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Section 1: 8-K (8-K)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): April 23, 2019

 

PACIFIC PREMIER BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

DELAWARE

 

0-22193

 

33-0743196

(State or other jurisdiction
of incorporation)

 

(Commission
File Number)

 

(I.R.S. Employer
Identification No.)

 

17901 Von Karman Avenue, Suite 1200, Irvine, CA

 

92614

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code (949) 864-8000

 

Not Applicable

(Former name or former address, if changed since last report.)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

 

Emerging Growth Company o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

 

 


 

Introductory Note

 

In connection with the filing by Pacific Premier Bancorp, Inc. (the “Company”) of a Registration Statement on Form S-3 (the “Registration Statement”) on the same date as this Current Report on Form 8-K, the Company is hereby filing (i) the unaudited condensed consolidated financial statements of Grandpoint Capital, Inc. (“Grandpoint”) as of June 30, 2018 and for the three- and six-month periods ended June 30, 2018, attached hereto as Exhibit 99.1, and (ii) the unaudited pro forma combined condensed consolidated statement of operations for the twelve month period ended December 31, 2018, attached hereto as Exhibit 99.2, in order to incorporate by reference such financial statements and pro forma financial information into the Registration Statement.

 

ITEM 9.01                                  FINANCIAL STATEMENTS AND EXHIBITS.

 

(a)                                 Financial statements of businesses acquired

 

The unaudited condensed consolidated financial statements of Grandpoint as of June 30, 2018 and for the three- and six-month periods ended June 30, 2018 are attached hereto as Exhibit 99.1 and incorporated herein by reference.

 

(b)                                 Pro forma financial information

 

The unaudited pro forma combined condensed consolidated statement of operations for the twelve month period ended December 31, 2018 is attached hereto as Exhibit 99.2 and incorporated herein by reference.

 

(d)                                 Exhibits

 

99.1

Unaudited condensed consolidated financial statements of Grandpoint as of June 30, 2018 and for the three- and six-month periods ended June 30, 2018

 

 

99.2

Unaudited pro forma combined condensed consolidated statement of operations for the twelve month period ended December 31, 2018

 


 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

PACIFIC PREMIER BANCORP, INC.

 

 

 

Dated: April 23, 2019

By:

/s/ RONALD J. NICOLAS, JR.

 

 

Ronald J. Nicolas, Jr.

 

 

Senior Executive Vice President and Chief Financial Officer

 


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Section 2: EX-99.1 (EX-99.1)

Exhibit 99.1

 

Unaudited Condensed Consolidated Financial Statements

 

Grandpoint Capital, Inc. and Subsidiaries

 

June 30, 2018

 


 

Grandpoint Capital, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

June 30, 2018 and December 31, 2017

(In thousands except share and per share data)

 

 

 

June 30,
2018

 

December 31,
2017

 

ASSETS

 

 

 

 

 

Cash and due from banks

 

$

36,367

 

$

32,238

 

Interest-bearing deposits in banks

 

110,684

 

151,556

 

Cash and cash equivalents

 

147,051

 

183,794

 

Certificates of deposit in other banks

 

500

 

1,001

 

Marketable equity securites, at fair value

 

 

20,412

 

Available for sale investment securities, at fair value

 

365,692

 

451,891

 

Held to maturity investment securities, at amortized cost

 

30,213

 

30,312

 

Loans, net

 

2,385,377

 

2,344,608

 

Premises and equipment, net

 

6,050

 

6,201

 

Other real estate owned

 

547

 

914

 

Goodwill

 

53,323

 

53,323

 

Core deposit and other intangible assets

 

5,094

 

5,865

 

Bank owned life insurance

 

33,624

 

33,260

 

Other assets

 

77,419

 

62,353

 

Total Assets

 

$

3,104,890

 

$

3,193,934

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Liabilities

 

 

 

 

 

Deposits:

 

 

 

 

 

Demand deposits

 

$

1,066,707

 

$

1,090,900

 

NOW accounts

 

233,711

 

145,591

 

Money market accounts

 

908,585

 

843,920

 

Savings accounts

 

45,351

 

44,837

 

Time deposits

 

252,310

 

251,681

 

Total Deposits

 

2,506,664

 

2,376,929

 

Borrowings

 

250,000

 

450,000

 

Other liabilities

 

23,686

 

12,353

 

Subordinated debenture payable

 

5,155

 

5,155

 

Total Liabilities

 

2,785,505

 

2,844,437

 

Commitments and Contingencies

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

Preferred stock, 5,000,000 shares authorized, $0.01 par value; none issued and outstanding

 

 

 

Common stock, 70,000,000 shares authorized, $0.01 par value 33,174,924 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively

 

332

 

332

 

Additional paid in capital

 

292,903

 

320,935

 

Accumulated other comprehensive loss

 

(3,057

)

(788

)

Retained earnings

 

29,207

 

29,018

 

Total Shareholders’ Equity

 

319,385

 

349,497

 

Total Liabilities and Shareholders’ Equity

 

$

3,104,890

 

$

3,193,934

 

 

See accompanying notes

 


 

Grandpoint Capital, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)
For the Three and Six Months ended June 30, 2018 and 2017
(In thousands except per share data)

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2018

 

2017

 

2018

 

2017

 

Interest Income:

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

28,758

 

$

28,282

 

$

57,151

 

$

55,408

 

Interest on investment securities

 

3,285

 

3,666

 

7,251

 

7,263

 

Other interest income

 

974

 

356

 

1,480

 

616

 

Total Interest Income

 

33,017

 

32,304

 

65,882

 

63,287

 

Interest Expense:

 

 

 

 

 

 

 

 

 

Interest on NOW, money market and savings accounts

 

2,304

 

1,717

 

3,651

 

3,174

 

Interest on time deposits

 

805

 

666

 

1,469

 

1,257

 

Interest on borrowings

 

1,424

 

823

 

3,274

 

1,333

 

Total Interest Expense

 

4,533

 

3,206

 

8,394

 

5,764

 

Net Interest Income

 

28,484

 

29,098

 

57,488

 

57,523

 

(Recovery of) Provision for Loan Losses

 

(8

)

(3

)

(13

)

242

 

Net Interest Income after (Recovery of) Provision for Loan Losses

 

28,492

 

29,101

 

57,501

 

57,281

 

Noninterest Income:

 

 

 

 

 

 

 

 

 

Service charges, fees and other income

 

1,775

 

2,092

 

3,019

 

3,785

 

