Pacific Premier Bancorp - 10-Q quarterly report FY

 

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

 

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

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

 

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

 

June 30, 2008

(UNAUDITED)

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”).  All significant intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of management, the unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company’s financial position as of June 30, 2008, and the results of its operations, changes in stockholders’ equity, comprehensive income and cash flows for the six months ended June 30, 2008 and 2007.  Operating results for the three and six months ended June 30, 2008 are not necessarily indicative of the results that may be expected for any other interim period or the full year ending December 31, 2008.

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, as amended, for the year ended December 31, 2007.

The Company accounts for its investments in its wholly owned special purpose entity, PPBI Trust I, using the equity method under which the subsidiary’s net earnings are recognized in the Company’s statement of income.

In March 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 161, Disclosures about Derivative and Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 requires enhanced disclosures about a company’s derivative and hedging activities. These enhanced disclosures will discuss (a) how and why a company uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under FASB Statement No. 133 and its related interpretations and (c) how derivative instruments and related hedged items affect a company’s financial position, results of operations and cash flows. SFAS 161 is effective for fiscal years beginning on or after November 15, 2008, with earlier adoption allowed. The Company is currently evaluating the impact of adopting SFAS 161.

 

In May 2008, FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS 162”). The new standard is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles (GAAP) for nongovernmental entities. SFAS 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company does not anticipate the adoption of SFAS 162 to have a material impact of its financial position, results of operations or cash flow.

 

It is our goal to maintain capital levels within the regulatory “well capitalized” category.  The Company’s (on a consolidated basis) and the Bank’s capital amounts and ratios are presented in the following tables:

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 5.46% per annum as of June 30, 2008.

Under FIN 46R, “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51,” the Corporation is not allowed to consolidate PPBI Trust I into the Company’s financial statements.  The resulting effect on the Company’s consolidated financial statements is to report the Subordinated Debentures as a component of liabilities.  Prior to the issuance of FIN 46R, bank holding companies typically consolidated these entities and reported the Trust Preferred Securities as a component of liabilities.

  Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period.  Diluted earnings per share is computed by dividing income available to common stockholders including common stock equivalents, such as outstanding stock options and warrants by the weighted average number of common shares and common stock equivalents outstanding for the period. However, when there is a loss all common stock equivalents are excluded from the calculation as they would be anti-dilutive.  Stock options totaling 493,550 shares and the warrant representing 1,166,400 shares for the three and six months ended June 30, 2008 were excluded for they would be anti-dilutive and stock options totaling 300,741 and 233,595 shares for the three and six months ended June 30, 2007, respectively, 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 table below set forth the Company’s unaudited earnings per share calculations for the three and six months ended June 30, 2008 and 2007.

 

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurement” (“SFAS 157”). This statement defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The statement establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset.  The standard is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position (FSP) No. FAS 157-2, “Effective Date of FASB Statement No. 157.” This FSP delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years.  Adoption of SFAS 157 did not have a material impact on the Company.

SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 establishes a three-tiered value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations.  The three levels of inputs are defined as follows:

Level 2 – inputs that are observable in the marketplace other than those inputs classified as Level 1

Level 3 – inputs that are unobservable in the marketplace and significant to the valuation

SFAS 157 requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs.  If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation.

The Company’s financial assets and liabilities measured at fair value on a recurring basis include securities available for sale, loans held for sale, and impaired loans.  Securities available for sale include mortgage-backed securities and equity securities.  Loans held for sale include the guarantee portion of our saleable SBA loans. 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.   In the Level 3 category, the Company is classifying all the securities it received as redemption-in-kind from the sale of its two AMF Mutual Funds. Although these types of securities would normally be classified as a Level 1 or 2, due to the number of securities and the time the securities were received, the Company was not able to have the securities valued though its vendor’s pricing model with June data. As a result, the Company valued such securities based on the market value of the securities as of the close of business on June 18, 2008, the date that the Bank redeemed its shares in the two mutual funds.

