Bancorp, Inc. (the “Corporation”) and its wholly owned subsidiary, Pacific Premier Bank (the “Bank”) (collectively, the “Company,” “we,” “our” or “us”).  All significant intercompany accounts and transactions have been eliminated in consolidation.
In the opinion of management, the consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company’s financial position as of March 31, 2010, December 31, 2009, and March 31, 2009 and the results of its operations, changes in stockholders’ equity, comprehensive income and cash flows for the three months ended March 31, 2010 and 2009.  Operating results for the three months ended March 31, 2010 are not necessarily indicative of the results that may be expected for any other interim period or the full year ending December 31, 2010.
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, 2009.
The Company accounts for its investments in its wholly owned special purpose entity, PPBI Trust I, under the equity method whereby the subsidiary’s net earnings are recognized in the Company’s statement of income.
Note 2 – Recently Issued Accounting Pronouncements
In February 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2010-09, Subsequent Events (Topic 855):  Amendments to Certain Recognition and Disclosure Requirements.  The amendments remove the requirement for an SEC registrant to disclose the date through which subsequent events were evaluated as this requirement would have potentially conflicted with SEC reporting requirements.  Removal of the disclosure requirement did not have an effect on the nature or timing of subsequent events evaluations performed by the Company.  ASU 2010-09 became effective upon issuance.
In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820):  Improving Disclosures about Fair Value Measurements.  ASU 2010-06 revises two disclosure requirements concerning fair value measurements and clarifies two others.  It requires separate presentation of significant transfers into and out of Levels 1 and 2 of the fair value hierarchy and disclosure of the reasons for such transfers.  It will also require the presentation of purchases, sales, issuances, and settlements within Level 3 on a gross basis rather than a net basis.  The amendments also clarify that disclosures should be disaggregated by class of asset or liability and that disclosures about inputs and valuation techniques should be provided for both recurring and non-recurring fair value measurements.  The Company’s disclosures about fair value measurements are presented in Note 6 – Fair Value of Financial Instruments.  These new disclosure requirements were effective for the period ended March 31, 2010, except for the requirement concerning gross presentation of Level 3 activity, which is effective for fiscal years beginning after December 15, 2010.  There was no significant effect to the Company’s financial statement disclosure upon adoption of this ASU.
Note 3 – Regulatory Matters
As defined in applicable regulations, at March 31, 2010, the Bank continued to exceed the “well capitalized” standards for Tier 1 Capital to adjusted tangible assets of 5.00%, Tier 1 risk-based capital to risk-weighted assets of 6.00% and total capital to risk-weighted assets of 10.00%.
The Bank’s and the Company’s (on a consolidated basis) capital amounts and ratios are presented in the following table at the dates indicated:

Tier-1 Capital to
Tier-1 Risk-Based Capital to
Total Capital to
Adjusted Tangible Assets
Risk-Weighted Assets
Risk-Weighted Assets
(dollars in thousands)
March 31, 2010
Regulatory capital
  $ 78,928       10.01 %   $ 78,928       13.96 %   $ 86,009       15.21 %
Adequately capitalized requirement
    31,538       4.00 %     22,623       4.00 %     45,246       8.00 %
Well capitalized requirement
    39,423       5.00 %     33,934       6.00 %     56,558       10.00 %
Consolidated regulatory capital
    80,160       10.17 %     80,160       14.06 %     87,311       15.32 %
December 31, 2009
Regulatory capital
  $ 78,463       9.72 %   $ 78,463       13.30 %   $ 85,855       14.55 %
Adequately capitalized requirement
    32,300       4.00 %     23,600       4.00 %     47,201       8.00 %
Well capitalized requirement
    40,375       5.00 %     35,401       6.00 %     59,001       10.00 %
Consolidated regulatory capital
    79,801       9.89 %     79,801       13.41 %     87,256       14.67 %
March 31, 2009
Regulatory capital
  $ 65,426       8.89 %   $ 65,426       10.94 %   $ 71,822       12.01 %
Adequately capitalized requirement
    29,427       4.00 %     23,917       4.00 %     47,834       8.00 %
Well capitalized requirement
    36,784       5.00 %     35,876       6.00 %     59,793       10.00 %
Consolidated regulatory capital
    66,492       9.04 %     66,492       11.03 %     72,888       12.09 %