(Loss) gain on investment and marketable equity securities

 

(176

)

 

(505

)

170

 

Total Noninterest Income

 

1,599

 

2,092

 

2,514

 

3,955

 

Noninterest Expense:

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

10,950

 

10,994

 

22,272

 

21,497

 

Occupancy

 

1,377

 

1,349

 

2,729

 

2,670

 

Furniture and equipment

 

1,028

 

880

 

1,949

 

1,722

 

Promotion

 

438

 

356

 

858

 

729

 

Data processing

 

700

 

531

 

1,248

 

1,047

 

Professional

 

849

 

674

 

2,022

 

1,312

 

M&A, conversion and restructuring costs

 

15,693

 

162

 

15,693

 

162

 

Office

 

414

 

338

 

762

 

672

 

Assessments and insurance

 

567

 

476

 

1,075

 

995

 

Other

 

2,478

 

1,282

 

3,786

 

2,516

 

Total Noninterest Expense

 

34,494

 

17,042

 

52,394

 

33,322

 

Net (Loss) Income Before (Benefit) Provision for Income Taxes

 

(4,403

)

14,151

 

7,621

 

27,914

 

(Benefit) Provision for Income Taxes

 

(5,935

)

5,748

 

(2,604

)

11,338

 

Net Income

 

$

1,532

 

$

8,403

 

$

10,225

 

$

16,576

 

Net Income Per Share

 

 

 

 

 

 

 

 

 

Basic

 

$

0.05

 

$

0.25

 

$

0.31

 

$

0.50

 

Diluted

 

$

0.04

 

$

0.25

 

$

0.30

 

$

0.49

 

 

See accompanying notes

 


 

Grandpoint Capital, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Unaudited)
For the Three and Six Months ended June 30, 2018 and 2017

(In thousands)

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2018

 

2017

 

2018

 

2017

 

Net income

 

$

1,532

 

$

8,403

 

$

10,225

 

$

16,576

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

Change in unrealized (loss) gain on securities, net of tax of $400 and $(296) in the three months ended June 30, 2018 and 2017, respectively and $914 and $(632) in the six months ended June 30, 2018 and 2017, respectivley.

 

(968

)

197

 

(2,352

)

723

 

Reclassification adjustment for net (gain) included in net income, net of tax of $0 and $0 in the three month ended June 30, 2018 and 2017, repectively and $0 and $(70) in the six months ended June 30, 2018 and 2017, respectivley.

 

 

 

 

(100

)

Other comprehensive (loss) income

 

(968

)

197

 

(2,352

)

623

 

Comprehensive income

 

$

564

 

$

8,600

 

$

7,873

 

$

17,199

 

 

See accompanying notes

 


 

Grandpoint Capital, Inc. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
For the Six Months ended June 30, 2018 and 2017

(In thousands, except share data)

 

 

 

Common Stock

 

Additional
Paid In

 

Accumulated
Other
Comprehensive

 

Retained

 

 

 

 

 

Shares

 

Amount

 

Capital

 

Loss

 

Earnings

 

Total

 

Balances at December 31, 2017

 

33,174,924

 

$

332

 

$

320,935

 

$

(788

)

$

29,018

 

$

349,497

 

Stock-based compensation

 

 

 

27

 

 

 

27

 

Repurchase and cancelation of vested options in merger

 

 

 

(28,059

)

 

 

(28,059

)

Dividends

 

 

 

 

 

(9,953

)

(9,953

)

ASU 2016-01 Transfer of loss on Marketable Equity Securities

 

 

 

 

 

 

 

83

 

(83

)

 

Comprehensive (loss) income

 

 

 

 

(2,352

)

10,225

 

7,873

 

Balances at June 30, 2018

 

33,174,924

 

$

332

 

$

292,903

 

$

(3,057

)

$

29,207

 

$

319,385

 

Balances at December 31, 2016

 

33,022,742

 

$

330

 

$

318,904

 

$

(1,009

)

$

64,765

 

$

382,990

 

Stock-based compensation

 

 

 

242

 

 

 

242

 

Stock options exercised

 

33,000

 

1

 

319

 

 

 

320

 

Dividends

 

 

 

 

 

(8,917

)

(8,917

)

Comprehensive income

 

 

 

 

623

 

16,576

 

17,199

 

Balances at June 30, 2017

 

33,055,742

 

$

331

 

$

319,465

 

$

(386

)

$

72,424

 

$

391,834

 

 

See accompanying notes

 


 

Grandpoint Capital, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

For the Six Months ended June 30, 2018 and 2017

(In thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2018

 

2017

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net income

 

$

10,225

 

$

16,576

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization of premises and equipment

 

494

 

616

 

Amortization of intangible assets

 

771

 

818

 

(Recovery of) provision for loan losses

 

(13

)

(3

)

Accretion of discounts on acquired loans

 

(355

)

(791

)

Loss on sale on marketable securities

 

505

 

 

Net gain on sale of investment securities

 

 

(170

)

Gain on sale of other real estate owned

 

(126

)

(484

)

Increase in cash surrender value of life insurance policies

 

(364

)

(397

)

Amortization on investment securities

 

739

 

950

 

Stock-based compensation

 

27

 

242

 

Net change in:

 

 

 

 

 

Other assets

 

(14,896

)

(6,359

)

Other liabilities

 

11,333

 

(3,257

)

Net cash provided by operating activities

 

8,340

 

7,741

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Purchases of investments securities

 

(37,500

)

(18,999

)

Proceeds from repayments, sales and maturities of investment securities

 

140,945

 

148,580

 

Net (decrease) increase in loans

 

(40,401

)

(78,211

)

Proceeds from sales of other real estate owned

 

493

 

594

 

Net purchases of premises and equipment

 

(343

)

(117

)

Net cash provided by (used in) investing activities

 

63,194

 

51,847

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

Net increase in time deposits

 

629

 

7,417

 

Net change in other deposits

 

129,106

 

(112,894

)

Net change in line of credit agreement

 

(200,000

)

25,000

 

Dividends

 

(9,953

)

(8,917

)

Repurchase of vested stock options for cash

 

(28,059

)

 

Proceeds from issuance of common stock, net

 

 

320

 

Net cash (used in) provided by financing activities

 

(108,277

)

(89,074

)

Change in cash and cash equivalents

 

(36,743

)

(29,486

)

Cash and cash equivalents, beginning of period

 

183,794

 

241,534

 

Cash and cash equivalents, end of period

 

$

147,051

 

$

212,048

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

Interest paid

 

$

8,338

 

$

5,752

 

Taxes paid

 

950

 

11,900

 

 

See accompanying notes

 


 

Grandpoint Capital, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands except share and per share data)

 

Note 1 — Basis of Presentation

 

The condensed consolidated financial statements include the accounts of Grandpoint Capital, Inc. and its wholly-owned subsidiaries, Grandpoint Bank (“GPB”) and one non-banking subsidiary, Peoria Holdings, LLC collectively referred to herein as the “Company.” All significant intercompany transactions have been eliminated in consolidation.

