PPBI - Pacific Premier Bancorp Inc. Announces Second Quarter 2020 Results (Unaudited) and a Quarterly Cash Dividend of $0.25 Per Share

July, 27 2020 06:00 AM Pacific Premier Bancorp Inc

Second Quarter 2020 Summary

Net loss of $99.1 million, or $1.41 per diluted share
Pre-provision net revenue ("PPNR") of $60.6 million, excluding $39.3 million of merger-related expense
Net interest margin of 3.79% and core net interest margin of 3.59%
Nonperforming assets represent 0.17% of total assets
Allowance for credit losses (“ACL”) to total loans held for investment of 2.02% at June 30, 2020 excluding Small Business Administration’s Paycheck Protection Program (“PPP”) loans totaling $1.12 billion
Loans held for investment include fair value discount of $144.5 million, or 1.03%, as of June 30, 2020
Non-maturity deposits of $15.1 billion, or 89% of total deposits
Noninterest bearing deposits represent 35% of total deposits
Cost of deposits of 0.32% in the second quarter, compared with 0.48% in the prior quarter
Closed the acquisition of Opus Bank (“Opus”) effective June 1, 2020; systems integration scheduled for first week in October 2020
Completed an offering of subordinated notes for gross proceeds of $150 million

Pacific Premier Bancorp, Inc. (NASDAQ: PPBI) (the “Company” or “Pacific Premier”), the holding company of Pacific Premier Bank (the “Bank”), reported a net loss of $99.1 million, or $1.41 per diluted share, for the second quarter of 2020, compared with net income of $25.7 million, or $0.43 per diluted share, for the first quarter of 2020 and net income of $38.5 million, or $0.62 per diluted share, for the second quarter of 2019. Financial results for the second quarter of 2020 reflected a current period provision for credit losses of $160.6 million, of which $84.4 million was a result of the initial establishment of the Day 1 reserves required by the current expected credit losses (“CECL”) methodology in conjunction with the closing of the Opus acquisition, and $76.2 million primarily related to the deteriorating economic forecast utilized by the Company in its CECL model. Additionally, the Company incurred merger related costs of $39.3 million with the closing of the Opus acquisition during the quarter.

The Company completed the acquisition of Opus effective June 1, 2020. The Company's financial statements for the second quarter include 30 days of Opus's operations, post-merger, which impacts the comparability of the current quarter's results to prior periods. At closing, Opus had $8.32 billion in total assets, $5.94 billion in gross loans and $6.91 billion in total deposits.

For the three months ended June 30, 2020, the Company’s return on average assets (“ROAA”) was (2.61)%, return on average equity (“ROAE”) was (17.76)% and return on average tangible common equity (“ROATCE”) was (29.40)%, compared to 0.89%, 5.05% and 9.96%, respectively, for the first quarter of 2020 and 1.33%, 7.71% and 15.16%, respectively, for the second quarter of 2019. Total assets were $20.5 billion at June 30, 2020, compared with $12.0 billion at March 31, 2020 and $11.8 billion at June 30, 2019. A reconciliation of the non–U.S. GAAP measure of ROATCE to the U.S. GAAP measure of common stockholders' equity is set forth at the end of this press release.

Steven R. Gardner, Chairman, President and Chief Executive Officer of the Company, commented, “Our team is functioning at a high level and driving solid results. Notwithstanding the impact of the merger and COVID-19 related items, we accomplished a great deal during the second quarter.

“On June 1st, we successfully closed the acquisition of Opus, our 11th acquisition and the largest in our history. As a result, we incurred costs in connection with the new accounting standard under CECL, along with the impacts of fair value accounting. As a result, the Company's loss absorbing capacity, loan loss reserves and loan fair value discounts combined, is in excess of 3% of loans held for investment. Given our strong capital position and our expectations around the future performance of the Company, we are pleased to announce the Board's approval of a $0.25 dividend.

“During the second quarter, we initiated a well structured COVID-19 loan modification program to assist those clients that had been temporarily impacted by the pandemic. At quarter-end, we had approximately $2.25 billion, or 14.9%, of the loan portfolio under some form of temporary modification. As of July 24th, we have contacted 63% of the approximately 1,400 customers with loan modifications, and 87% have stated they intend to resume regularly scheduled payments when the modification period expires. Notably, our asset quality metrics remain strong across the spectrum of our loan portfolio.

“Despite the challenges created by the pandemic, the integration of the Pacific Premier and Opus teams is progressing well. The systems conversion will occur in early October at which time we will consolidate 20 branch offices to further drive our overall efficiencies. We are currently on pace to recognize greater cost savings from the acquisition than previously anticipated and, with the addition of key Opus personnel, our team has never been more capable."

Mr. Gardner concluded, “As we enter the second half of 2020, there remains a high level of economic uncertainty, but we are well positioned from a capital, earnings and risk perspective to take advantage of opportunities as they arise.”

FINANCIAL HIGHLIGHTS



Three Months Ended


June 30,

March 31,

June 30,


2020

2020

2019
Financial Highlights

(Dollars in thousands, except per share data)
Net (loss) income

$
(99,091
)

$
25,740


$
38,527

Diluted (loss) earnings per share

(1.41
)

0.43


0.62

Pre-provision net revenue ⁽¹⁾

$
60,566


$
58,743


$
53,034

Return on average assets

(2.61
)%

0.89
%

1.33
%
Return on average equity

(17.76
)

5.05


7.71

Return on average tangible common equity ⁽¹⁾

(29.40
)

9.96


15.16

Pre-provision net revenue on average assets ⁽¹⁾

1.60


2.03


1.83

Net interest margin

3.79


4.24


4.28

Core net interest margin ⁽¹⁾

3.59


4.08


4.08

Cost of deposits

0.32


0.48


0.73

Efficiency ratio ⁽²⁾

52.9


52.6


51.1

Total assets

$
20,517,074


$
11,976,209


$
11,783,781

Total deposits

16,976,693


9,093,072


8,861,922

Non-maturity deposits as a percent of total deposits

89
%

88
%

82
%
Book value per share

$
28.14


$
33.40


$
32.80

Tangible book value per share ⁽¹⁾

17.58


18.60


17.92

Total risk-based capital ratio

15.69
%

14.23
%

13.54
%

^{______________________________}

⁽¹⁾

A reconciliation of the non-U.S. GAAP measures of pre-provision net revenue, return on average tangible common equity, pre-provision net revenue on average assets, core net interest margin and tangible book value per share to the U.S. GAAP measures of net income, common stockholders' equity and book value are set forth at the end of this press release.

⁽²⁾

Represents the ratio of noninterest expense less other real estate owned operations, core deposit intangible amortization and merger-related expense to the sum of net interest income before provision for credit losses and total noninterest income, less gains/(loss) on sale of securities, gain/(loss) from other real estate owned and gain/(loss) from debt extinguishment.

INCOME STATEMENT HIGHLIGHTS

Net Interest Income and Net Interest Margin

Net interest income totaled $130.3 million in the second quarter of 2020, an increase of $21.1 million, or 19.3%, from the first quarter of 2020. The increase in net interest income reflected higher average interest-earning assets of $3.47 billion, primarily related to the acquisition of Opus, which added $5.94 billion in gross loans, or $5.81 billion of loans after purchase accounting adjustments, higher accretion income, and a lower cost of funds driven by a lower cost of deposits and an increase in noninterest-bearing deposits, all of which was offset by lower average loan and investment yields.

The net interest margin for the second quarter of 2020 was 3.79%, compared with 4.24% in the prior quarter. Our core net interest margin, which excludes the impact of loan accretion income of $5.8 million, compared to $4.1 million in the prior quarter, certificates of deposit mark-to-market amortization and one-time adjustments, decreased 48 basis points to 3.59%, compared to 4.08% in the prior quarter, primarily attributable to lower loan and investment yields, partially offset by a lower cost of deposits. The lower loan yields were driven primarily by the addition of the Opus loan portfolio, the origination and retention of the Small Business Administration (“SBA”) PPP loans, which have a coupon rate of 1%, as well as the impact of loan repricing as a result of the Federal Reserve Board's federal funds rate decreases in March 2020. The lower cost of funds was driven principally by lower rates paid on deposits and increased noninterest-bearing deposits, partially offset by the higher rates paid on Opus's deposits.

Net interest income for the second quarter of 2020 increased $19.7 million, or 17.8%, compared to the second quarter of 2019. The increase was attributable to an increase in average interest-earning assets of $3.47 billion, which primarily resulted from the acquisition of Opus in the second quarter of 2020, as well as organic loan growth (including SBA PPP loans) and a lower cost of funds, partially offset by lower loan and investment yields.