Loans held for sale. The fair value of loans held for sale is determined, when possible, using quoted secondary-market prices. If no such quoted price exists, the fair value of a loan is determined using quoted prices for a similar asset or assets, adjusted for the specific attributes of that loan.

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 June 30, 2008, 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:

 

 

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115” (“SFAS 159”). The standard provides companies with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The new standard is effective for the Company on January 1, 2008. The Company did not elect the fair value option for any financial assets or liabilities as of January 1, 2008.  Adoption of SFAS 159 did not have a material impact on the Company.

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

The statements contained herein that are not historical facts are forward-looking statements based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company.  There can be no assurance that future developments affecting the Company will be the same as those anticipated by management.  Actual results may differ from those projected in the forward-looking statements.  These forward-looking statements include, among others, statements with respect to the Company’s beliefs, plans, objectives, goals, guidelines, expectations, anticipations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors (many of which are beyond the Company’s control). The words “may”, “could”, “should”, “would”, “believe”, “anticipate”, “estimate”, “expect”, “intend”, “plan” and similar expressions are intended to identify forward-looking statements.  These forward-looking statements involve risks and uncertainties.  These include, but are not limited to, the following risks:   (1) changes in the performance of the financial markets,  (2) changes in the demand for and market acceptance of the Company’s products and services,  (3) changes in general economic conditions including interest rates, presence of competitors with greater financial resources, and the impact of competitive products and pricing,  (4) the effect of the Company’s policies,  (5) the continued availability of adequate funding sources,  and  (6) various legal, regulatory and litigation risks.

The following presents management’s discussion and analysis of the consolidated financial condition and operating results of the Company for the three and six months ended June 30, 2008 and 2007.  The discussion should be read in conjunction with the Company’s Management Discussion and Analysis included in the 2007 Annual Report on Form 10-K, as amended, plus the unaudited consolidated financial statements and the notes thereto appearing elsewhere in this report.  The results for the three and six months ended June 30, 2008 are not necessarily indicative of the results expected for the year ending December 31, 2008.

We are a California-based bank holding company incorporated in the state of Delaware and registered  as a banking holding company under the Bank Holding Company Act of 1956, as amended ("BHCA”), for Pacific Premier Bank, a California state chartered commercial bank.  The Bank is subject to examination and regulation by the California Department of Financial Institutions (“DFI”), the Board of Governors of the Federal Reserve System (the “Federal Reserve”), and by the Federal Deposit Insurance Corporation (“FDIC”).  Additionally, the Corporation is subject to regulation and supervision by the Federal Reserve. The primary business of the Company is community banking.

The Bank was founded in 1983 as a state chartered savings and loan, became a federally chartered stock savings bank in 1991 and in March 2007, converted to a California state chartered commercial bank.  The Bank is a member of the FHLB of San Francisco, which is a member bank of the Federal Home Loan Bank System, and the Federal Reserve.  The Bank’s deposit accounts are insured up to the $100,000 maximum amount, except for retirement accounts which are insured up to the $250,000 maximum currently allowable under federal laws by the Deposit Insurance Fund, which is an insurance fund administered by the FDIC.

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.  The Company’s corporate headquarters are located in Costa Mesa, California.  Through our branches and our web site at www.PPBI.net 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 offer a wide array of loan products, such as 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 FHLB of San Francisco, lines of credit, and wholesale and brokered certificates of deposits.

The Company’s principal sources of income are the net spread between interest earned on loans and investments and the interest costs associated with deposits and other borrowings used to finance its loan and investment portfolio.  Additionally, the Bank generates fee income from loan sales and various products and services offered to both depository and loan customers.

Management has established various accounting policies which govern the application of accounting principles generally accepted in the United States of America in the preparation of the Company’s financial statements.  The Company’s significant accounting policies are described in the Notes to the Consolidated Financial Statements in our 2007 Annual Report on Form 10-K, as amended.  Certain accounting policies require management to make estimates and assumptions which have a material impact on the carrying value of certain assets and liabilities; management considers these to be critical accounting policies.  The estimates and assumptions management uses are based on historical experience and other factors, which management believes to be reasonable under the circumstances.  Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at balance sheet dates and the Company’s results of operations for future reporting periods.