 

In the opinion of management, the condensed consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company’s consolidated financial position as of June 30, 2018 and December 31, 2017, the consolidated results of its operations and comprehensive income for the three months and six months ended June 30, 2018 and 2017 and the changes in stockholders’ equity and cash flows for the six months ended June 30, 2018 and 2017. Operating results or comprehensive income for the three months and six months ended June 30, 2018 are not necessarily indicative of the results or comprehensive income that may be expected for any other interim period or the full year ending December 31, 2018.

 

Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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

 

Note 2 — Recently Issued Accounting Pronouncements

 

Accounting Standards Adopted

 

In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed into law, which among other things reduced the maximum federal corporate tax rate from 35% to 21%. This Update addresses concerns about the guidance in current U.S. GAAP that requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the reporting period that includes the enactment date. That guidance is applicable even in situations in which the related income tax effects of items in accumulated other comprehensive income (“AOCI”) were originally recognized in other comprehensive income (rather than in income from continuing operations). As a result of the adjustment of deferred taxes being required to be included in income from continuing operations, the tax effects of items within accumulated other comprehensive income (referred to as stranded tax effects for purposes of this Update) do not reflect the appropriate tax rate. This Update allows for an election to reclass between retained earnings and AOCI the impact of the federal income tax rate change. The amendments in this Update are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption of the amendments of this Update is permitted. The Company elected to early adopt as of December 31, 2017. Accordingly, the Company recorded an increase to AOCI and a decrease to retain earnings of approximately $142 for stranded tax effects on investment available for sale securities in 2017.

 


 

Grandpoint Capital, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands except share and per share data)

 

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. Under the current implementation guidance in Topic 805, there are three elements of a business-inputs, processes, and outputs. While an integrated set of assets and activities (collectively referred to as a “set”) that is a business usually has outputs, outputs are not required to be present. In addition, all the inputs and processes that a seller uses in operating a set are not required if market participants can acquire the set and continue to produce outputs. The amendments in this Update provide a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. If the screen is not met, the amendments in this Update (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The amendments provide a framework to assist entities in evaluating whether both an input and a substantive process are present. The framework includes two sets of criteria to consider that depend on whether a set has outputs. Although outputs are not required for a set to be a business, outputs generally are a key element of a business; therefore, the Company has developed more stringent criteria for sets without outputs. Lastly, the amendments in this Update narrow the definition of the term output so that the term is consistent with how outputs are described in Topic 606. Public business entities should apply the amendments in this Update to annual periods beginning after December 15, 2017, including interim periods within those periods. The adoption of this standard did not have a material effect on the Company’s operating results or financial condition.

 

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The Update requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The adoption of this standard did not have a material effect on the Company’s operating results or financial condition.

 

In August 2016, the FASB issued ASU 2016-15, Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The Update provides guidance on eight specific cash flow classification issues, which include: 1) debt prepayment or debt extinguishment costs; 2) settlement of zero-coupon debt instruments or debt with coupon interest rates that are insignificant in relation to the effective interest rate; 3) contingent consideration payments made soon after a business combination; 4) proceeds from the settlement of insurance claims; 5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; 6) distributions received from equity method investments; 7) beneficial interest in securitization transactions; and 8) separately identifiable cash flows and the application of the predominance principle. The amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period; however, an entity is required to adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. The adoption of this standard did not have a material effect on the Company’s operating results or financial condition.

 


 

Grandpoint Capital, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands except share and per share data)

 

In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. Changes made to the current measurement model primarily affect the accounting for equity securities with readily determinable fair values, where changes in fair value will impact earnings instead of other comprehensive income. The accounting for other financial instruments, such as loans, investments in debt securities, and financial liabilities is largely unchanged. The Update also changes the presentation and disclosure requirements for financial instruments including a requirement that public business entities use exit price when measuring the fair value of financial instruments measured at amortized cost for disclosure purposes. This Update is effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of ASU 2016-01 did not have a material effect on the Company’s operating results or financial condition. In accordance with the guidance, the Company measures the fair value of financial instruments reported at amortized cost on the statement of financial condition using the exit price notion. For further details, refer to Note 7 - Fair Value of Financial instruments.

 

ASU 2014-09, Revenue From Contracts With Customers (Topic 606), ASU 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date, ASU 2016-08 Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10 Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, ASU 2016-11 Revenue Recognition (Topic 605) and Derivatives ad Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-1 6 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting, ASU 2016-12 Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, and ASU 2016-20 Revenue from Contracts with Customers (Topic 606): Technical Corrections and Improvements to Topic 606. The FASB amended existing guidance related to revenue from contracts with customers, superseding and replacing nearly all existing revenue recognition guidance, including industry-specific guidance, establishing a new control-based revenue recognition model, changing the basis for deciding when revenue is recognized over time or at a point in time, providing new and more detailed guidance on specific topics and expanding and improving disclosures about revenue. In addition, this guidance specifies the accounting for some costs to obtain or fulfill a contract with a customer. The amendments are effective for public entities for annual reporting periods beginning after December 15, 2017.

 

The Company adopted the provisions of ASU 2014-09 and its related amendments effective January 1, 2018 utilizing the modified retrospective transition method and determined the adoption was insignificant to the consolidated financial statements. Since the impact upon adoption of ASU 2014-09 was insignificant to the consolidated financial statements, a cumulative effect adjustment to retained earnings was not deemed necessary.

 

The Company’s review of its various revenue streams indicated that approximately 97% of the Company’s revenue is out of the scope of ASU 2014-09, including all of the Company’s interest income and a significant portion of non-interest income. For those revenue streams that are within the scope of ASU 2014-09, the Company reviewed the associated customer contracts and agreements to determine the appropriate accounting for revenues under those contracts. The Company’s review did not identify any significant changes in the timing of revenue recognition under those contracts within the scope of ASU 2014-09. Significant revenue streams that are within scope primarily relate to service charges and fees associated customer deposit accounts, as well as fees for various other services the Company provides its customers. As a result of the implementation of ASU 2014-09, the Company will conduct a detailed review of its revenue streams at least annually, or more frequently if deemed necessary.