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCES AND YIELD DATA





Three Months Ended


June 30, 2020

March 31, 2020

June 30, 2019


Average Balance

Interest Income/Expense

Average Yield/ Cost

Average Balance

Interest Income/Expense

Average Yield/ Cost

Average Balance

Interest Income/Expense

Average Yield/ Cost
Assets

(Dollars in thousands)
Cash and cash equivalents

$
796,761


$
215


0.11
%

$
215,746


$
216


0.40
%

$
187,963


$
435


0.93
%
Investment securities

1,792,432


10,568


2.36


1,502,572


10,308


2.74


1,396,585


10,119


2.90

Loans receivable, net ^{(1) (2)}

11,242,721


133,339


4.77


8,645,252


113,265


5.27


8,779,440


121,860


5.57

Total interest-earning assets

$
13,831,914


$
144,122


4.19


$
10,363,570


$
123,789


4.80


$
10,363,988


$
132,414


5.12




















Liabilities


















Interest-bearing deposits

$
7,317,675


$
9,655


0.53


$
4,956,839


$
10,487


0.85


$
5,345,388


$
15,991


1.20

Borrowings

431,181


4,175


3.89


552,741


4,127


3.00


675,345


5,782


3.43

Total interest-bearing liabilities

$
7,748,856


$
13,830


0.72


$
5,509,580


$
14,614


1.07


$
6,020,733


$
21,773


1.45

Noninterest-bearing deposits

$
4,970,812






$
3,898,399






$
3,426,508





Net interest income



$
130,292






$
109,175






$
110,641



Net interest margin ⁽³⁾





3.79






4.24






4.28

Cost of deposits





0.32






0.48






0.73

Cost of funds ⁽⁴⁾





0.44






0.62






0.92

Ratio of interest-earning assets to interest-bearing liabilities

178.50






188.10






172.14

^{______________________________}

⁽¹⁾

Average balance includes loans held for sale and nonperforming loans and is net of deferred loan origination fees/costs and discounts/premiums.

⁽²⁾

Interest income includes net discount accretion of $5.8 million, $4.1 million and $5.0 million, respectively.

⁽³⁾

Represents annualized net interest income divided by average interest-earning assets.

⁽⁴⁾

Represents annualized total interest expense divided by the sum of average total interest-bearing liabilities and noninterest-bearing deposits.

Provision for Credit Losses

Provision for credit losses for the second quarter of 2020 was $160.6 million, an increase of $135.2 million from the first quarter of 2020 and an increase of $160.3 million from the second quarter of 2019. The increase, which included a $150.3 million provision for loan losses and a $10.4 million provision for unfunded commitments, was primarily driven by unfavorable changes in economic forecasts employed in the Bank's CECL model and the Day 1 provision for credit losses of $84.4 million resulting from the acquisition of Opus. The Opus acquisition Day 1 provision of credit losses does not include $21.2 million of reserves established for the purchased credit deteriorated (“PCD”) loans. The provision for unfunded commitments in the second quarter of 2020 was $10.4 million, $8.6 million of which represent the provision related to the unfunded commitments from the Opus acquisition, compared with a provision of $72,000 in the first quarter of 2020 and a reduction of $408,000 in the second quarter of 2019.



Three Months Ended


June 30,

March 31,

June 30,


2020

2020

2019
Provision for Credit Losses

(Dollars in thousands)
Provision for loan losses

$
150,257


$
25,382


$
742

Provision for unfunded commitments

10,378


72


(408
)
Total provision for credit losses

$
160,635


$
25,454


$
334

Noninterest Income

Noninterest income for the second quarter of 2020 was $6.9 million, a decrease of $7.6 million, or 52.3%, from the first quarter of 2020. The decrease was primarily due to a $7.8 million decrease in net gain from sales of investment securities, and a $2.8 million decrease in net gain from the sales of loans, partially offset by $2.4 million of trust administrative fees from Pacific Premier Trust, the IRA custodian trust company division of Pacific Premier Bank that was acquired with the Opus Bank acquisition, and a $899,000 increase in other income, primarily due to $658,000 of recoveries from previously charged-off Opus loans.

During the second quarter of 2020, the Bank sold $15.4 million of other loans for a net loss of $2.0 million, compared with sales of $15.9 million of SBA and U.S. Department of Agriculture (“USDA”) loans for a net gain of $1.2 million and $23.0 million of other loans for a net loss of $404,000 during the prior quarter.

Noninterest income for the second quarter of 2020 increased $574,000, or 9.1%, compared to the second quarter of 2019. The increase was primarily related to $2.4 million of trust administrative fees, a $1.7 million increase in other income and a $463,000 increase in earnings on bank owned life insurance (“BOLI”) primarily due to the addition of BOLI from Opus, partially offset by a $2.9 million decrease in net gain from the sales of loans and a $688,000 decrease in debit card interchange fee income, primarily the result of the Bank becoming a non-exempt institution, effective July 1, 2019, under the Durbin Amendment that regulates debit card interchange fee income due to the Bank exceeding $10 billion in total assets.

The decrease in net gain from sales of loans for the second quarter of 2020 compared to the same period last year was primarily due to the realization of a $2.0 million loss on the sales of other loans in the second quarter of 2020 compared with a loss of $1.3 million in the second quarter of 2019, and lower net gain from sales of SBA and USDA loans in the second quarter of 2020 compared to the second quarter of 2019. The Bank sold $24.4 million of SBA loans for a net gain of $2.2 million during the second quarter of 2019.



Three Months Ended


June 30,

March 31,

June 30,


2020

2020

2019
Noninterest Income

(Dollars in thousands)
Loan servicing fees

$
434


$
480


$
409

Service charges on deposit accounts

1,399


1,715


1,441

Other service fee income

297


311


363

Debit card interchange fee income

457


348


1,145

Earnings on BOLI

1,314


1,336


851

Net (loss) gain from sales of loans

(2,032
)

771


902

Net (loss) gain from sales of investment securities

(21
)

7,760


212

Trust administrative fees

2,397


—


—

Other income

2,653


1,754


1,001

Total noninterest income

$
6,898


$
14,475


$
6,324

Noninterest Expense

Noninterest expense totaled $116.0 million for the second quarter of 2020, an increase of $49.3 million, or 74.0%, compared to the first quarter of 2020. The increase was primarily due to merger-related expense of $39.3 million for the second quarter of 2020 relating to the Opus acquisition. Excluding merger-related expense, noninterest expense totaled $76.6 million, an increase of $11.7 million, or 18.1%, compared to the first quarter of 2020 driven primarily by a $8.6 million increase in compensation and benefits, a $1.3 million increase in premises and occupancy, and a $1.2 million increase in data processing, all of which was primarily the result of the addition of operations, personnel and branches retained from the acquisition of Opus.

Noninterest expense increased by $52.0 million, or 81.4%, compared to the second quarter of 2019. The increase was primarily due to a $39.3 million merger-related expense related to the Opus acquisition, a $9.2 million increase in compensation and benefits, a $2.0 million increase in premises and occupancy, a $1.4 million increase in data processing and a $1.3 million increase in deposit expense as a result of the addition of operations, personnel and branches retained from the acquisition of Opus.



Three Months Ended


June 30,

March 31,

June 30,


2020

2020

2019
Noninterest Expense

(Dollars in thousands)
Compensation and benefits

$
43,011


$
34,376


$
33,847

Premises and occupancy

9,487


8,168


7,517

Data processing

4,465


3,253


3,036

Other real estate owned operations, net

9


14


62

FDIC insurance premiums

846


367


740

Legal, audit and professional expense

3,094


3,126


3,545

Marketing expense

1,319


1,412


1,425

Office, telecommunications and postage expense

1,533


1,103


1,311

Loan expense

823


822


1,005

Deposit expense

4,958


4,988


3,668

Merger-related expense

39,346


1,724


5

CDI amortization

4,040


3,965


4,281

Other expense

3,039


3,313


3,494

Total noninterest expense

$
115,970


$
66,631


$
63,936

Income Tax

For the second quarter of 2020, our income tax benefit totaled $40.3 million, resulting in an effective tax rate of (28.9%), compared with income tax expense of $5.8 million and an effective tax rate 18.5% for the first quarter of 2020, and income tax expense of $14.2 million and an effective tax rate of 26.9% for the second quarter of 2019. The income tax benefit was impacted by the significant pre-tax loss recorded for the second quarter, driven by the provision for credit losses and our merger-related costs associated with the acquisition of Opus.

BALANCE SHEET HIGHLIGHTS

Loans

Loans held for investment totaled $15.08 billion at June 30, 2020, an increase of $6.33 billion, or 72.3%, from March 31, 2020, and an increase of $6.31 billion, or 71.9%, from June 30, 2019. The increases were primarily impacted by the acquisition of Opus, which added $5.94 billion in gross loans, or $5.81 billion of loans held for investment after purchase accounting adjustments, as well as higher new loan commitments and fundings, partially offset by higher loan prepayments and payoffs, and lower line utilization in the second quarter of 2020 when compared to the prior quarter. Business line utilization rates decreased to 37.9% at the end of the second quarter of 2020, compared with 50.6% at the end of the first quarter of 2020 and 42.4% at the end of second quarter of 2019.