 

Management believes that the allowance for loan losses is the critical accounting policy that requires estimates and assumptions in the preparation of the Company’s financial statements that is most susceptible to significant change. For further information, see “Allowances for Loan Losses” discussed later in this report and in our 2007 Annual Report on Form 10-K, as amended.

Total assets of the Company were $718.2 million as of June 30, 2008, compared to $763.4 million as of December 31, 2007.  The $45.3 million, or 5.9%, decrease in total assets is primarily due to decreases in net loans and federal funds sold of $31.5 million and $25.7 million, respectively, which was partially offset by an increase in investment securities available for sale of $11.1 million.

Investment securities available for sale totaled $67.4 million at June 30, 2008 compared to $56.2 million at December 31, 2007.  The increase is primarily due to the purchase of three securities totaling $31.0 million which was partially offset by a sale of a $9.8 million security and investment principal received of approximately $7.2 million which includes $2.9 million received in connection with the Bank’s previously announced mutual fund redemption.  In addition to the cash received for the mutual fund redemption, the Bank received a pro rata distribution in kind of the securities held by the mutual funds.  In aggregate, the Bank received cash of $2.9 million and 160 securities with a market-value totaling $21.3 million, of which 11 securities totaling approximately $600,000 had a rating of single “A” or less.  The redemption in kind securities received consisted of $149,000 of U.S. Treasury Notes, $7.7 million of agency mortgage-backed securities, and $13.3 million of private label mortgage-backed securities. The Bank’s redemption of its shares in the mutual funds resulted in a charge of approximately $3.6 million (pre-tax).

The charge is the difference between the total purchase price, $27.7 million, the Bank paid for the mutual funds and the market value of the cash and securities, $24.1 million, at the closed of business on June 18, 2008.

A summary of the Company’s investment securities held for sale as of June 30, 2008 and December 31, 2007 is as follows:

 

The Company reviewed individual securities classified as available for sale to determine whether a decline in fair value below the amortized cost basis is other-than-temporary.  If it is probable that the Company will be unable to collect all amounts due according to contractual terms of the debt security not impaired at acquisition, an other-than-temporary impairment shall be considered to have occurred.  If an other-than-temporary impairment occurs, the cost basis of the security would have been written down to its fair value as the new cost basis and the write down accounted for as a realized loss.  Management has determined that the unrealized losses on these securities are temporary in nature.

Gross loans outstanding totaled $595.8 million at June 30, 2008 compared to $626.7 million at December 31, 2007.  The decrease is primarily due to loan payoffs of $80.6 million and sales of $6.2 million of primarily multi-family loans. Partially offsetting the loan payoffs and sales were loan originations and a loan purchase totaling $77.4 million.    From time to time, management utilizes loan sales to manage its liquidity, interest rate risk, loan to deposit ratio, diversification of the loan portfolio, and net balance sheet growth.   The Bank’s pipeline of new loans at June 30, 2008 was $25.1 million.

A summary of the Company’s loan originations, loan sales and principal repayments for the three and six months ended June 30, 2008 and 2007 are as follows:

The following table sets forth the composition of the Company’s loan portfolio in dollar amounts and as a percentage of the portfolio at the dates indicated:

The following table sets forth the repricing characteristics of the Company’s multi-family, commercial real estate and commercial owner occupied loan portfolio in dollar amounts as of June 30, 2008:

 

The allowance for loan losses totaled $5.3 million as of June 30, 2008 and $4.6 million as of December 31, 2007.   The increase in the allowance for loan losses was primarily due to increases in the Bank’s loss factors for loans.  Net nonaccrual loans and other real estate owned were $5.3 million and zero, respectively, at June 30, 2008, compared to $4.2 million and $711,000, respectively, as of December 31, 2007.  The increase in net nonaccrual loans is primarily due to one business loan and two SBA loans totaling $1.2 million.  The allowance for loan losses as a percent of nonaccrual loans decreased to 100% as of June 30, 2008 from 110% at December 31, 2007.  The ratio of nonperforming assets to total assets at June 30, 2008 was 0.74%, compared to 0.64% at December 31, 2007.  