 


 

Grandpoint Capital, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands except share and per share data)

 

Recent Accounting Guidance Not Yet Effective

 

In March 2017, the FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchase Callable Debt Securities. The updated amends guidance on the amortization period of premiums on certain purchased callable debt securities. The amendments shorten the amortization period of premiums on purchased callable debt securities to the earliest call date. The update should be applied on a modified retrospective basis through a cumulative-effect adjustment to beginning retained earnings. The effective date of ASU 2017-08 is for interim and annual reporting periods beginning after December 15, 2018. The adoption of this standard is not expected to have a material effect on the Company’s operating results or financial condition.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For public business entities, the amendment is effective for annual periods beginning after December 15, 2019 and interim period within those annual periods. The Company is currently evaluating the effects of ASU 2016-13 on its financial statements and disclosures. The Company is in the process of compiling key data elements and implementing a software model that will meet the requirements of the new guidance.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard is being issued to increase the transparency and comparability around lease obligations. Previously unrecorded off-balance sheet obligations will now be brought more prominently to light by presenting lease liabilities on the face of the balance sheet, accompanied by enhanced qualitative and quantitative disclosures in the notes to the financial statements. The Update is generally effective for public business entities in fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently in the process of evaluating existing lease obligations and service agreements under the provisions of the new standard. This evaluation includes an assessment of the appropriate classification and related accounting of each lease agreement under the new standard, a review of applicability of the new standard to existing service agreements, and gathering all essential lease data that will facilitate the application of the new standard. Upon adoption of the new standard, the Company will record a liability representing an obligation to make future lease payments and will also record an asset representing rights to use the underlying leased assets. As of June 30, 2018, the Company believes these assets and liabilities to be recognized under the new standard will amount to less than 1% of the Company’s total assets.

 

Note 3 — Significant Accounting Policies

 

Our accounting policies are described in Note 1. Summary of Significant Accounting Policies, of our audited consolidated financial statements. Select policies have been reiterated below that have a particular affiliation to our interim financial statements.

 


 

Grandpoint Capital, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands except share and per share data)

 

Revenue Recognition - The Company accounts for certain of its revenue streams in accordance with ASC 606 - Revenue from Contracts with Customers. Revenue streams within the scope of and accounted for under ASC 606 include: service charges and fees on deposit accounts, debit card interchange fees, fees from other services the Bank provides its customers, and gains and losses from the sale of other real estate owned and property, premises and equipment. ASC 606 requires revenue to be recognized when the Company satisfies related performance obligations by transferring to the customer a good or service. The recognition of revenue under ASC 606 requires the Company to first identify the contract with the customer, identify the performance obligations, determine the transaction price, allocate the transaction price to the performance obligations, and finally recognize revenue when the performance obligations have been satisfied and the good or service has been transferred. The majority of the Company’s contracts with customers associated with revenue streams that are within the scope of ASC 606 are considered short-term in nature and can be cancelled at any time by the customer or the Bank, such as a deposit account agreement. Other more significant revenue streams for the Company such as interest income on loans and investment securities are specifically excluded from the scope of ASC 606 and are accounted for under other applicable GAAP.

 

The following provides information concerning the components of noninterest income:

 

·                  Loan servicing fees - generally consist of fees related to servicing of loans for others, as well as the net impact of related serving asset amortization. This revenue stream is excluded from the scope of ASC 606 and is accounted for under other applicable GAAP. Loan servicing fees totaled $51 or approximately 0.07% of total revenues for the six months ended June 30, 2018.

 

·                  Service charges on deposit accounts and other service fee income - consist of periodic service charges on deposit accounts and transaction based fees such as those related to overdrafts, ATM charges and wire transfer fees. Performance obligations for periodic service charges on deposit accounts are typically short term in nature and are generally satisfied on a monthly basis, while performance obligations for other transaction based fees are typically satisfied at a point in time (which may consist of only a few moments to perform the service or transaction) with no further obligations on behalf of the Bank to the customer. Periodic service charges are generally collected monthly directly from the customer’s deposit account, and at the end of a statement cycle, while transaction based service charges are typically collected at the time of or soon after the service is performed. Service charges on deposit accounts and other service fee income are accounted for under ASC 606 and totaled $1,619 or approximately 2.4% of total revenues for the six months ended June 30, 2018.

 

·                  Debit card interchange fee income - consist of transaction processing fees associated with customer debit card transactions processed through a payment network. The related performance obligations are generally satisfied when the customer transactions, which generate the fee, are processed. Debit card interchange income is accounted for under ASC 606 and totaled $67 or approximately 0.1% of total revenues for the six months ended June 30, 2018.

 

·                  Earnings on bank-owned life insurance - relates to the periodic increase in the cash surrender value of bank-owned life insurance policies. This revenue stream is excluded from the scope of ASC 606, and is accounted for under other applicable GAAP (ASC 325-30). Earnings on bank-owned life insurance total $365 or 0.5% of total revenues for the six months ended June 30, 2018.

 

·                  Gains (losses) on the sale of loans and investment securities - gains (losses) from the periodic sale of loans and investment securities are excluded from the scope of ASC 606 and are accounted for under other applicable GAAP. Net gains from the sale of loans and investment securities totaled $77 or 0.1% of total revenues for the six months ended June 30, 2018.

 


 

Grandpoint Capital, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands except share and per share data)

 

·                  Other income - generally consists of trade finance fees and loan documentation services prepared for other financial institutions. This revenue stream is excluded from the scope of ASC 606 and is accounted for under other applicable GAAP. Other income also consists of other miscellaneous fees, which are accounted for under ASC 606, however, much like service charges on deposit accounts, these fees have performance obligations that are very short term in nature and are typically satisfied at a point in time. Revenue included in other income that is accounted for under ASC 606 totaled $244 or approximately 0.4% of total revenues for the six months ended June 30, 2018.

 

·                  Other revenue streams that may be applicable to the Company include gains and losses from the sale of non-financial assets such as other real estate owned and property premises and equipment. The Company accounts for these revenue streams in accordance with ASC 610-20, which requires the Company to look to guidance in ASC 606 in the application of certain measurement and recognition concepts. The Company records gains and losses on the sale of non-financial assets when control of the asset has been surrendered to the buyer, which generally occurs at a specific point in time.