During the second quarter of 2020, the Bank generated $1.21 billion of new loan commitments and $1.19 billion of new loan fundings, primarily consisting of SBA PPP loans of $1.13 billion, compared with $443.7 million in new loan commitments and $353.9 million in new loan fundings for the first quarter of 2020, and $568.2 million in new loan commitments and $394.8 million in new loan fundings for the second quarter of 2019.

At June 30, 2020, the ratio of loans held for investment to total deposits was 88.8%, compared with 96.3% and 99.0% at March 31, 2020 and June 30, 2019, respectively.

The following table presents the composition of the loan portfolio as of the dates indicated:



June 30,

March 31,

June 30,


2020

2020

2019


(Dollars in thousands)
Investor loans secured by real estate






Commercial real estate (“CRE”) non-owner-occupied

$
2,783,692


$
2,040,198


$
2,118,829

Multifamily

5,225,557


1,625,682


1,519,110

Construction and land

357,426


377,525


543,683

SBA secured by real estate ⁽¹⁾

59,482


61,665


65,773

Total investor loans secured by real estate

8,426,157


4,105,070


4,247,395

Business loans secured by real estate ⁽²⁾






CRE owner-occupied

2,170,154


1,887,632


1,835,411

Franchise real estate secured

364,647


371,428


323,445

SBA secured by real estate ⁽³⁾

85,542


83,640


93,257

Total business loans secured by real estate

2,620,343


2,342,700


2,252,113

Commercial loans ⁽⁴⁾






Commercial and industrial

2,051,313


1,458,969


1,426,274

Franchise non-real estate secured

523,755


547,793


537,490

SBA non-real estate secured

21,057


16,265


19,282

SBA PPP

1,128,780


—


—

Total commercial loans

3,724,905


2,023,027


1,983,046

Retail loans






Single family residential ⁽⁵⁾

265,170


237,180


248,611

Consumer

46,309


46,892


40,773

Total retail loans

311,479


284,072


289,384

Gross loans held for investment ⁽⁶⁾

15,082,884


8,754,869


8,771,938

Allowance for credit losses for loans held for investment ⁽⁷⁾

(282,271
)

(115,422
)

(35,026
)
Loans held for investment, net

$
14,800,613


$
8,639,447


$
8,736,912








Loans held for sale, at lower of cost or fair value

$
1,007


$
111


$
8,529

^{______________________________}

⁽¹⁾

SBA loans that are collateralized by hotel/motel real property.

⁽²⁾

Loans to businesses that are collateralized by real estate where the operating cash flow of the business is the primary source of repayment.

⁽³⁾

SBA loans that are collateralized by real property other than hotel/motel real property.

⁽⁴⁾

Loans to businesses where the operating cash flow of the business is the primary source of repayment.

⁽⁵⁾

Single family residential includes home equity lines of credit, as well as second trust deeds.

⁽⁶⁾

Includes unaccreted fair value net purchase discounts of $144.5 million, $35.9 million and $52.0 million as of June 30, 2020, March 31, 2020 and June 30, 2019, respectively.

⁽⁷⁾

The allowance for credit losses as of December 31, 2019 was accounted for under ASC 450 and ASC 310, which is reflective of probable incurred losses as of the balance sheet date. Effective January 1, 2020, the allowance for credit losses is accounted for under ASC 326, which is reflective of estimated expected lifetime credit losses.

The total end-of-period weighted average interest rate on loans, excluding fees and discounts, at June 30, 2020 was 4.12%, compared to 4.76% at March 31, 2020 and 5.11% at June 30, 2019. The quarter-over-quarter and year-over-year decreases reflect the impact of lower rates on new originations as well as the repricing of loans as a result of the Federal Reserve Board's federal funds rate decreases and the impact of the 1% SBA PPP loans. Excluding the SBA PPP loans, the end of period weighted average interest rate on loans, excluding fees and discounts, at June 30, 2020 was 4.46%.

The following table presents the composition of new organic loan commitments originated during the quarters indicated:



June 30,

March 31,

June 30,


2020

2020

2019


(Dollars in thousands)
Investor loans secured by real estate






CRE non-owner-occupied

$
11,811


$
111,980


$
115,357

Multifamily

24,425


39,831


35,061

Construction and land

6,210


26,525


65,684

SBA secured by real estate ⁽¹⁾

—


2,131


2,350

Total investor loans secured by real estate

42,446


180,467


218,452

Business loans secured by real estate ⁽²⁾






CRE owner-occupied

17,594


115,774


80,235

Franchise real estate secured

—


21,577


24,614

SBA secured by real estate ⁽³⁾

1,204


7,119


3,669

Total business loans secured by real estate

18,798


144,470


108,518

Commercial loans ⁽⁴⁾






Commercial and industrial

23,782


97,381


159,626

Franchise non-real estate secured

—


12,414


68,352

SBA non-real estate secured

315


1,263


8,602

SBA PPP

1,124,485


—


—

Total commercial loans

1,148,582


111,058


236,580

Retail loans






Single family residential ⁽⁵⁾

2,137


6,052


3,140

Consumer

195


1,635


1,551

Total retail loans

2,332


7,687


4,691

Total loan commitments

$
1,212,158


$
443,682


$
568,241

^{______________________________}

⁽¹⁾

SBA loans that are collateralized by hotel/motel real property.

⁽²⁾

Loans to businesses that are collateralized by real estate where the operating cash flow of the business is the primary source of repayment.

⁽³⁾

SBA loans that are collateralized by real property other than hotel/motel real property.

⁽⁴⁾

Loans to businesses where the operating cash flow of the business is the primary source of repayment.

⁽⁵⁾

Single family residential includes home equity lines of credit, as well as second trust deeds.

The weighted average interest rate on new loan production was 1.21% in the second quarter of 2020 compared with 4.59% in the first quarter of 2020 and 5.42% in the second quarter of 2019. The decrease in weighted average interest rate during the second quarter of 2020 was primarily due to the origination of $1.12 billion in SBA PPP loans with a 1% interest rate. Excluding the SBA PPP loans, the weighted average interest rate on new loan production at June 30, 2020 was 3.97%.

Asset Quality and Allowance for Credit Losses

Effective January 1, 2020, the Company adopted the new CECL accounting standard, which replaces the incurred loss methodology, and recorded a cumulative-effect “Day 1” adjustment of $55.7 million for funded loans to the beginning balance as of January 1, 2020. At June 30, 2020, our allowance for credit losses (“ACL”) on loans held for investment was $282.3 million, an increase of $166.8 million, or 144.6%, from March 31, 2020 and an increase of $247.2 million, or 705.9%, from June 30, 2019. The increase was primarily due to the provision for loan losses of $150.3 million and an initial ACL of $21.2 million with respect to PCD loans from the acquisition of Opus. The provision increase was principally the result of the Opus acquisition and the unfavorable changes in economic forecasts employed in the Bank's CECL model. No ACL was allocated to SBA PPP loans as they are fully guaranteed.

The CECL accounting standard requires the Company to provide for an allowance for credit losses for non-purchased credit deteriorated loans at the time of acquisition. The Company recorded approximately $84.4 million in provision for credit losses for loans acquired and off-balance sheet commitments assumed in the Opus acquisition. Of this amount, approximately $75.9 million related to loans held for investment and $8.6 million related to off-balance sheet commitments. The initial ACL for PCD loans is not established through a charge to the provision for credit losses, but rather through an initial adjustment to the loan’s amortized cost.

During the second quarter of 2020, the Company incurred $4.7 million of net charge-offs, compared to $1.3 million and $3.6 million during the first quarter of 2020 and the second quarter of 2020, respectively.

The following table provides the allocation of the ACL for loans held for investment as well as the activity in the ACL attributed to various segments in the loan portfolio as of and for the period indicated:



Three Months Ended June 30, 2020


Beginning ACL Balance

Initial ACL Recorded for PCD Loans

Charge-offs

Recoveries

Provision for Credit Losses

Ending ACL Balance


(Dollars in thousands)
Investor loans secured by real estate












CRE non-owner occupied

$
15,896


$
3,025


$
—


$
—


$
44,086


$
63,007

Multifamily

14,722


8,710


—


—


40,079


63,511

Construction and land

9,222


2,051


—


—


7,531


18,804

SBA secured by real estate ⁽¹⁾

935


—


(554
)

—


1,629


2,010

Business loans secured by real estate ⁽²⁾












CRE owner-occupied

26,793


3,766


—


11


17,643


48,213

Franchise real estate secured

7,503


—


—


—


5,557


13,060

SBA secured by real estate ⁽³⁾

4,044


235


—


3


86


4,368

Commercial loans ⁽⁴⁾












Commercial and industrial

15,742


2,325


(2,286
)

21


26,165


41,967

Franchise non-real estate secured

16,616


—


(1,227
)

—


6,287


21,676

SBA non-real estate secured

516


924


(556
)

(2
)

(282
)

600

Retail loans












Single family residential ⁽⁵⁾

1,137


—


(62
)

1


403


1,479

Consumer loans

2,296


206


—


1


1,073


3,576

Totals

$
115,422


$
21,242


$
(4,685
)

$
35


$
150,257


$
282,271

______________________________

⁽¹⁾

SBA loans that are collateralized by hotel/motel real property.