The Bank’s methodology for assessing the appropriateness of the allowance consists of several key elements, including the formula allowance.  The formula allowance is calculated by applying loss factors to all loans held for investment.  The loss factors for each segment of the loan portfolio, except for loans secured by single family residences originated prior to 2002, are derived by using the average of the last 10 years and 15 years historical charge-off rates by loan types for commercial banks and savings institutions headquartered in the state of California as collected by the FDIC as the base rate.  Then the following internal and external risk factors are added to the average:

 

Internal Factors

External Factors

 

 The factor amount for each of the nine above described risked factors are determined by the Senior Portfolio Manager and Chief Credit Officer and approved by the Credit and Investment Review Committee on a quarterly basis.

 

For the homogeneous single-family residential loan portfolio, the ALLL loss factors for pre-2002 originations of first and second deeds of trust loans are based upon the Bank's historical loss experience from charge-offs and real estate owned, and the migration history analysis.   The Bank has tracked its historical losses for the last 40 quarters.  For loans secured with single family residences made after 2001, the factor is calculated using the average of the FDIC charge-off for 10 and 15 years plus the nine credit loss factors mentioned above.

 

Given the composition of the Company’s loan portfolio, the $5.3 million allowance for loan losses was considered adequate to cover losses inherent in the Company’s loan portfolio at June 30, 2008.  However, no assurance can be given that the Company will not, in any particular period, sustain loan losses that exceed the amount reserved, or that subsequent evaluation of the loan portfolio, in light of the prevailing factors, including economic conditions which may adversely affect the Company’s market area or other circumstances, will not require significant increases in the loan loss allowance.  In addition, regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses.  Such agencies may require the Bank to recognize additional provisions to increase the allowance or take charge-offs in anticipation of future losses.

The table below summarizes the activity of the Company’s allowance for loan losses for the three and six months ended June 30, 2008 and 2007:

 

The table below summarizes the Company’s composition of nonperforming assets as of the dates indicated. Net nonperforming assets totaled $5.3 million at June 30, 2008 and $4.9 million as of December 31, 2007, or 0.74% and 0.64% of total assets, respectively.  The increase in nonperforming assets is primarily due to one business loan and two SBA loans totaling $1.2 million. The business loan is partially secured by real estate and all the assets of the business while the two SBA loans are secured with the receivables of the business.

 

Total liabilities of the Company decreased from $702.7 million at December 31, 2007 to $659.3 million at June 30, 2008.  The decrease is primarily due to a decrease in borrowings of $62.2 million which was partially offset by an increase in total deposits of $20.3 million during the six months ended June 30, 2008.

The Company had $235.8 million in FHLB advances and other borrowings as of June 30, 2008, compared to $298.0 million in such borrowings at December 31, 2007.  Advances from the FHLB are collateralized by pledges of certain real estate loans with an aggregate principal balance of $437.6 million at June 30, 2008.  The Bank may borrow up to 45% of its assets under the FHLB line.  As of June 30, 2008, the maximum amount that the Bank may borrow through the FHLB was $344.4 million, based on the Bank’s assets as of March 31, 2008.  The total cost of the Company’s borrowings for the six month period ending June 30, 2008 was 4.26%, a decrease of 96 basis points compared to the same period in 2007.

The Corporation had $10.3 million of subordinated debentures as of June 30, 2008 which were used to fund the issuance of trust preferred securities in 2004.  The total cost of the subordinated debentures for the three months ending June 30, 2008 was 5.47%, compared to 7.95% for the same period in 2007.

Total deposits were $407.0 million as of June 30, 2008, compared to $386.7 million at December 31, 2007, an annualized increase of 10.5%.   The increase in deposits was comprised of increases of $9.7 million in transaction accounts and $21.5 million in retail certificate of deposits, which were partially offset by a decrease in broker certificates of deposits of $11.0 million. The cost of deposits as of June 30, 2008 was 3.24%, compared to 4.30% at December 31, 2007.