 

Goodwill and Core Deposit Intangible—Goodwill is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exist that indicate the necessity for such impairment tests to be performed. The Company has selected November 30 as the date to perform the annual impairment test. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on our balance sheet.

 

Core deposit intangible assets arising from whole bank acquisitions are amortized on either an accelerated basis, reflecting the pattern in which the economic benefits of the intangible assets is consumed or otherwise used up, or on a straight-line amortization method over their estimated useful lives, which range from 6 to 10 years.

 

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.

 

Earnings per Share (“EPS”) — Basic EPS excludes dilution and is computed by dividing net income available to common shareholders by the weighted-average number of shares outstanding for the period. For the three months ended June 30, 2018 and 2017, the weighted- average number of shares outstanding were 33,174,924 and 33,040,357, respectively. For the six months ended June 30, 2018 and 2017, the weighted-average number of shares outstanding were 33,174,924 and 33,032,714, respectively. Diluted shares consist of stock options only and are computed using an internal valuation of the Company’s common stock as the shares are thinly traded. For the three months ended June 30, 2018 and 2017, the diluted shares outstanding were 34,487,231 and 33,863,558, respectively. For the six months ended June 30, 2018 and 2017, the diluted shares outstanding were 34,487,231 and 33,855,914, respectively.

 


 

Grandpoint Capital, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands except share and per share data)

 

Note 4 — Investment Securities

 

Investment securities have been classified in the condensed consolidated balance sheets according to management’s intent and ability as available-for-sale or held-to-maturity. The amortized cost of investment securities and their estimated fair values at June 30, 2018 and December 31, 2017 were as follows:

 

 

 

June 30, 2018

 

 

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Estimated Fair
Value

 

Available for sale

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

499

 

$

 

$

(8

)

$

491

 

Agency securities

 

1,998

 

 

(43

)

1,955

 

Mortgage-backed securities and collateralized mortgage obligations

 

96,790

 

54

 

(3,991

)

92,853

 

Collateralized loan obligations

 

251,856

 

367

 

(233

)

251,990

 

Corporate securities

 

18,795

 

 

(392

)

18,403

 

 

 

$

369,938

 

$

421

 

$

(4,667

)

$

365,692

 

Held to maturity

 

 

 

 

 

 

 

 

 

Corporate securities

 

$

30,213

 

$

 

$

(895

)

$

29,318

 

 

 

$

30,213

 

$

 

$

(895

)

$

29,318

 

 

 

 

December 31, 2017

 

 

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Estimated Fair
Value

 

Available for sale

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

499

 

$

 

$

(5

)

$

494

 

Agency securities

 

2,998

 

 

(19

)

2,979

 

Mortgage-backed securities and collateralized mortgage obligations

 

104,152

 

136

 

(1,664

)

102,624

 

Collateralized loan obligations

 

262,076

 

657

 

(23

)

262,710

 

Corporate securities

 

83,146

 

65

 

(127

)

83,084

 

 

 

$

452,871

 

$

858

 

$

(1,838

)

$

451,891

 

Held to maturity

 

 

 

 

 

 

 

 

 

Corporate securities

 

$

30,312

 

$

26

 

$

(232

)

$

30,106

 

 

 

$

30,312

 

$

26

 

$

(232

)

$

30,106

 

 


 

Grandpoint Capital, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands except share and per share data)

 

Note 4 — Investment Securities (continued)

 

Information pertaining to securities with gross unrealized losses at June 30, 2018 and December 31, 2017 aggregated by investment type and length of time that individual securities have been in a continuous unrealized loss position is as follows:

 

 

 

June 30, 2018

 

 

 

Less Than Twelve Months

 

Twelve Months or Greater

 

Total

 

 

 

Estimated
Fair Value

 

Unrealized
Losses

 

Estimated
Fair Value

 

Unrealized
Losses

 

Estimated
Fair Value

 

Unrealized
Losses

 

Available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

491

 

$

(8

)

$

 

$

 

$

491

 

$

(8

)

Agency securities

 

968

 

(29

)

987

 

(14

)

1,955

 

(43

)

Mortgage-backed securities and collateralized mortgage obligations

 

25,033

 

(625

)

65,493

 

(3,366

)

90,526

 

(3,991

)

Collateralized loan obligations

 

76,417

 

(233

)

 

 

76,417

 

(233

)

Corporate securities

 

18,403

 

(392

)

 

 

18,403

 

(392

)

 

 

$

121,312

 

$

(1,287

)

$

66,480

 

$

(3,380

)

$

187,792

 

$

(4,667

)

Held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate securities

 

$

29,318

 

$

(895

)

$

 

$

 

$

29,318

 

$

(895

)

 

 

$

29,318

 

$

(895

)

$

 

$

 

$

29,318

 

$

(895

)

 

 

 

December 31, 2017

 

 

 

Less Than Twelve Months

 

Twelve Months or Greater

 

Total

 

 

 

Estimated
Fair Value

 

Unrealized
Losses

 

Estimated
Fair Value

 

Unrealized
Losses

 

Estimated
Fair Value

 

Unrealized
Losses

 

Available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

494

 

$

(5

)

$

 

$

 

$

494

 

$

(5

)

Agency securities

 

988

 

(7

)

1,991

 

(12

)

2,979

 

(19

)

Mortgage-backed securities and collateralized mortgage obligations

 

19,376

 

(64

)

69,646

 

(1,600

)

89,022

 

(1,664

)

Collateralized loan obligations

 

28,227

 

(23

)

 

 

28,227

 

(23

)

Corporate securities

 

17,883

 

(127

)

 

 

17,883

 

(127

)

 

 

$

66,968

 

$

(226

)

$

71,637

 

$

(1,612

)

$

138,605

 

$

(1,838

)

Held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate securities

 

$

23,994

 

$

(232

)

$

 

$

 

$

23,994

 

$

(232

)

 

 

$

23,994

 

$

(232

)

$

 

$

 

$

23,994

 

$

(232

)

 


 

Grandpoint Capital, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands except share and per share data)

 

Note 4 — Investment Securities (continued)

 

Information pertaining to the number of securities in an unrealized loss position by investment type and the length of time individual securities have been in a continuous loss position are as follows:

 

 

 

June 30, 2018

 

 

 

Less Than
Twelve Months

 

Twelve Months
or Greater

 

Total

 

 

 

Securities with
Unrealized Losses

 

Securities with
Unrealized Losses

 

Securities with
Unrealized Losses

 

Available for sale

 