⁽²⁾

Loans to businesses that are collateralized by real estate where the operating cash flow of the business is the primary source of repayment.

⁽³⁾

SBA loans that are collateralized by real property other than hotel/motel real property.

⁽⁴⁾

Loans to businesses where the operating cash flow of the business is the primary source of repayment.

⁽⁵⁾

Single family residential includes home equity lines of credit, as well as second trust deeds.

The ratio of allowance for credit losses to loans held for investment at June 30, 2020 was 2.02%, excluding SBA PPP loans, compared to 1.32% and 0.40%, at March 31, 2020 and June 30, 2019, respectively. Under the guidance of ASC 820: Fair Value Measurements and Disclosures, the fair value net discount on loans acquired through total bank acquisitions was $144.5 million, or 1.03% of total loans held for investment excluding SBA PPP loans, as of June 30, 2020, compared to $35.9 million, or 0.41% of total loans held for investment, as of March 31, 2020, and $52.0 million, or 0.59% of total loans held for investment, as of June 30, 2019.

Nonperforming assets totaled $34.2 million, or 0.17% of total assets, at June 30, 2020, compared with $21.1 million, or 0.18% of total assets at March 31, 2020 and $7.7 million, or 0.07% of total assets, at June 30, 2019. During the second quarter of 2020, nonperforming loans increased $13.2 million to $33.8 million and other real estate owned decreased to $386,000. Total loan delinquencies were $38.2 million, or 0.25% of loans held for investment, at June 30, 2020, compared to $28.9 million, or 0.33% of loans held for investment, at March 31, 2020, and $13.5 million, or 0.15% of loans held for investment, at June 30, 2019. The increase in nonperforming loans was primarily due to the addition of six loans totaling $11.3 million, primarily CRE owner-occupied and CRE non-owner occupied, that were 90 days or more past due, as well as the addition of eight loans totaling $3.5 million consisting of commercial real estate and single family residential loans acquired in connection with the Opus acquisition.

Interest is not typically accrued on loans 90 days or more past due or when, in the opinion of management, there is reasonable doubt as to the timely collection of principal or interest. There were no loans 90 days or more past due and still accruing interest at June 30, 2020. Troubled debt restructured loans totaled $700,000 at June 30, 2020, $2.3 million at March 31, 2020 and none at June 30, 2019. At June 30, 2020, 1,461 loans with a total of $2.24 billion were modified due to COVID-19 hardship under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).



June 30,

March 31,

June 30,


2020

2020

2019
Asset Quality

(Dollars in thousands)
Nonperforming loans

$
33,825


$
20,610


$
7,659

Other real estate owned

386


441


35

Nonperforming assets

$
34,211


$
21,051


$
7,694








Total classified assets ⁽¹⁾

$
90,334


$
54,586


$
38,492

Allowance for credit losses

282,271


115,422


35,026

Allowance for credit losses as a percent of total nonperforming loans

835
%

560
%

457
%
Nonperforming loans as a percent of loans held for investment

0.22


0.24


0.09

Nonperforming assets as a percent of total assets

0.17


0.18


0.07

Classified loans to total loans held for investment

0.60


0.62


0.44

Classified assets to total assets

0.44


0.46


0.33

Net loan charge-offs for the quarter ended

$
4,650


$
1,344


$
3,572

Net loan charge-offs for quarter to average total loans

0.04
%

0.02
%

0.04
%
Allowance for credit losses to loans held for investment, excluding SBA PPP loans ⁽²⁾

2.02


1.32


0.40

Delinquent Loans






30 - 59 days

$
6,248


$
8,285


$
3,407

60 - 89 days

4,133


1,502


801

90+ days

27,807


19,084


9,284

Total delinquency

$
38,188


$
28,871


$
13,492

Delinquency as a percentage of loans held for investment

0.25
%

0.33
%

0.15
%

^{______________________________}

⁽¹⁾

Includes substandard loans and other real estate owned

⁽²⁾

At June 30, 2020, 56% of loans held for investment include an aggregate fair value net discount of $144.5 million, or 1.03% of loans held for investment excluding SBA PPP loans. At March 31, 2020, 34% of loans held for investment include an aggregate fair value net discount of $35.9 million, or 0.41% of loans held for investment. At June 30, 2019, 44% of loans held for investment include an aggregate fair value net discount of $52.0 million, or 0.59% of loans held for investment.

Investment Securities

Investment securities totaled $2.37 billion at June 30, 2020, an increase of $996.3 million, or 72.6%, from March 31, 2020, and an increase of $1.07 billion, or 82.0%, from June 30, 2019. The increase in the second quarter of 2020 compared to the prior quarter was primarily the result of $829.9 million of investment securities acquired in connection with the acquisition from Opus, $387.9 million in purchases and a $19.4 million increase in mark-to-market fair value adjustment, partially offset by $191.1 million in sales and $49.7 million in principal payments, amortization and redemptions. The Company’s assessment of held-to-maturity and available-for-sale investment securities indicated that no ACL was required as of January 1, 2020 and June 30, 2020. The increase compared to the same period last year was primarily the result of $981.7 million in purchases, $829.9 million acquired from Opus and a $50.2 million increase in mark-to-market fair value adjustment, partially offset by $655.4 million in sales and $139.2 million in principal payments, amortization and redemptions.

Deposits

At June 30, 2020, deposits totaled $16.98 billion, an increase of $7.88 billion, or 86.7%, from March 31, 2020 and an increase of $8.11 billion, or 91.6%, from June 30, 2019. At June 30, 2020, non-maturity deposits totaled $15.06 billion, or 88.7% of total deposits, an increase of $7.04 billion, or 87.7%, from March 31, 2020 and an increase $7.76 billion, or 106.2%, from June 30, 2019. During the second quarter of 2020, deposit increases included $2.56 billion in money market and savings deposits, $2.52 billion in interest-checking, $1.96 billion in noninterest-bearing deposits, $754.3 million in retail certificates of deposits and $91.9 million in broker certificate of deposits as compared to the first quarter of 2020. The increases during the second quarter of 2020 were primarily due to the acquisition of Opus, which contributed $6.92 billion of deposits after purchasing accounting adjustments, and an increase of $942.8 million noninterest-bearing deposits, reflecting SBA PPP loans funded in the Bank's clients' demand deposit accounts, and liquidity maintained by customers due to the economic impact of the pandemic.

The weighted average cost of deposits for the three-month period ending June 30, 2020 was 0.32%, compared to 0.48% for the three-month period ending March 31, 2020, and 0.73% for the three-month period ending June 30, 2019. The decrease in the weighted average cost of deposits in the second quarter of 2020 compared to the prior quarter was principally driven by lower pricing across all deposit product categories, favorably impacted by Federal Reserve Board's federal funds rate decreases, as well as higher average noninterest-bearing deposit balances.

The end of period weighted average rate of deposits at June 30, 2020 was 0.34%.



June 30,

March 31,

June 30,


2020

2020

2019
Deposit Accounts

(Dollars in thousands)
Noninterest-bearing checking

$
5,899,442


$
3,943,260


$
3,480,312

Interest-bearing:






Checking

3,098,454


577,966


548,314

Money market/savings

6,060,031


3,499,305


3,272,511

Retail certificates of deposit

1,651,976


897,680


1,065,207

Wholesale/brokered certificates of deposit

266,790


174,861


495,578

Total interest-bearing

11,077,251


5,149,812


5,381,610

Total deposits

$
16,976,693


$
9,093,072


$
8,861,922








Cost of deposits

0.32
%

0.48
%

0.73
%
Noninterest-bearing deposits as a percentage of total deposits

34.8


43.4


39.3

Non-maturity deposits as a percent of total deposits

88.7


88.2


82.4

Core deposits as a percent of total deposits ⁽¹⁾

94.9


93.0


88.5

^{______________________________}

⁽¹⁾

Core deposits are all transaction accounts and non-brokered certificates of deposit less than $250,000.

Borrowings

At June 30, 2020, total borrowings amounted to $542.4 million, a decrease of $193.9 million, or 26.3%, from March 31, 2020 and a decrease of $262.1 million, or 32.6%, from June 30, 2019. Total borrowings at June 30, 2020 included $41.0 million of Federal Home Loan Bank of San Francisco (“FHLB”) advances and $501.4 million of subordinated debt. At June 30, 2020, total borrowings represented 2.6% of total assets, compared to 6.2% and 6.8%, as of March 31, 2020 and June 30, 2019, respectively. The decrease in borrowings at June 30, 2020 as compared to March 31, 2020 and June 30, 2019 was primarily due to lower FHLB advances, partially offset by the issuance in June 2020 of $150 million in aggregate principal amount of the Company's 5.375% Fixed-to-Floating Rate Subordinated Notes (the “Notes”) due June 30, 2030, as well as the $135 million aggregate principal amount of subordinated notes assumed by the Bank in connection with the acquisition of Opus in the second quarter of 2020.