 During the three months ended June 30, 2008, our cost of funds was 3.70%, a decrease of 98 basis points compared to the same period in 2007.

Total stockholders’ equity was $58.8 million as of June 30, 2008, compared to $60.7 million at December 31, 2007, a decrease of $1.9 million.   The decrease in equity is primarily due to the repurchase and retirement of 259,704 shares of common stock at a cost $2.1 million, or at an average cost of $7.96 per share

The Company recorded a second quarter net loss of $1.2 million, or $0.25 per diluted share, compared to net income of $1.2 million, or $0.18 per diluted share, for the second quarter of 2007.  The net loss for the six months ended June 30, 2008 was $398,000, or $0.08 per diluted share, compared to net income of $2.1 million, or $0.32 per diluted share in the comparable prior period.  The net loss is the result of a previously disclosed one-time non-cash charge of $3.6 million (pre-tax) associated with the termination of a mutual fund investment held by the Bank.  Excluding this one-time charge, the Company would have recorded net income of $894,000, or $0.14 per diluted share, for the second quarter of 2008 and $1.7 million, or $0.28 per diluted share, for the six-month period ending June 30, 2008.  All diluted earnings per share amounts have been adjusted to reflect the dilutive effect of all warrants and stock options, except for options whose exercise price exceeds the closing market price as of June 30, 2008, outstanding.  See “Item 1.  Financial Statements-Note 6 – Earnings (Loss) Per Share”.

Return on average assets (ROAA) for the three and six months ended June 30, 2008 was (0.67%) and (0.11%), respectively, compared to 0.65% and 0.59% for the same periods in 2007, respectively.  The Company's return on average equity (ROAE) for the three and six months ended June 30, 2008 was (8.41%) and (1.33%), respectively, compared to 7.75% and 7.09%, for the three and six months ended June 30, 2007, respectively.  The Company’s basic and diluted book value per share increased to $12.00 and $9.81, respectively, at June 30, 2008, reflecting an annualized increase of 2.4% and 3.9%, respectively, from December 31, 2007.  The increase is primarily due to the repurchase and retirement of the Company stock at a cost below our book value during the first quarter of 2008.  Options whose exercise price exceeds the closing market price as of June 30, 2008 are excluded from the diluted book value calculation.

The Company’s earnings are derived predominately from net interest income, which is the difference between the interest income earned on interest-earning assets, primarily loans and securities, and the interest expense incurred on interest-bearing liabilities, primarily deposits and borrowings.  The net interest margin is the net interest income divided by the average interest-earning assets.

For the three and six months ended June 30, 2008, net interest income was $5.3 million and $10.1 million, respectively, compared to $4.5 million and $9.0 million for the same periods a year earlier, respectively.  The increase is predominately attributable to a 17.8% and 12.3% decrease in interest expense for the three and six months ended June 30, 2008, respectively, compared to the same periods in 2007. For the three months ended June 30, 2008, interest expense totaled $6.2 million compared to $7.6 million for the same period in 2007.  For the six months ended June 30, 2008, interested expense totaled $13.3 million compared to $15.2 million for the same period in 2007.   The reduction in interest expense for the 2008 periods was primarily due to decreases in deposit expense and borrowing costs associated with the Bank’s Federal Home Loan Bank (“FHLB”) and other borrowings of 98 basis points and 72 basis points, respectively, over the prior year periods.  Partially offsetting the decrease in interest expense was a decrease in interest income for the three and six months ended June 30, 2008 of $552,000 and $730,000, respectively, compared to the same periods in the prior year.  The decrease in interest income was primarily attributable to the repricing of our adjustable rate loans downward. Our weighted average loan yield for the quarter ended June 30, 2008 was 6.83%, a decrease of 54 basis points from 7.37% for the same period a year earlier.

The following table set forth the Company’s average balance sheets and the related weighted average yields and costs on average interest-earning assets and interest-bearing liabilities, for the three and six months ended June 30, 2008 and 2007.  The yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods shown.  Average balances are measured on a daily basis.  The yields and costs include fees that are considered adjustments to yields.