 

 

 

 

 

 

U.S. Treasury securities

 

1

 

 

1

 

Agency securities

 

1

 

1

 

2

 

Mortgage-backed securities and collateralized mortgage obligations

 

41

 

87

 

128

 

Collateralized loan obligations

 

20

 

 

20

 

Corporate securities

 

3

 

 

3

 

 

 

66

 

88

 

154

 

Held to maturity

 

 

 

 

 

 

 

Corporate securities

 

8

 

 

8

 

 

 

8

 

 

8

 

 

 

 

December 31, 2017

 

 

 

Less Than
Twelve Months

 

Twelve Months
or Greater

 

Total

 

 

 

Securities with
Unrealized Losses

 

Securities with
Unrealized Losses

 

Securities with
Unrealized Losses

 

Available for sale

 

 

 

 

 

 

 

U.S. Treasury securities

 

1

 

 

1

 

Agency securities

 

1

 

2

 

3

 

Mortgage-backed securities and collateralized mortgage obligations

 

29

 

82

 

111

 

Collateralized loan obligations

 

9

 

 

9

 

Corporate securities

 

4

 

 

4

 

 

 

44

 

84

 

128

 

Held to maturity

 

 

 

 

 

 

 

Corporate securities

 

6

 

 

6

 

 

 

6

 

 

6

 

 


 

Grandpoint Capital, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands except share and per share data)

 

Note 4 — Investment Securities (continued)

 

Management believes the Company has the ability and has the intent to hold these debt securities for a period of time sufficient for a recovery of cost. In the opinion of management, the investment securities in an unrealized loss position at June 30, 2018 and December 31, 2017 are not considered other than temporarily impaired due to changes in market interest rates subsequent to the initial purchase of the securities and not due to concerns regarding the underlying credit exposure of the issuers or the underlying collateral.

 

The amortized cost and estimated fair values of securities at March 31, 2018, by contractual maturity, are shown below. Expected and actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.

 

 

 

June 30, 2018

 

 

 

Available for Sale

 

Held to Maturity

 

 

 

Amortized Cost

 

Estimated
Fair Value

 

Amortized Cost

 

Estimated Fair
Value

 

Due in one year or less

 

$

8,795

 

$

8,791

 

$

 

$

 

Due from one to five years

 

2,647

 

2,591

 

 

 

Due in five to ten years

 

112,622

 

111,952

 

30,213

 

29,318

 

Due in more than ten years

 

245,874

 

242,358

 

 

 

 

 

$

369,938

 

$

365,692

 

$

30,213

 

$

29,318

 

 

Amounts related to sale of investment securities for the six months ended June 30 are summarized as follows:

 

 

 

Six Months Ended
June 30,

 

 

 

2018

 

2017

 

Gross proceeds

 

$

 

$

76,209

 

Realized gains

 

 

190

 

Realized losses

 

 

(20

)

 

During the three months ended March 31, 2018, the Company wrote down its marketable equity securities by $(329). During the three months ended June 30, 2018, the company sold these marketable equity securities receiving gross proceeds of $20,712 and recognizing an additional loss of $(176), resulting in a total loss of $(505) in 2018

 


 

Grandpoint Capital, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands except share and per share data)

 

Note 5 — Loans and Allowance for Loan Losses

 

The carrying values of the major classifications of loans are summarized as follows:

 

 

 

June 30,
2018

 

December 31,
2017

 

Loans secured by real estate:

 

 

 

 

 

Construction and land

 

$

164,239

 

$

139,512

 

Commercial properties

 

1,071,067

 

1,037,118

 

Residential properties

 

138,835

 

171,267

 

Multifamily properties

 

727,688

 

720,261

 

Commercial

 

259,326

 

252,756

 

Consumer

 

44,587

 

42,569

 

Total loans

 

2,405,742

 

2,363,483

 

Deferred fees and costs, net

 

(1,700

)

64

 

Allowance for loan losses

 

(18,665

)

(18,939

)

 

 

$

2,385,377

 

$

2,344,608

 

 

The adequacy of the allowance for loan losses is determined by the Company’s management based upon evaluation and review of credit quality of the loan portfolio, consideration of historical loss experience, relevant internal and external factors that affect the collection of a loan, and other pertinent factors. The allowance for loan loss analysis is a formula methodology based upon assigning a risk rating to each loan upon origination and is periodically reassessed and validated during the term of the loan through the Company’s credit review processes.

 

Additionally, the Company’s management utilizes qualitative adjustments to the allowance for loan loss analysis in order to systematically quantify the credit risk impact of other trends and changes within the loan portfolio. The qualitative factors considers the following nine factors, which are patterned after the guidelines provided under the Federal Financial Institutions Examination Council Interagency Policy Statement on the Allowance for Loan and Lease Losses issued in 2006:

 

·                  Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses;

·                  Changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments;

·                  Changes in the nature and volume of the portfolio and in the terms of loans;

·                  Changes in the experience and ability of lending management and other relevant staff;

·                  Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans;

·                  Changes in the quality of the institution’s loan review system;

·                  Changes in the value of underlying collateral for collateral-dependent loans;

·                  The existence and effect of any concentrations of credit, and changes in the level of such concentrations; and;

·                  The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institutions’ existing portfolio.

 


 

Grandpoint Capital, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands except share and per share data)

 

Note 5 — Loans and Allowance for Loan Losses (continued)

 

The Company also establishes specific loss allowances for loans where management has identified potential credit risk conditions or circumstances related to a specific individual loans. The loans identified as impaired are accounted for in accordance with one of the three acceptable valuations as follows: 1) the present value of future cash flows discounted at the loan’s effective interest rate; 2) the loan’s observable market price; or 3) the fair value of the collateral, if the loan is collateral dependent. For the collateral dependent impaired loans, the Company obtains an appraisal to determine the amount of impairment at the date that the loan becomes impaired. If the third party market data indicates that the value of collateral has declined since the most recent valuation date, the value of the property is adjusted downward to reflect current market conditions. If the fair value of the collateral, less cost to sell, is less than the recorded amount of the loan, the Company either recognizes impairment by creating or adjusting an existing valuation allowance with a corresponding charge to the provision for loan losses or charges off the impaired balance on collateral dependent loans, if it is determined that such loss amount represents a confirmed loss.