Capital Ratios

At June 30, 2020, our ratio of tangible common equity to total assets was 8.50%, compared with 10.06% at March 31, 2020 and 9.96% at June 30, 2019, with a tangible book value per share of $17.58, compared with $18.60 at March 31, 2020 and $17.92 at June 30, 2019.

The Company implemented the CECL model commencing January 1, 2020 and elected to phase in the full effect of CECL on regulatory capital over the five-year transition period. At June 30, 2020, the Company exceeded all regulatory minimum capital adequacy requirements, inclusive of the fully-phased in capital conservation buffer, with a tier 1 leverage ratio of 12.00%, common equity tier 1 capital ratio of 11.32%, tier 1 capital ratio of 11.32% and total capital ratio of 15.69%.

At June 30, 2020, the Bank had a tier 1 leverage ratio of 13.49%, common equity tier 1 capital ratio of 12.73%, tier 1 capital ratio of 12.73% and total capital ratio of 14.81%. These capital ratios each exceeded the “well capitalized” standards defined by the federal banking regulators of 7.00% for tier 1 leverage ratio, 6.5% for common equity tier 1 capital ratio, 8.50% for tier 1 capital ratio and 10.50% for total capital ratio inclusive of the fully phased-in capital conservation buffer.



June 30,

March 31,

June 30,
Capital Ratios

2020

2020

2019
Pacific Premier Bancorp, Inc. Consolidated






Tier 1 leverage ratio

12.00
%

10.68
%

10.32
%
Common equity tier 1 capital ratio

11.32


11.59


10.82

Tier 1 capital ratio

11.32


11.66


11.07

Total capital ratio

15.69


14.23


13.54

Tangible common equity ratio ⁽¹⁾

8.50


10.06


9.96








Pacific Premier Bank


Tier 1 leverage ratio

13.49
%

12.54
%

11.66
%
Common equity tier 1 capital ratio

12.73


13.70


12.51

Tier 1 capital ratio

12.73


13.70


12.51

Total capital ratio

14.81


14.28


12.90








Share Data






Book value per share

$
28.14


$
33.40


$
32.80

Tangible book value per share ⁽¹⁾

17.58


18.60


17.92

Dividend per share

0.25


0.25


0.22

Closing stock price ⁽²⁾

21.68


18.84


30.88

Shares issued and outstanding

94,350,902


59,975,281


60,509,994

Market capitalization ⁽²⁾⁽³⁾

$
2,045,528


$
1,129,934


$
1,868,549

^{______________________________}

⁽¹⁾

A reconciliation of the non-U.S. GAAP measures of tangible common equity and tangible book value per share to the U.S. GAAP measures of common stockholders' equity and book value per share is set forth below.

⁽²⁾

As of the last trading day prior to period end.

⁽³⁾

Dollars in thousands.

Dividend and Stock Repurchase Program

On July 24, 2020, the Company's Board of Directors declared a $0.25 per share dividend, payable on August 14, 2020 to stockholders of record as of August 7, 2020. In December 2019, the Company’s Board of Directors approved a new stock repurchase program, which authorized the repurchase up to $100 million of its common stock. To date, the Company had not repurchased any shares under the new stock repurchase program and has suspended the stock repurchase program indefinitely.

Subsequent events

On July 21, 2020, the Company entered into a contract to sell its entire $1.13 billion SBA PPP loan portfolio to a non-bank, seasoned and experienced lender and servicer of SBA loans. The sale is anticipated to close by July 31, 2020.

Conference Call and Webcast

The Company will host a conference call at 9:00 a.m. PT / 12:00 p.m. ET on July 27, 2020 to discuss its financial results. Analysts and investors may participate in the question-and-answer session. A live webcast will be available on the Webcasts page of the Company's investor relations website. An archived version of the webcast will be available in the same location shortly after the live call has ended. The conference call can be accessed by telephone at (866) 290-5977 and asking to be joined to the Pacific Premier Bancorp conference call. Additionally, a telephone replay will be made available through August 3, 2020 at (877) 344-7529, conference ID 10145590.

About Pacific Premier Bancorp, Inc.

Pacific Premier Bancorp, Inc. (Nasdaq: PPBI) is the parent company of Pacific Premier Bank, a California-based commercial bank focused on serving small, middle-market, and corporate businesses throughout the western United States in major metropolitan markets in California, Washington, Oregon, Arizona, and Nevada. Founded in 1983, Pacific Premier Bank has grown to become one of the largest banks in the western region of the United States, with approximately $20.5 billion in assets. Pacific Premier Bank provides banking products and services, including deposit accounts, digital banking, and treasury management services, to businesses, professionals, entrepreneurs, real estate investors, and nonprofit organizations. Pacific Premier Bank also offers a wide array of loan products, such as commercial business loans, lines of credit, SBA loans, commercial real estate loans, agribusiness loans, franchise lending, home equity lines of credit, and construction loans. Pacific Premier Bank offers commercial escrow services through its Commerce Escrow division and facilitates 1031 Exchange transactions through its RPM Exchange division. Pacific Premier Bank offers clients IRA custodial services through its Pacific Premier Trust division, which has approximately $14 billion of assets under custody and approximately 44,000 client accounts comprised of self-directed investors, financial institutions, capital syndicators, and financial advisors. Additionally, Pacific Premier Bank provides nationwide customized banking solutions to Home Owners' Associations and Property Management companies. Pacific Premier Bank is an Equal Housing Lender and Member FDIC. For additional information about Pacific Premier Bancorp, Inc. and Pacific Premier Bank, visit our website: www.ppbi.com.

FORWARD-LOOKING COMMENTS

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 including, without limitation, plans, strategies and goals, and statements about the Company’s expectations regarding revenue and asset growth, financial performance and profitability, loan and deposit growth, yields and returns, loan diversification and credit management, stockholder value creation, tax rates and the impact of the acquisition of Opus and other acquisitions.

Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company. There can be no assurance that future developments affecting the Company will be the same as those anticipated by management. The Company cautions readers that a number of important factors could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements. The COVID-19 pandemic is adversely affecting us, our customers, counterparties, employees and third-party service providers, and given its ongoing and dynamic nature, the ultimate extent of the impacts on our business, financial position, results of operations, liquidity and prospects is uncertain. Continued deterioration in general business and economic conditions, including further increases in unemployment rates, or turbulence in domestic or global financial markets could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and further increase stock price volatility, which could result in impairment to our goodwill in future periods. In addition, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, could affect us in substantial and unpredictable ways, including the potential adverse impact of loan modifications and payment deferrals implemented consistent with recent regulatory guidance. Other risks and uncertainties include, but are not limited to, the following: the strength of the United States economy in general and the strength of the local economies in which we conduct operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; inflation/deflation, interest rate, market and monetary fluctuations; the effect of acquisitions we have made or may make, such as our recent acquisition of Opus, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions, and/or the failure to effectively integrate an acquisition target into our operations; the timely development of competitive new products and services and the acceptance of these products and services by new and existing customers; the impact of changes in financial services policies, laws and regulations, including those concerning taxes, banking, securities and insurance, and the application thereof by regulatory bodies; the effectiveness of our risk management framework and quantitative models; changes in the level of our nonperforming assets and charge-offs; the expected discontinuation of LIBOR and uncertainty regarding potential alternative reference rates, including SOFR; the effect of changes in accounting policies and practices or accounting standards, as may be adopted from time-to-time by bank regulatory agencies, the U.S. Securities and Exchange Commission (“SEC”), the Public Company Accounting Oversight Board, the Financial Accounting Standards Board or other accounting standards setters, including ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments,” commonly referenced as the CECL model, which has changed how we estimate credit losses and may further increase the required level of our allowance for credit losses in future periods; possible credit related impairments of securities held by us; possible impairment charges to goodwill; the impact of current governmental efforts to restructure the U.S. financial regulatory system, including any amendments to the Dodd-Frank Wall Street Reform and Consumer Protection Act; changes in consumer spending, borrowing and savings habits; the effects of our lack of a diversified loan portfolio, including the risks of geographic and industry concentrations; our ability to attract deposits and other sources of liquidity; the possibility that we may reduce or discontinue the payments of dividends on our common stock; changes in the financial performance and/or condition of our borrowers; changes in the competitive environment among financial and bank holding companies and other financial service providers; geopolitical conditions, including acts or threats of terrorism, actions taken by the United States or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the United States and abroad; public health crisis and pandemics, including the COVID-19 pandemic, and their effects on the economic and business environments in which we operate, including on our credit quality and business operations, as well as the impact on general economic and financial market conditions; cybersecurity threats and the cost of defending against them, including the costs of compliance with potential legislation to combat cybersecurity at a state, national or global level; unanticipated regulatory or legal proceedings; and our ability to manage the risks involved in the foregoing. Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in the Company's 2019 Annual Report on Form 10-K and quarterly report on Form 10-Q for the period ended March 31, 2020 filed with the SEC and available at the SEC’s Internet site (http://www.sec.gov).

The Company undertakes no obligation to revise or publicly release any revision or update to these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.


PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
(Unaudited)


June 30,

March 31

December 31,

September 30,

June 30,


2020


2020


2019


2019


2019

ASSETS










Cash and due from banks

$
158,784


$
108,285


$
135,847


$
166,238


$
139,879

Interest-bearing deposits with financial institutions

1,182,946


425,747


191,003


261,477


235,505

Cash and cash equivalents

1,341,730


534,032


326,850


427,715


375,384

Interest-bearing time deposits with financial institutions

2,845


2,708


2,708


2,711


2,956

Investments held-to-maturity, at amortized cost

32,557


34,553


37,838


40,433


42,997

Investment securities available-for-sale, at fair value

2,336,066


1,337,761


1,368,384


1,256,655


1,258,379

FHLB, FRB and other stock, at cost

94,658


92,858


93,061


92,986


92,841

Loans held for sale, at lower of amortized cost or fair value

1,007


111


1,672


7,092


8,529

Loans held for investment

15,082,884


8,754,869


8,722,311


8,757,476


8,771,938

Allowance for credit losses

(282,271
)

(115,422
)

(35,698
)

(35,000
)

(35,026
)
Loans held for investment, net

14,800,613


8,639,447


8,686,613


8,722,476


8,736,912

Accrued interest receivable

78,408


38,294


39,442


38,603


40,420

Other real estate owned

386


441


441


126


35

Premises and equipment

76,542


61,615


59,001


62,851


54,218

Deferred income taxes, net

105,859


15,249


—


—


2,266

Bank owned life insurance

305,901


113,461


113,376


112,716


112,054

Intangible assets

94,550


79,349


83,312


87,560


91,840

Goodwill

901,166


808,322


808,322


808,322


808,322

Other assets

344,786


218,008


154,992


151,251


156,628

Total assets

$
20,517,074


$
11,976,209


$
11,776,012


$
11,811,497


$
11,783,781

LIABILITIES AND STOCKHOLDERS’ EQUITY










LIABILITIES:










Deposit accounts:










Noninterest-bearing checking

$
5,899,442


$
3,943,260


$
3,857,660


$
3,623,546


$
3,480,312

Interest-bearing:










Checking

3,098,454


577,966


586,019


529,401


548,314

Money market/savings

6,060,031


3,499,305


3,406,988


3,362,453


3,272,511

Retail certificates of deposit

1,651,976


897,680


973,465


1,019,433


1,065,207

Wholesale/brokered certificates of deposit

266,790


174,861


74,377


324,455


495,578

Total interest-bearing

11,077,251


5,149,812


5,040,849


5,235,742


5,381,610

Total deposits

16,976,693


9,093,072


8,898,509


8,859,288


8,861,922

FHLB advances and other borrowings

41,006


521,017


517,026


604,558


571,575

Subordinated debentures

501,375


215,269


215,145


217,825


232,944

Deferred income taxes, net

—


—


1,371


301


—

Accrued expenses and other liabilities

343,353


143,934


131,367


140,527


132,884

Total liabilities

17,862,427


9,973,292


9,763,418


9,822,499


9,799,325

STOCKHOLDERS’ EQUITY:










Common stock

930


586


586


584


595

Additional paid-in capital

2,348,415


1,596,680


1,594,434


1,590,168


1,618,137

Retained earnings

247,078


361,242


396,051


368,051


343,366

Accumulated other comprehensive income

58,224


44,409


21,523


30,195


22,358

Total stockholders' equity

2,654,647


2,002,917


2,012,594


1,988,998


1,984,456

Total liabilities and stockholders' equity

$
20,517,074


$
11,976,209


$
11,776,012


$
11,811,497


$
11,783,781

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)


Three Months Ended

Six Months Ended


June 30,

March 31,

June 30,

June 30,

June 30,


2020

2020

2019

2020

2019
INTEREST INCOME










Loans

$
133,339


$
113,265


$
121,860


$
246,604


$
243,336

Investment securities and other interest-earning assets

10,783


10,524


10,554


21,307


20,321

Total interest income

144,122


123,789


132,414


267,911


263,657

INTEREST EXPENSE










Deposits

9,655


10,487


15,991


20,142


29,275

FHLB advances and other borrowings

217


1,081


3,083


1,298


7,885

Subordinated debentures

3,958


3,046


2,699


7,004


4,450

Total interest expense

13,830


14,614


21,773


28,444


41,610

Net interest income before provision for credit losses

130,292


109,175


110,641


239,467


222,047

Provision for credit losses

160,635


25,454


334


186,089


1,860

Net interest (loss) income after provision for credit losses

(30,343
)

83,721


110,307


53,378


220,187

NONINTEREST INCOME










Loan servicing fees

434


480


409


914


807

Service charges on deposit accounts

1,399


1,715


1,441


3,114


2,771

Other service fee income

297


311


363


608


719

Debit card interchange fee income

457


348


1,145


805


2,216

Earnings on BOLI

1,314


1,336


851


2,650


1,761

Net (loss) gain from sales of loans

(2,032
)

771


902


(1,261
)

2,631

Net (loss) gain from sales of investment securities

(21
)

7,760


212


7,739


639

Trust administrative fees

2,397


—


—


2,397


—

Other income

2,653


1,754


1,001


4,407


2,461

Total noninterest income

6,898


14,475


6,324


21,373


14,005

NONINTEREST EXPENSE










Compensation and benefits

43,011


34,376


33,847


77,387


67,235

Premises and occupancy

9,487


8,168


7,517


17,655


15,052

Data processing

4,465


3,253


3,036


7,718


5,966

Other real estate owned operations, net

9


14


62


23


65

FDIC insurance premiums

846


367


740


1,213


1,540

Legal, audit and professional expense

3,094


3,126


3,545


6,220


6,543

Marketing expense

1,319


1,412


1,425


2,731


2,922

Office, telecommunications and postage expense

1,533


1,103


1,311


2,636


2,521

Loan expense

823


822


1,005


1,645


1,878

Deposit expense

4,958


4,988


3,668


9,946


7,251

Merger-related expense

39,346


1,724


5


41,070


660

CDI amortization

4,040


3,965


4,281


8,005


8,717

Other expense

3,039


3,313


3,494


6,352


7,163

Total noninterest expense

115,970


66,631


63,936


182,601


127,513

Net (loss) income before income taxes

(139,415
)

31,565


52,695


(107,850
)

106,679

Income tax (benefit) expense

(40,324
)

5,825


14,168


(34,499
)

29,434

Net (loss) income

$
(99,091
)

$
25,740


$
38,527


$
(73,351
)

$
77,245

EARNINGS (LOSS) PER SHARE










Basic

$
(1.41
)

$
0.43


$
0.62


$
(1.14
)

$
1.24

Diluted

$
(1.41
)

$
0.43


$
0.62


$
(1.14
)

$
1.23

WEIGHTED AVERAGE SHARES OUTSTANDING










Basic

70,425,027


59,007,191


61,308,046


64,716,109


61,645,940

Diluted

70,531,502


59,189,717


61,661,773


64,879,204


61,980,133

SELECTED FINANCIAL DATA
PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCES AND YIELD DATA





Three Months Ended


June 30, 2020

March 31, 2020

June 30, 2019


Average Balance

Interest Income/Expense

Average Yield/Cost

Average Balance

Interest Income/Expense

Average Yield/Cost

Average Balance

Interest Income/Expense

Average Yield/Cost
Assets

(Dollars in thousands)
Interest-earning assets:


















Cash and cash equivalents

$
796,761


$
215


0.11
%

$
215,746


$
216


0.40
%

$
187,963


$
435


0.93
%
Investment securities

1,792,432


10,568


2.36


1,502,572


10,308


2.74


1,396,585


10,119


2.90

Loans receivable, net ⁽¹⁾⁽²⁾

11,242,721


133,339


4.77


8,645,252


113,265


5.27


8,779,440


121,860


5.57

Total interest-earning assets

13,831,914


144,122


4.19


10,363,570


123,789


4.80


10,363,988


132,414


5.12

Noninterest-earning assets

1,343,396






1,227,766






1,221,985





Total assets

$
15,175,310






$
11,591,336






$
11,585,973





Liabilities and Equity


















Interest-bearing deposits:


















Interest checking

$
1,417,846


$
844


0.24
%

$
576,203


$
609


0.43
%

$
543,473


$
535


0.39
%
Money market

4,242,990


5,680


0.54


3,161,867


6,071


0.77


2,978,065


7,305


0.98

Savings

283,632


101


0.14


238,848


97


0.16


242,483


92


0.15

Retail certificates of deposit

1,148,874


2,251


0.79


936,489


3,464


1.49


1,025,404


4,610


1.80

Wholesale/brokered certificates of deposit

224,333


779


1.40


43,432


246


2.28


555,963


3,449


2.49

Total interest-bearing deposits

7,317,675


9,655


0.53


4,956,839


10,487


0.85


5,345,388


15,991


1.20

FHLB advances and other borrowings

143,813


217


0.61


337,551


1,081


1.29


491,706


3,083


2.51

Subordinated debentures

287,368


3,958


5.51


215,190


3,046


5.66


183,639


2,699


5.88

Total borrowings

431,181


4,175


3.89


552,741


4,127


3.00


675,345


5,782


3.43

Total interest-bearing liabilities

7,748,856


13,830


0.72


5,509,580


14,614


1.07


6,020,733


21,773


1.45

Noninterest-bearing deposits

4,970,812






3,898,399






3,426,508





Other liabilities

223,920






146,231






138,746





Total liabilities

12,943,588






9,554,210






9,585,987





Stockholders' equity

2,231,722






2,037,126






1,999,986





Total liabilities and equity

$
15,175,310






$
11,591,336






$
11,585,973





Net interest income



$
130,292






$
109,175






$
110,641



Net interest margin ⁽³⁾





3.79
%





4.24
%





4.28
%
Cost of deposits





0.32






0.48






0.73

Cost of funds ⁽⁴⁾





0.44






0.62






0.92

Ratio of interest-earning assets to interest-bearing liabilities

178.50






188.10






172.14

^{______________________________}

⁽¹⁾

Average balance includes loans held for sale and nonperforming loans and is net of deferred loan origination fees/costs and discounts/premiums.

⁽²⁾

Interest income includes net discount accretion of $5.8 million, $4.1 million and $5.0 million, respectively.

⁽³⁾

Represents annualized net interest income divided by average interest-earning assets.

⁽⁴⁾

Represents annualized total interest expense divided by the sum of average total interest-bearing liabilities and noninterest-bearing deposits.

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
LOAN PORTFOLIO COMPOSITION













June 30,

March 31,

December 31,

September 30,

June 30,


2020

2020

2019

2019

2019


(Dollars in thousands)
Investor loans secured by real estate










CRE non-owner-occupied

$
2,783,692


$
2,040,198


$
2,070,141


$
2,052,118


$
2,118,829

Multifamily

5,225,557


1,625,682


1,575,726


1,610,643


1,519,110

Construction and land

357,426


377,525


438,786


507,114


543,683

SBA secured by real estate ⁽¹⁾

59,482


61,665


68,431


68,689


65,773

Total investor loans secured by real estate

8,426,157


4,105,070


4,153,084


4,238,564


4,247,395

Business loans secured by real estate ⁽²⁾










CRE owner-occupied

2,170,154


1,887,632


1,846,554


1,847,443


1,835,411

Franchise real estate secured

364,647


371,428


353,240


344,954


323,445

SBA secured by real estate ⁽³⁾

85,542


83,640


88,381


91,101


93,257

Total business loans secured by real estate

2,620,343


2,342,700


2,288,175


2,283,498


2,252,113

Commercial loans ⁽⁴⁾










Commercial and industrial

2,051,313


1,458,969


1,393,270


1,353,793


1,426,274

Franchise non-real estate secured

523,755


547,793


564,357


549,711


537,490

SBA non-real estate secured

21,057


16,265


17,426


17,891


19,282

SBA PPP

1,128,780


—


—


—


—

Total commercial loans

3,724,905


2,023,027


1,975,053


1,921,395


1,983,046

Retail loans










Single family residential ⁽⁵⁾

265,170


237,180


255,024


273,416


248,611

Consumer

46,309


46,892


50,975


40,603


40,773

Total retail loans

311,479


284,072


305,999


314,019


289,384

Gross loans held for investment ⁽⁶⁾

15,082,884


8,754,869


8,722,311


8,757,476


8,771,938

Allowance for credit losses for loans held for investment ⁽⁷⁾

(282,271
)

(115,422
)

(35,698
)

(35,000
)

(35,026
)
Loans held for investment, net

$
14,800,613


$
8,639,447


$
8,686,613


$
8,722,476


$
8,736,912












Loans held for sale, at lower of cost or fair value

$
1,007


$
111


$
1,672


$
7,092


$
8,529

^{______________________________}

⁽¹⁾

SBA loans that are collateralized by hotel/motel real property.

⁽²⁾

Loans to businesses that are collateralized by real estate where the operating cash flow of the business is the primary source of repayment.

⁽³⁾

SBA loans that are collateralized by real property other than hotel/motel real property.

⁽⁴⁾

Loans to businesses where the operating cash flow of the business is the primary source of repayment.

⁽⁵⁾

Single family residential includes home equity lines of credit, as well as second trust deeds.

⁽⁶⁾

Includes unaccreted fair value net purchase discounts of $144.5 million, $35.9 million and $52.0 million as of June 30, 2020, March 31, 2020 and June 30, 2019, respectively.

⁽⁷⁾

The allowance for credit losses as of December 31, 2019 and prior were accounted for under ASC 450 and ASC 310, which is reflective of probable incurred losses as of the balance sheet date. Effective January 1, 2020, the allowance for credit losses is accounted for under ASC 326, which is reflective of estimated expected lifetime credit losses.

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
ASSET QUALITY INFORMATION













June 30,

March 31,

December 31,

September 30,

June 30,


2020

2020

2019

2019

2019
Asset Quality

(Dollars in thousands)
Nonperforming loans

$
33,825


$
20,610


$
8,527


$
8,109


$
7,659

Other real estate owned

386


441


441


126


35

Nonperforming assets

$
34,211


$
21,051


$
8,968


$
8,235


$
7,694












Total classified assets ⁽¹⁾

$
90,334


$
54,586


$
45,387


$
39,879


$
38,492

Allowance for credit losses

282,271


115,422


35,698


35,000


35,026

Allowance for credit losses as a percent of total nonperforming loans

835
%

560
%

419
%

432
%

457
%
Nonperforming loans as a percent of loans held for investment

0.22


0.24


0.10


0.09


0.09

Nonperforming assets as a percent of total assets

0.17


0.18


0.08


0.07


0.07

Classified loans to total loans held for investment

0.60


0.62


0.52


0.45


0.44

Classified assets to total assets

0.44


0.46


0.39


0.34


0.33

Net loan charge-offs for the quarter ended

$
4,650


$
1,344


$
2,318


$
1,391


$
3,572

Net loan charge-offs for the quarter to average total loans

0.04
%

0.02
%

0.03
%

0.02
%

0.04
%
Allowance for credit losses to loans held for investment, excluding SBA PPP loans ⁽²⁾

2.02


1.32


0.41


0.40


0.40

Delinquent Loans










30 - 59 days

$
6,248


$
8,285


$
2,104


$
1,715


$
3,407

60 - 89 days

4,133


1,502


10,559


3,212


801

90+ days

27,807


19,084


6,439


6,297


9,284

Total delinquency

$
38,188


$
28,871


$
19,102


$
11,224


$
13,492

Delinquency as a percent of loans held for investment

0.25
%

0.33
%

0.22
%

0.13
%

0.15
%

^{______________________________}

⁽¹⁾

Includes substandard loans and other real estate owned

⁽²⁾

At June 30, 2020, 56% of loans held for investment include a fair value net discount of $144.5 million or 1.03% of loans held for investment excluding SBA PPP loans. At March 31, 2020, 34% of loans held for investment include a fair value net discount of $35.9 million, or 0.41% of loans held for investment. At June 30, 2019, 44% of loans held for investment include a fair value net discount of $52.0 million or 0.59% of loans held for investment.

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
NONACCRUAL LOANS ⁽¹⁾















Collateral Dependent Loans

ACL

Non- Collateral Dependent Loans

ACL

Total Nonaccrual Loans

Nonaccrual Loans With No ACL


(Dollars in thousands)
June 30, 2020












Investor loans secured by real estate












CRE non-owner-occupied

$
5,322


$
—


$
—


$
—


$
5,322


$
5,322

Multifamily

—


—


—


—


—


—

Construction and land

1,802


—


—


—


1,802


1,802

SBA secured by real estate ⁽²⁾

988


—


—


—


988


988

Total investor loans secured by real estate

8,112


—


—


—


8,112


8,112

Business loans secured by real estate ⁽³⁾












CRE owner-occupied

5,563


—


1,196


393


6,759


5,563

Franchise real estate secured

—


—


—


—


—


—

SBA secured by real estate ⁽⁴⁾

1,006


—


77


17


1,083


1,006

Total business loans secured by real estate

6,569


—


1,273


410


7,842


6,569

Commercial loans ⁽⁵⁾












Commercial and industrial

1,606


—


4,464


646


6,070


1,606

Franchise non-real estate secured

2,428


—


7,742


1,493


10,170


2,428

SBA not secured by real estate

840


—


—


—


840


840

Total commercial loans

4,874


—


12,206


2,139


17,080


4,874

Retail Loans












Single family residential ⁽⁶⁾

662


—


129


—


791


662

Consumer loans

—


—


—


—


—


—

Total retail loans

662


—


129


—


791


662

Totals nonaccrual loans

$
20,217


$
—


$
13,608


$
2,549


$
33,825


$
20,217

^{______________________________}

⁽¹⁾

The ACL for nonaccrual loans is determined based on a discounted cash flow methodology unless the loan is considered collateral dependent. The ACL for collateral dependent loans is determined based on the estimated fair value of the underlying collateral.

⁽²⁾

SBA loans that are collateralized by hotel/motel real property.

⁽³⁾

Loans to businesses that are collateralized by real estate where the operating cash flow of the business is the primary source of repayment.

⁽⁴⁾

SBA loans that are collateralized by real property other than hotel/motel real property.

⁽⁵⁾

Loans to businesses where the operating cash flow of the business is the primary source of repayment.

⁽⁶⁾

Single family residential includes home equity lines of credit, as well as second trust deeds.

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
PAST DUE STATUS





Days Past Due




Current

30-59

60-89

90+

Total


(Dollars in thousands)
June 30, 2020










Investor loans secured by real estate










CRE non-owner-occupied

$
2,780,620


$
—


$
—


$
3,072


$
2,783,692

Multifamily

5,222,439


3,118


—


—


5,225,557

Construction and land

354,729


895


—


1,802


357,426

SBA secured by real estate ⁽¹⁾

58,494


—


—


988


59,482

Total investor loans secured by real estate

8,416,282


4,013


—


5,862


8,426,157

Business loans secured by real estate ⁽²⁾










CRE owner-occupied

2,162,842


1,062


319


5,931


2,170,154

Franchise real estate secured

364,647


—


—


—


364,647

SBA secured by real estate ⁽³⁾

84,536


—


—


1,006


85,542

Total business loans secured by real estate

2,612,025


1,062


319


6,937


2,620,343

Commercial loans ⁽⁴⁾










Commercial and industrial

2,041,675


796


3,116


5,726


2,051,313

Franchise non-real estate secured

515,313


—


—


8,442


523,755

SBA not secured by real estate

19,889


—


328


840


21,057

SBA PPP

1,128,780


—


—


—


1,128,780

Total commercial loans

3,705,657


796


3,444


15,008


3,724,905

Retail loans










Single family residential ⁽⁵⁾

264,549


257


364


—


265,170

Consumer loans

46,183


120


6


—


46,309

Total retail loans

310,732


377


370


—


311,479

Total loans

$
15,044,696


$
6,248


$
4,133


$
27,807


$
15,082,884

^{______________________________}

⁽¹⁾

SBA loans that are collateralized by hotel/motel real property.

⁽²⁾

Loans to businesses that are collateralized by real estate where the operating cash flow of the business is the primary source of repayment.

⁽³⁾

SBA loans that are collateralized by real property other than hotel/motel real property.

⁽⁴⁾

Loans to businesses where the operating cash flow of the business is the primary source of repayment.

⁽⁵⁾

Single family residential includes home equity lines of credit, as well as second trust deeds.

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
GAAP RECONCILIATIONS
(Dollars in thousands, except per share data)







The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance. However, these non-GAAP financial measures are supplemental and are not a substitute for an analysis based on GAAP measures. As other companies may use different calculations for these adjusted measures, this presentation may not be comparable to other similarly titled adjusted measures reported by other companies.



For periods presented below, return on average tangible common equity is a non-GAAP financial measure derived from GAAP based amounts. We calculate this figure by excluding CDI amortization expense from net income and excluding the average CDI and average goodwill from the average stockholders' equity during the periods indicated. Management believes that the exclusion of such items from this financial measure provides useful information to gain an understanding of the operating results of our core business.





Three Months Ended


June 30,

March 31

June 30,


2020

2020

2019
Net (loss) income

$
(99,091
)

$
25,740


$
38,527

Plus: CDI amortization expense

4,040


3,965


4,281

Less: CDI amortization expense tax adjustment

1,159


1,137


1,240

Net (loss) income for average tangible common equity

$
(96,210
)

$
28,568


$
41,568








Average stockholders' equity

$
2,231,722


$
2,037,126


$
1,999,986

Less: average CDI

84,148


81,744


94,460

Less: average goodwill

838,725


808,322


808,778

Average tangible common equity

$
1,308,849


$
1,147,060


$
1,096,748








Return on average equity

(17.76
)%

5.05
%

7.71
%
Return on average tangible common equity

(29.40
)%

9.96
%

15.16
%

Pre-provision net revenue is a non-GAAP financial measure derived from GAAP-based amounts. We calculate the Pre-provision net revenue by excluding income tax, provision for credit losses, and merger related expenses from the net income. Management believes that the exclusion of such items from this financial measures provides useful information to gain an understanding of the operating results of our core business and a better comparison to the financial results of prior periods.









Three Months Ended


June 30,

March 31,

June 30,


2020

2020

2019
Interest income

$
144,122


$
123,789


$
132,414

Interest expense

13,830


14,614


21,773

Net interest income

130,292


109,175


110,641

Noninterest income

6,898


14,475


6,324

Revenue

137,190


123,650


116,965

Noninterest expense

115,970


66,631


63,936

Add: merger-related expense

39,346


1,724


5

Pre-provision net revenue

$
60,566


$
58,743


$
53,034








Average assets

$
15,175,310


$
11,591,336


$
11,585,973








Pre-provision net revenue on average assets

1.60
%

2.03
%

1.83
%

Tangible book value per share and tangible common equity to tangible assets (the “tangible common equity ratio”) are non-GAAP financial measures derived from GAAP-based amounts. We calculate tangible book value per share by dividing tangible common equity by common shares outstanding, as compared to book value per share, which we calculate by dividing common stockholders' equity by shares outstanding. We calculate the tangible common equity ratio by excluding the balance of intangible assets from common stockholders' equity and dividing by tangible assets. We believe that this information is consistent with the treatment by bank regulatory agencies, which exclude intangible assets from the calculation of risk-based capital ratios. Accordingly, we believe that these non-GAAP financial measures provide information that is important to investors and that is useful in understanding our capital position and ratios.













June 30,

March 31

December 31,

September 30,

June 30,


2020

2020

2019

2019

2019
Total stockholders' equity

$
2,654,647


$
2,002,917


$
2,012,594


$
1,988,998


$
1,984,456

Less: intangible assets

995,716


887,671


891,634


895,882


900,162

Tangible common equity

$
1,658,931


$
1,115,246


$
1,120,960


$
1,093,116


$
1,084,294












Book value per share

$
28.14


$
33.40


$
33.82


$
33.50


$
32.80

Less: intangible book value per share

10.55


14.80


14.98


15.09


14.88

Tangible book value per share

$
17.58


$
18.60


$
18.84


$
18.41


$
17.92












Total assets

$
20,517,074


$
11,976,209


$
11,776,012


$
11,811,497


$
11,783,781

Less: intangible assets

995,716


887,671


891,634


895,882


900,162

Tangible assets

$
19,521,358


$
11,088,538


$
10,884,378


$
10,915,615


$
10,883,619












Tangible common equity ratio

8.50
%

10.06
%

10.30
%

10.01
%

9.96
%

Core net interest income and core net interest margin are non-GAAP financial measures derived from GAAP-based amounts. We calculate core net interest income by excluding scheduled accretion income, accelerated accretion income, premium amortization on CD and nonrecurring nonaccrual interest paid from net interest income. The core net interest margin is calculated as the ratio of core net interest income to average interest-earning assets. Management believes that the exclusion of such items from this financial measure provides useful information to gain an understanding of the operating results of our core business.





Three Months Ended


June 30,

March 31,

June 30,


2020

2020

2019
Net interest income

$
130,292


$
109,175


$
110,641

Less: scheduled accretion income

3,501


1,793


2,387

Less: accelerated accretion income

2,347


2,312


2,563

Less: premium amortization on CD

1,054


63


124

Less: nonrecurring nonaccrual interest paid

(142
)

—


104

Core net interest income

$
123,532


$
105,007


$
105,463








Average interest-earning assets

$
13,831,914


$
10,363,570


$
10,363,988








Net interest margin

3.79
%

4.24
%

4.28
%
Core net interest margin

3.59
%

4.08
%

4.08
%

View source version on businesswire.com: https://www.businesswire.com/news/home/20200727005228/en/

Pacific Premier Bancorp, Inc.

Steven R. Gardner
Chairman, President and Chief Executive Officer
(949) 864-8000

Ronald J. Nicolas, Jr.
Senior Executive Vice President and Chief Financial Officer
(949) 864-8000

Brett Villaume
Senior Vice President and Director of Investor Relations
(404) 644-2990

Company Name:	Pacific Premier Bancorp Inc
Stock Symbol:	PPBI
Market:	NASDAQ
Website:	ppbi.com

Twitter