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 funded the payment of $10.0 million of Floating Rate Trust Preferred Securities issued by PPBI Trust I in March 2004. The net proceeds from the offering of Trust Preferred Securities were contributed as capital to the Bank to support further growth.  Interest is payable quarterly on the Subordinated Debentures at three-month LIBOR plus 2.75% per annum, for an effective rate of 3.00% per annum as of March 31, 2010.
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.
Note 5 – Earnings Per Share
Basic earnings per share excludes dilution and is computed by dividing net income or loss available to common stockholders by the weighted average number of common shares outstanding for the period, excluding common shares in treasury.  Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted from the issuance of common stock that would then share in earnings and excludes common shares in treasury.  For the three months ended March 31, 2010, stock options of 532,000 shares were not included in the computation of earnings per share because their exercise price exceeded the average market price for their respective periods.  For the three months ended March 31, 2009, stock options of 613,700 shares were excluded from the computations of diluted earnings per share due to their exercise price exceeding the average market price for their respective periods.
The following table sets forth the Company’s unaudited earnings per share calculations for the periods indicated:
Three Months Ended March 31,
Per Share
Per Share
(dollars in thousands, except per share data)
Net income
  $ 456                 $ 537              
Basic income available to common stockholders
    456       10,033,836     $ 0.05       537       4,852,895     $ 0.11  
Effect of warrants and dilutive stock options
    -       987,178               -       1,185,234          
Diluted income available to common stockholders plus assumed conversions
  $ 456       11,021,014     $ 0.04     $ 537       6,038,129     $ 0.09  

Note 6 – Fair Value of Financial Instruments
Effective January 1, 2008, the Company determines the fair market values of certain financial instruments based on the fair value hierarchy established in GAAP under ASC 820, “Fair Value Measurements and Disclosures”.  GAAP requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and describes three levels of inputs that may be used to measure fair value.
The following provides a summary of the hierarchical levels used to measure fair value:
Level 1 - Quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities may include debt and equity securities that are traded in an active exchange market and that are highly liquid and are actively traded in over-the-counter markets.
Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities may include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and other instruments whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes U.S. Government and agency mortgage-backed debt securities, corporate debt securities, derivative contracts, residential mortgage and loans held-for-sale.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category generally includes certain private equity investments, retained residual interests in securitizations, residential MSRs, asset-backed securities (“ABS”), highly structured or long-term derivative contracts and certain collateralized debt obligations (“CDO”) where independent pricing information was not able to be obtained for a significant portion of the underlying assets.
The Company’s financial assets and liabilities measured at fair value on a recurring basis include securities available for sale and impaired loans.  Securities available for sale include mortgage-backed securities and equity securities.  Impaired loans include loans that are in a non-accrual status and where the Bank has reduced the principal to the value of the underlying collateral less the anticipated selling cost.
Marketable Securities.  Where possible, the Company utilizes quoted market prices to measure debt and equity securities; such items are classified as Level 1 in the hierarchy and include equity securities, US government bonds and securities issued by federally sponsored agencies.  When quoted market prices for identical assets are unavailable or the market for the asset is not sufficiently active, varying valuation techniques are used.  Common inputs in valuing these assets include, among others, benchmark yields, issuer spreads, forward mortgage-backed securities trade prices and recently reported trades.  Such assets are classified as Level 2 in the hierarchy and typically include private label mortgage-backed securities and corporate bonds. Pricing on these securities are provided to the Company by a pricing service vendor.  In the Level 3 category, the Company is classifying all the securities that its pricing service vendor cannot price due to lack of trade activity in these securities.
Impaired Loans. A loan is considered impaired when it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement. Impairment is measured based on the fair value of the underlying collateral or the discounted expected future cash flows. The Company measures impairment on all non-accrual loans for which it has reduced the principal balance to the value of the underlying collateral less the anticipated selling cost. As such, the Company records impaired loans as non-recurring Level 2 when the fair value of the underlying collateral is based on an observable market price or current appraised value. When current market prices are not available or the Company determines that the fair value of the underlying collateral is further impaired below appraised values, the Company records impaired loans as Level 3. At March 31, 2010, substantially all the Company’s impaired loans were evaluated based on the fair value of their underlying collateral based upon the most recent appraisal available to management.
The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.  While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
The following fair value hierarchy table presents information about the Company’s assets measured at fair value on a recurring basis at the date indicated:
March 31, 2010
Fair Value Measurement Using
Level 1
Level 2
Level 3
Assets at
Fair Value
(in thousands)
Marketable securities
  $ 115,218     $ 4,851     $ 201     $ 120,270  
Total assets
  $ 115,218     $ 4,851     $ 201     $ 120,270  

The following table provides a summary of the changes in balance sheet carrying values associated with Level 3 financial instruments for the period indicated:
Fair Value Measurement Using Significant Other Unobservable Inputs
(Level 3)
Marketable securities
(in thousands)
Beginning Balance, January 1, 2010
  $ 623  
Total gains or losses (realized/unrealized):
Included in earnings (or changes in net assets)
    (153 )
Included in other comprehensive income
    (245 )
Purchases, issuances, and settlements
    (24 )
Transfer in and/or out of Level 3
Ending Balance, March 31, 2010
  $ 201  

The following fair value hierarchy table presents information about the Company’s assets measured at fair value on a non-recurring basis at the date indicated:
March 31, 2010
Fair Value Measurement Using
Level 1
Level 2
Level 3
Assets at
Fair Value
(in thousands)
Impaired loans
  $ -     $ 7,930     $ -     $ 7,930  
Other real estate owned
    -       6,169       -       6,169  
Total assets
  $ -     $ 14,099     $ -     $ 14,099  