 

Management believes that the allowance for loan losses was adequate as of June 30, 2018 and December 31, 2017. There is, however, no assurance that future loan losses will not exceed the levels provided for in the allowance for loan losses and could possibly result in additional charges to the provision for loan losses. In addition, bank regulatory authorities, as part of their periodic examination of the Company, may require additional charges to the provision for loan losses in future periods if warranted as a result of their review. A significant decline in real estate market values may require an increase in the allowance for loan losses.

 

A summary of the changes in the allowance for loans losses for the six months ended June 30:

 

 

 

2018

 

2017

 

Beginning balance

 

$

(18,939

)

$

(18,552

)

(Recovery of ) Provision for loan losses charged to expense

 

(13

)

(242

)

Recoveries on loans previously charged off

 

(243

)

(441

)

Charge-offs

 

530

 

780

 

Ending balance

 

$

(18,665

)

$

18,455

 

 


 

Grandpoint Capital, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands except share and per share data)

 

Note 5 — Loans and Allowance for Loan Losses (continued)

 

The following tables present by portfolio segment, the activity in the allowance for loan losses for the six months ended June 30, 2018 and 2017. The following also presents by portfolio segment, the balance in the allowance for loan losses disaggregated on the basis of the Company’s impairment measurement method and the related recorded investment in loans (defined as unpaid principal balance adjusted for applicable unamortized premium, discount and any previous write-down of the investment) as of June 30:

 

 

 

June 30, 2018

 

 

 

Construction
and Land

 

Commercial
Properties

 

Residential
Properties

 

Multifamily
Properties

 

Commercial

 

Consumer

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,097

 

$

8,907

 

$

542

 

$

5,618

 

$

2,286

 

$

489

 

$

18,939

 

Provision

 

87

 

251

 

(295

)

(173

)

(83

)

226

 

13

 

Recoveries

 

 

 

134

 

 

97

 

12

 

243

 

Charge-offs

 

 

(22

)

 

 

(330

)

(178

)

(530

)

Ending balance

 

$

1,184

 

$

9,136

 

$

381

 

$

5,445

 

$

1,970

 

$

549

 

$

18,665

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balances individually evaluated for impairment

 

$

 

$

 

$

 

$

 

$

532

 

$

 

$

532

 

Ending balances collectively evaluated for impairment

 

$

1,184

 

$

9,136

 

$

381

 

$

5,445

 

$

1,438

 

$

549

 

$

18,133

 

Recorded investment in loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

162,278

 

$

1,065,607

 

$

138,455

 

$

734,256

 

$

258,879

 

$

44,567

 

$

2,404,042

 

Ending balances individually evaluated for impairment

 

$

633

 

$

17,024

 

$

3,564

 

$

 

$

11,960

 

$

 

$

33,181

 

Ending balances collectively evaluated for impairment

 

$

161,645

 

$

1,048,583

 

$

134,891

 

$

734,256

 

$

246,919

 

$

44,567

 

$

2,370,861

 

 

 

 

June 30, 2017

 

 

 

Construction
and Land

 

Commercial
Properties

 

Residential
Properties

 

Multifamily
Properties

 

Commercial

 

Consumer

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,598

 

$

8,665

 

$

602

 

$

6,018

 

$

1,636

 

$

33

 

$

18,552

 

Provision

 

(563

)

221

 

36

 

488

 

64

 

(4

)

242

 

Recoveries

 

14

 

251

 

21

 

 

151

 

4

 

441

 

Charge-offs

 

 

(17

)

(2

)

 

(761

)

 

(780

)

Ending balance

 

$

1,049

 

$

9,120

 

$

657

 

$

6,506

 

$

1,090

 

$

33

 

$

18,455

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balances individually evaluated for impairment

 

$

 

$

178

 

$

 

$

20

 

$

462

 

$

 

$

660

 

Ending balances collectively evaluated for impairment

 

$

1,079

 

$

8,786

 

$

6,838

 

$

1,055

 

$

 

$

37

 

$

17,795

 

Recorded investment in loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

173,871

 

$

1,038,324

 

$

200,060

 

$

800,117

 

$

225,360

 

$

11,324

 

$

2,449,056

 

Ending balances individually evaluated for impairment

 

$

715

 

$

8,394

 

$

374

 

$

3,370

 

$

3,583

 

$

15

 

$

16,451

 

Ending balances collectively evaluated for impairment

 

$

173,156

 

$

1,029,930

 

$

199,686

 

$

796,747

 

$

221,777

 

$

11,309

 

$

2,432,605

 

 


 

Grandpoint Capital, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands except share and per share data)

 

Note 5 — Loans and Allowance for Loan Losses (continued)

 

As a result of the Company’s geographical concentration, a reliance on the economies in Southern California, Phoenix and Tucson, Arizona, and Vancouver, Washington may increase the credit risk associated with the Company’s loans. While management believes that the allowance for loan losses at June 30, 2018 and December 31, 2017, is adequate to absorb probable losses inherent in the Company’s loan portfolio, a continued downturn in these economies may adversely impact asset quality and require future additions to the allowance for loan losses. To the extent that such events occur, the impact on the adequacy of the Company’s allowance for loan losses will be reported in the Company’s consolidated financial statements in the period of occurrence.

 

Credit Quality Indicators

 

As previously noted, the Company uses several credit quality indicators to manage credit risk in an ongoing manner. The Company’s primary credit quality indicators are to use an internal credit risk rating system that categorizes loans and leases into pass, special mention, or classified categories. Credit risk ratings are applied individually to all loans that have significant or unique credit characteristics that benefit from a case-by-case evaluation. The following are the definitions of the Company’s credit quality indicators:

 

Pass/Watch: Loans in all classes that comprise the commercial and consumer portfolio segments that are not adversely rated, are contractually current as to principal and interest, and are otherwise in compliance with the contractual terms of the loan or lease agreement. Management believes that there is a low likelihood of loss related to those loans that are considered pass.

 

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.

 

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

 

Doubtful/Loss: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors, which may work towards strengthening of the asset, classification as a loss (and immediate charge off) is deferred until more exact status may be determined. In certain circumstances, a Doubtful rating will be temporary, while the Company is awaiting an updated collateral valuation. In these cases, once the collateral is valued and appropriate margin applied, the remaining un-collateralized portion will be charged off. The remaining balance, properly margined, may then be upgraded to Substandard, however must remain on non-accrual. A loss rating is assigned to loans considered un-collectable and of such little value that the continuance as an active Company asset is not warranted. This rating does not mean that the loan has no recovery or salvage value, but rather that the loan should be charged-off currently, even though partial or full recovery may be possible in the future.

 


 

Grandpoint Capital, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands except share and per share data)

 

Note 5 — Loans and Allowance for Loan Losses (continued)

 

The Company’s credit quality indicators are periodically updated on a case-by-case basis. The following tables present by loan type and by credit quality indicator, the recorded investment in the Company’s loans as of June 30, 2018 and December 31, 2017.

 

 

 

June 30, 2018

 

 

 

Pass /
Watch

 

Special
Mention

 

Substandard

 

Doubtful /
Loss

 

Total
Loans

 

Construction and land

 

$

161,620

 

$

 

$

658

 

$

 

$

162,278

 

Commercial properties

 

1,042,491

 

2,097

 

21,019

 

 

1,065,607

 

Residential properties

 

132,689

 

600

 

5,166

 

 

138,455

 

Multifamily properties

 

732,403

 

 

1,853

 

 

734,256

 

Commercial

 

245,526

 

531

 

12,822

 

 

258,879

 

Consumer

 

44,550

 

11

 

6

 

 

44,567

 

Total

 

$

2,359,279

 

$

3,239

 

$

41,524

 

$

 

$

 2,404,042

 

 

 

 

December 31, 2017

 

 

 

Pass /

 

Special

 

 

 

Doubtful /

 

Total

 

 

 

Watch

 

Mention

 

Substandard

 

Loss

 

Loans

 

Construction and land

 

$

136,144

 

$

 

$

1,154

 

$

 

$

137,298

 

Commercial properties

 

1,002,696

 

7,385

 

21,873

 

 

1,031,954

 

Residential properties

 

162,832

 

600

 

7,316

 

 

170,748

 

Multifamily properties

 

726,683

 

 

1,872

 

 

728,555

 

Commercial

 

236,156

 

3,197

 

13,100

 

 

252,453

 

Consumer

 

42,511

 

21

 

7

 

 

42,539

 

Total

 

$

2,307,022

 

$

11,203

 

$

45,322

 

$

 

$

2,363,547

 

 


 

Grandpoint Capital, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands except share and per share data)

 

Note 5 — Loans and Allowance for Loan Losses (continued)

 

The following tables present by loan type, an aging analysis including the recorded investment in loans past due 90 days or more as of June 30, 2018 and December 31, 2017:

 

 

 

June 30, 2018

 

 

 

 

 

Over

 

 

 

Total Past

 

 

 

 

 

 

 

30-89 Days

 

90 Days and

 

 

 

Due and

 

 

 

Total

 

 

 

Past Due

 

Accruing Interest

 

Non-Accrual

 

Non-Accrual

 

Current

 

Loans

 

Construction and land

 

$

 

$

 

$

633

 

$

633

 

$

161,645

 

$

162,278

 

Commercial properties

 

408

 

 

4,170

 

4,578

 

1,061,029

 

1,065,607

 

Residential properties

 

496

 

 

932

 

1,428

 

137,027

 

138,455

 

Multifamily properties

 

 

 

 

 

734,256

 

734,256

 

Commercial

 

73

 

 

1,156

 

1,229

 

257,650

 

258,879

 

Consumer

 

 

 

 

 

44,567

 

44,567

 

Total

 

$

977

 

$

 

$

6,891

 

$

7,868

 

$

2,396,174

 

$

2,404,042

 

 

 

 

December 31, 2017

 

 

 

 

 

Over

 

 

 

Total Past

 

 

 

 

 

 

 

30-89 Days

 

90 Days and

 

 

 

Due and

 

 

 

Total

 

 

 

Past Due

 

Accruing Interest

 

Non-Accrual

 

Non-Accrual

 

Current

 

Loans

 

Construction and land

 

$

 

$

 

$

768

 

$

768

 

$

136,530

 

$

137,298

 

Commercial properties

 

896

 

 

 6,254

 

7,150

 

1,024,804

 

1,031,954

 

Residential properties

 

182

 

 

 1,805

 

1,987

 

168,761

 

170,748

 

Multifamily properties

 

 

 

 

 

728,555

 

728,555

 

Commercial

 

281

 

 

 1,620

 

1,901

 

250,552

 

252,453

 

Consumer

 

 

 

 

 

42,539

 

42,539

 

Total

 

$

1,359

 

$

 

$

10,447

 

$

11,806

 

$

2,351,741

 

$

2,363,547

 

 


 

Grandpoint Capital, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands except share and per share data)

 

Note 5 — Loans and Allowance for Loan Losses (continued)

 

The following tables present information related to impaired loans as of and for the periods ended:

 

 

 

June 30, 2018 and Six Months Ended

 

 

 

 

 

Unpaid

 

 

 

Average

 

Interest

 

 

 

Recorded

 

Principal

 

Related

 

Recorded

 

Income

 

 

 

Investment

 

Balance

 

Allowance

 

Investment

 

Recognized

 

With no allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

Construction and land

 

$

633

 

$

633

 

$

 

$

701

 

$

 

Commercial properties

 

17,024

 

17,024

 

 

16,376

 

202

 

Residential properties

 

3,564

 

3,564

 

 

4 ,018

 

52

 

Multifamily properties

 

 

 

 

 

 

Commercial

 

3,379

 

3 ,465

 

 

2,895

 

51

 

Consumer

 

 

 

 

 

 

 

 

24,600

 

24,686

 

 

23,990

 

305

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

Construction and land

 

 

 

 

 

 

Commercial properties

 

 

 

 

 

 

Residential properties

 

 

 

 

 

 

Multifamily properties

 

 

 

 

 

 

Commercial

 

8,851

 

8,495

 

532

 

8,561

 

168

 

Consumer

 

 

 

 

 

 

 

 

8,851

 

8,495

 

532

 

8,561

 

168

 

Total

 

$

33,451

 

$

33,181

 

$

532

 

$

32,551

 

$

473

 

 

 

 

December 31, 2017 and the Year Ended

 

 

 

 

 

Unpaid

 

 

 

Average

 

Interest

 

 

 

Recorded

 

Principal

 

Related

 

Recorded

 

Income

 

 

 

Investment

 

Balance

 

Allowance

 

Investment

 

Recognized

 

With no allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

Construction and land

 

$

768

 

$

768

 

$

 

$

439

 

$

 

Commercial properties

 

15,728

 

16,335

 

 

13,730

 

403

 

Residential properties

 

4,472

 

4,586

 

 

3,865

 

104

 

Multifamily properties

 

 

 

 

200

 

 

Commercial

 

2,410

 

2,497