Item 2.                      Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q contain 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.  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 phases 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 the United States economy in general and the strength of the 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 Board of Governors of the Federal Reserve System (the “Federal Reserve Board”);
Inflation, 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 laws, regulations and policies concerning taxes, banking, securities and insurance, and the application thereof by regulatory bodies;
Technological changes;
The effect of acquisitions we 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;
Oversupply of inventory and continued deterioration in values of California real estate, both residential and commercial;
The effect of changes in accounting policies and practices, as may be adopted from time-to-time by bank regulatory agencies, the SEC, the Public Company Accounting Oversight Board, the Financial Accounting Standards Board or other accounting standards setters;
Possible other-than-temporary impairments of securities held by us;
The impact of current governmental efforts to restructure the U.S. financial regulatory system;
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 by the United States or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the United States and abroad;
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 statements to reflect actual results or changes in the factors affecting the forward-looking statements.  The above factors and other risks and uncertainties are discussed in our 2009 Annual Report on Form 10-K as supplemented by the risk factors contained in “Item 1A. Risk Factors” in Part II of this Quarterly Report on Form 10-Q.
Forward-looking 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’s website at
This discussion should be read in conjunction with our Management Discussion and Analysis of Financial Condition and Results of Operations included in the 2009 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, 2010 are not necessarily indicative of the results expected for the year ending December 31, 2010.
We are a California-based bank holding company incorporated in the state of Delaware and 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 California state 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 and their subsidiaries.  The Corporation is also a bank holding company within the meaning of the California Financial Code (the “Financial 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 Financial Institutions (“DFI”).
Under a policy of the Federal Reserve, a bank holding company 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 California state-chartered commercial bank which is a member of the Federal Reserve System, the Bank is subject to supervision, periodic examination and regulation by the DFI and the Federal Reserve. The Bank’s deposits are insured by the FDIC through the Deposit Insurance Fund (“DIF”).  In general terms, insurance coverage is currently unlimited for non-interest bearing transaction accounts and up to $250,000 per owner for all other accounts.  This level of insurance is scheduled to revert to $100,000 on January 1, 2014.   As a result of this deposit insurance function, the FDIC also has certain supervisory authority and powers over our bank as well as all other FDIC insured institutions. 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 FDIC to terminate the Bank’s deposit insurance. As a California-chartered commercial bank, the Bank is also subject to certain provisions of California law.
We provide banking services within our targeted markets in Southern California to businesses, including the owners and employees of those businesses, professionals, real estate investors and non-profit organizations, as well as consumers in the communities we serve. The Bank operates six depository branches in Southern California located in the cities of Costa Mesa, Huntington Beach, Los Alamitos, Newport Beach, San Bernardino, and Seal Beach.  Our corporate headquarters are located in Costa Mesa, California.  Through our branches and our web site at on the Internet, we offer a broad array of deposit products and services for both businesses, and consumer customers including checking, money market and savings accounts, cash management services, electronic banking, and on-line bill payment.  We also offer a variety of loan products, including commercial business loans, lines of credit, commercial real estate loans, U.S. Small Business Administration (“SBA”) loans, residential home loans, and home equity loans.  The Bank funds its lending and investment activities with retail deposits obtained through its branches, advances from the Federal Home Loan Bank (“FHLB”) of San Francisco, 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 sales and various products and services offered to both depository and loan customers.
Recent Developments
General Economic Developments. Although recent U.S. economic indicators have indicated the health of the economy is improving, the economy may require an extended period of time to recover from the recessionary period.  The financial markets, and the financial services industry in particular, suffered significant disruption starting in 2008, which has resulted in many institutions failing or requiring government intervention to avoid failure. These conditions, brought about primarily by dislocations in the U.S. and global credit markets, including a significant and rapid deterioration in mortgage lending and related real estate markets, continue to negatively affect the U.S. economy and the markets where we do business.
The United States, state and foreign governments have taken extraordinary actions in an attempt to deal with what was a global financial crisis and the severe decline in the U.S. economy.  There can be no assurance that any other legislation or regulatory reform or initiatives will be effective at improving economic conditions globally, nationally or in our markets, or that the measures adopted will not have adverse consequences on our results of operations.
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 our financial statements.  Our significant accounting policies are described in the Notes to the Consolidated Financial Statements in our 2009 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 our results of operations for future reporting periods.
We consider the allowance for loan losses 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 later in this report and in our 2009 Annual Report on Form 10-K.
At March 31, 2010, assets totaled $767.6 million, up $30.4 million or 4.1% from March 31, 2009.  During the first quarter of 2010, assets declined $39.7 million or 4.9% primarily due to decreases of $28.7 million in loans held for investment, net and $10.1 million in cash and cash equivalents.
At March 31, 2010, net loans held for investment totaled $537.9 million, down $75.1 million or 12.2% from March 31, 2009 and down $28.7 million or 5.1% from December 31, 2009.
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, 2010
December 31, 2009
March 31, 2009
Percent of Total
Weighted Average Interest Rate
Percent of Total
Weighted Average Interest Rate
Percent of Total
Weighted Average Interest Rate
(dollars in thousands)
Real estate loans: