Third Quarter 2023 Summary

• Net income of $46.0 million, or $0.48 per diluted share
• Return on average assets of 0.88%, return on average equity of 6.43%, and return on average tangible common equity⁽¹⁾ of 10.08%
• Pre-provision net revenue (“PPNR”)⁽¹⁾ to average assets of 1.27%, annualized
• Net interest margin of 3.12%
• Cost of deposits of 1.50%, and cost of non-maturity deposits⁽¹⁾ of 0.89%
• Total delinquency of 0.08% of loans held for investment, and nonperforming assets to total assets of 0.13%
• Common equity tier 1 capital ratio of 14.87%, and total risk-based capital ratio of 17.74%
• Tangible book value per share⁽¹⁾ of $19.89; tangible common equity ratio⁽¹⁾ of 9.87%
• Available liquidity of $9.60 billion; cash and cash equivalents was $1.40 billion, and unused borrowing capacity of $8.20 billion at quarter end

Pacific Premier Bancorp, Inc. (NASDAQ: PPBI) (the “Company” or “Pacific Premier”), the holding company of Pacific Premier Bank (the “Bank”), reported net income of $46.0 million, or $0.48 per diluted share, for the third quarter of 2023, compared with net income of $57.6 million, or $0.60 per diluted share, for the second quarter of 2023, and net income of $73.4 million, or $0.77 per diluted share, for the third quarter of 2022.

For the quarter ended September 30, 2023, the Company’s return on average assets (“ROAA”) was 0.88%, return on average equity (“ROAE”) was 6.43%, and return on average tangible common equity (“ROATCE”)⁽¹⁾ was 10.08%, compared to 1.09%, 8.11%, and 12.66%, respectively, for the second quarter of 2023, and 1.35%, 10.57%, and 16.74%, respectively, for the third quarter of 2022. Total assets were $20.28 billion at September 30, 2023, compared to $20.75 billion at June 30, 2023, and $21.62 billion at September 30, 2022.

Steven R. Gardner, Chairman, Chief Executive Officer, and President of the Company, commented, “Our teams continue to deliver solid results in a challenging economic and interest rate environment. We maintained our disciplined focus on prudent and proactive risk, liquidity, and capital management during the quarter. Our relationship managers' extraordinary efforts to deepen existing client relationships and bring new clients into our franchise are producing tangible results. During the quarter, client deposit flows further stabilized in the face of significant pricing competition, and we were able to reduce higher cost brokered deposits by $490 million.

“Our asset quality remained solid during the quarter, as total delinquencies decreased to 0.08% of loans, and non-performing assets were just 0.13% of total assets. Our operating results were impacted by a shared national credit that resulted in two non-relationship loans to one borrower being placed on nonaccrual status during the quarter. This resulted in an interest accrual reversal of $1.7 million and a charge-off of $3.2 million. The borrower on this $13 million credit continues to make payments. Our total shared national credit portfolio, which is a line of business we acquired from Opus Bank in 2020 that we have since discontinued, is comprised of twenty-two loans totaling $201 million in outstanding balances, or 1.5% of total loans, at September 30th.

“During the past several quarters, we intentionally and proactively prioritized capital accumulation over balance sheet growth in light of the uncertain economic outlook, while at the same time continuing to provide best-in-class service to our clients and the communities we serve. As a result, we have created optionality for our organization to pursue organic and strategic growth opportunities that we believe will be accretive and aligned with our commitment to producing long-term value for our shareholders.

“I would like to thank all of the Pacific Premier employees for their outstanding efforts during the quarter, and our Board of Directors, shareholders, and stakeholders for continuing to support our organization through another dynamic period of time.”

FINANCIAL HIGHLIGHTS

INCOME STATEMENT HIGHLIGHTS

Net Interest Income and Net Interest Margin

Net interest income totaled $149.5 million in the third quarter of 2023, a decrease of $10.5 million, or 6.6%, from the second quarter of 2023. The decrease in net interest income was primarily attributable to a higher cost of funds as a result of the current interest rate environment and lower average loans and investment securities balances, partially offset by higher interest-bearing cash balances.

The net interest margin for the third quarter of 2023 decreased 21 basis points to 3.12%, from 3.33% in the prior quarter. The lower net interest margin was due to a higher cost of funds and lower loan prepayment fees, partially offset by higher yields on interest-bearing cash balances and investment securities. The net interest margin was negatively impacted 4 basis points as a result of reversing $1.7 million of accrued interest for the shared national credit through September 30, 2023.

Net interest income for the third quarter of 2023 decreased $31.6 million, or 17.4%, compared to the third quarter of 2022. The decrease was attributable to a higher cost of funds and lower average loans and investment securities balances, partially offset by higher yields on average interest-earning assets.

Provision for Credit Losses

For the third quarter of 2023, the Company recorded $3.9 million provision expense, compared to $1.5 million for the second quarter of 2023, and $1.1 million for the third quarter of 2022. The provision for credit losses was impacted by changes to the overall size, composition and asset quality trends of the loan portfolio, as well as changes in the Company's macroeconomic forecasts.

Noninterest Income

Noninterest income for the third quarter of 2023 was $18.6 million, a decrease of $2.0 million from the second quarter of 2023. The decrease was primarily due to a $1.8 million decrease in other income largely attributable to decreases in income on Community Reinvestment Act (“CRA”) and other equity investments.

Noninterest income for the third quarter of 2023 decreased $1.6 million compared to the third quarter of 2022. The decrease was primarily due to an $800,000 decrease in other income primarily due to lower income on CRA and other equity investments and a $617,000 decrease in escrow and exchange fees attributable to lower commercial real estate transaction activity.

Noninterest Expense

Noninterest expense totaled $102.2 million for the third quarter of 2023, an increase of $1.5 million compared to the second quarter of 2023, primarily due to a $1.6 million increase in deposit expense driven by higher deposit earnings credit rates, and a $644,000 increase in compensation and benefits.

Noninterest expense increased by $1.3 million compared to the third quarter of 2022. The increase was primarily due to a $6.0 million increase in deposit expense driven by higher deposit earnings credit rates, partially offset by a $2.3 million decrease in compensation and benefits from reduced staffing levels.

Income Tax

For the third quarter of 2023, income tax expense totaled $16.0 million, resulting in an effective tax rate of 25.8%, compared with income tax expense of $20.9 million and an effective tax rate of 26.6% for the second quarter of 2023, and income tax expense of $26.0 million and an effective tax rate of 26.1% for the third quarter of 2022.

BALANCE SHEET HIGHLIGHTS

Loans

Loans held for investment totaled $13.27 billion at September 30, 2023, a decrease of $340.2 million, or 2.5%, from June 30, 2023, and a decrease of $1.64 billion, or 11.0%, from September 30, 2022. The decrease from June 30, 2023 was primarily due to lower loan production and fundings, partially offset by slower loan prepayments. The decrease from September 30, 2022 was primarily driven by lower loan fundings.

During the third quarter of 2023, new loan commitments totaled $67.8 million, and loan fundings totaled $25.6 million, compared with $148.5 million in loan commitments and $71.6 million in new loan fundings for the second quarter of 2023, and $789.2 million in loan commitments and $450.7 million in new loan fundings for the third quarter of 2022. During the third quarter of 2023, new origination activity remained muted given the uncertain economic and interest rate compared to the production levels seen in the third quarter of 2022.

At September 30, 2023, the total loan-to-deposit ratio was 82.9%, compared to 82.3% and 84.0% at June 30, 2023 and September 30, 2022, respectively.

The following table presents the primary loan roll-forward activities for total gross loans, including both loans held for investment and loans held for sale, during the quarters indicated:

The following table presents the composition of the loans held for investment as of the dates indicated:

The total end-of-period weighted average interest rate on loans, excluding fees and discounts, at September 30, 2023 was 4.76%, compared to 4.73% at June 30, 2023, and 4.34% at September 30, 2022. The quarter-over-quarter and year-over-year increases reflect higher rates on new originations and the repricing of loans as a result of the increases in benchmark interest rates.

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

The weighted average interest rate on new loan commitments increased to 8.01% in the third quarter of 2023, compared to 6.72% in the second quarter of 2023, and 5.55% in the third quarter of 2022.

Asset Quality and Allowance for Credit Losses

At September 30, 2023, our allowance for credit losses (“ACL”) on loans held for investment was $188.1 million, a decrease of $4.2 million from June 30, 2023, and a decrease of $7.5 million from September 30, 2022. The decrease in the ACL from June 30, 2023 and September 30, 2022 was commensurate with the relative decreases in loans held for investment balances.

During the third quarter of 2023, the Company incurred $6.8 million of net charge-offs, compared to $3.7 million during the second quarter of 2023, and $1.1 million during the third quarter of 2022.

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:

The ratio of allowance for credit losses to loans held for investment at September 30, 2023 increased slightly to 1.42%, compared to 1.41% at June 30, 2023, and 1.31% at September 30, 2022. The fair value net discount on loans acquired through acquisitions was $46.2 million, or 0.35% of total loans held for investment, as of September 30, 2023, compared to $48.4 million, or 0.35% of total loans held for investment, as of June 30, 2023, and $59.0 million, or 0.39% of total loans held for investment, as of September 30, 2022.

Nonperforming assets totaled $25.9 million, or 0.13% of total assets, at September 30, 2023, compared with $17.4 million, or 0.08% of total assets, at June 30, 2023, and $60.5 million, or 0.28% of total assets, at September 30, 2022. Loan delinquencies were $10.9 million, or 0.08% of loans held for investment, at September 30, 2023, compared to $31.0 million, or 0.23% of loans held for investment, at June 30, 2023, and $41.3 million, or 0.28% of loans held for investment, at September 30, 2022.

Classified loans totaled $149.3 million, or 1.12% of loans held for investment, at September 30, 2023, compared with $119.9 million, or 0.88% of loans held for investment, at June 30, 2023, and $110.1 million, or 0.74% of loans held for investment, at September 30, 2022.

The following table presents the asset quality metrics of the loan portfolio as of the dates indicated.

Investment Securities

At September 30, 2023, available-for-sale (“AFS”) and held-to-maturity (“HTM”) investment securities were $1.91 billion and $1.74 billion, respectively, compared to $2.01 billion and $1.74 billion, respectively, at June 30, 2023, and $2.66 billion and $1.39 billion, respectively, at September 30, 2022.

In total, investment securities were $3.65 billion at September 30, 2023, a decrease of $96.9 million from June 30, 2023, and a decrease of $394.1 million from September 30, 2022. The decrease in the third quarter of 2023 compared to the prior quarter was primarily the result of $88.4 million in principal payments, amortization, and redemptions, and an increase of $21.9 million in AFS securities mark-to-market unrealized loss, partially offset by purchases of CRA related investment securities of $13.4 million.

The decrease in investment securities from September 30, 2022 was primarily the result of $370.3 million in principal payments, discounts from the AFS securities transferred to HTM, amortization, and redemptions, as well as $304.2 million in sales, partially offset by $245.7 million in purchases and a decrease of $27.7 million in AFS securities mark-to-market unrealized loss.

Deposits

At September 30, 2023, total deposits were $16.01 billion, a decrease of $532.4 million, or 3.2%, from June 30, 2023, and a decrease of $1.74 billion, or 9.8%, from September 30, 2022. The decrease from the prior quarter was largely driven by the reduction of $489.5 million in of brokered certificates of deposit.

At September 30, 2023, non-maturity deposits⁽¹⁾ totaled $13.25 billion, or 82.8% of total deposits, a decrease of $202.8 million, or 1.5%, from June 30, 2023, and a decrease of $2.62 billion, or 16.5%, from September 30, 2022. The decreases from prior quarters were largely driven by clients redeploying funds into higher yielding alternatives, prepaying or paying down loans, and, to a lesser extent, shifting depositor behavior following the industry-wide turmoil experienced in the first half of 2023.

At September 30, 2023, maturity deposits totaled $2.75 billion, a decrease of $329.6 million, or 10.7%, from June 30, 2023, and an increase of $881.7 million, or 47.1%, from September 30, 2022. The decrease in the third quarter of 2023 compared to the prior quarter was primarily due to the reduction of $489.5 million in brokered certificates of deposit, partially offset by an increase of $159.8 million in retail certificates of deposit.

The weighted average cost of total deposits for the third quarter of 2023 was 1.50%, compared to 1.27% for the second quarter of 2023, and 0.22% for the third quarter of 2022. The increases in the weighted average cost of deposits for the third quarter of 2023, compared to the second quarter of 2023 and the third quarter of 2022, were principally driven by higher pricing across deposit categories. The weighted average cost of non-maturity deposits⁽¹⁾ for the third quarter of 2023 was 0.89%, compared to 0.71% for the second quarter of 2023, and 0.11% for the third quarter of 2022.

At September 30, 2023, the end-of-period weighted average rate of total deposits was 1.52%, compared to 1.40% at June 30, 2023, and 0.37% at September 30, 2022. At September 30, 2023, the end-of-period weighted average rate of non-maturity deposits was 0.96%, compared to 0.78% at June 30, 2023, and 0.20% at September 30, 2022.

The following table presents the composition of deposits as of the dates indicated.

Borrowings

At September 30, 2023, total borrowings amounted to $1.13 billion, remaining flat from June 30, 2023, and reflecting an increase of $200.6 million from September 30, 2022. Total borrowings at September 30, 2023 were comprised of $800.0 million of Federal Home Loan Bank of San Francisco (“FHLB”) term advances and $331.7 million of subordinated debt. The increase in borrowings at September 30, 2023 as compared to September 30, 2022 was due to a net $200.0 million increase in FHLB term advances.

As of September 30, 2023, our unused borrowing capacity was $8.20 billion, which consists of available lines of credit with FHLB and other correspondent banks as well as access through the Federal Reserve Bank's discount window and the Bank Term Funding Program, neither of which were utilized during the third quarter of 2023.

Capital Ratios

At September 30, 2023, our common stockholders' equity was $2.86 billion, or 14.08% of total assets, compared with $2.85 billion, or 13.73%, at June 30, 2023, and $2.74 billion, or 12.65%, at September 30, 2022, with a book value per share of $29.78, compared with $29.71 at June 30, 2023, and $28.79 at September 30, 2022. At September 30, 2023, the ratio of tangible common equity to tangible assets⁽¹⁾ was 9.87%, compared with 9.59% at June 30, 2023, and 8.59% at September 30, 2022, and tangible book value per share⁽¹⁾ was $19.89, compared with $19.79 at June 30, 2023, and $18.68 at September 30, 2022.

The Company implemented the current expected credit losses (“CECL”) model on January 1, 2020 and elected to phase in the full effect of CECL on regulatory capital over the five-year transition period. In the first quarter of 2022, the Company began phasing into regulatory capital the cumulative adjustments at the end of the second year of the transition period at 25% per year. At September 30, 2023, the Company and Bank were in compliance with the capital conservation buffer requirement and exceeded the minimum Common Equity Tier 1, Tier 1, and total capital ratios, inclusive of the fully phased-in capital conservation buffer of 7.0%, 8.5%, and 10.5%, respectively, and the Bank qualified as “well capitalized” for purposes of the federal bank regulatory prompt corrective action regulations.

Dividend and Stock Repurchase Program

On October 23, 2023, the Company's Board of Directors declared a $0.33 per share dividend, payable on November 13, 2023 to stockholders of record as of November 3, 2023. In January 2021, the Company’s Board of Directors approved a stock repurchase program, which authorized the repurchase of up to 4,725,000 shares of its common stock. During the third quarter of 2023, the Company did not repurchase any shares of common stock.

Subsequent Events

On October 6, 2023, in light of a stabilizing deposit base and as part of its balance sheet and liquidity management strategy, the Company deployed excess cash to pay down a $200.0 million higher cost FHLB term advance. Prior to the redemption, such FHLB term advance carried a fixed interest rate of 4.84% with a maturity date in May 2024. Total payment in aggregate was $199.4 million, including principal and accrued and unpaid interest expense, net of a prepayment credit of $793,000, which was recorded as a net gain on debt extinguishment. Management anticipates the deleverage strategy will positively impact the Company's cost of funds, net interest margin, and FHLB available borrowing capacity.

Conference Call and Webcast

The Company will host a conference call at 9:00 a.m. PT / 12:00 p.m. ET on October 24, 2023 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, Inc. conference call. Additionally, a telephone replay will be made available through October 31, 2023, at (877) 344-7529, replay code 9928068.

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, Arizona, and Nevada. Founded in 1983, Pacific Premier Bank has grown to become one of the largest banks headquartered in the western region of the United States, with approximately $20 billion in total 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 and facilitates 1031 Exchange transactions through its Commerce Escrow division. Pacific Premier Bank offers clients IRA custodial services through its Pacific Premier Trust division, which has approximately $17 billion of assets under custody and over 35,000 client accounts comprised of self-directed investors, financial institutions, capital syndicators, and financial advisors. Additionally, Pacific Premier Bank provides nationwide customized banking solutions to Homeowners’ 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 STATEMENTS

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, liquidity, and the impact of acquisitions we have made or may make.

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. These 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; interest rate, liquidity, economic, market, credit, operational, and inflation risks associated with our business, including the speed and predictability of changes in these risks; our ability to attract and retain deposits and access to other sources of liquidity, particularly in a rising or high interest rate environment, and the quality and composition of our deposits; business and economic conditions generally and in the financial services industry, nationally and within our current and future geographic markets, including the tight labor market, ineffective management of the U.S. Federal budget or debt, or turbulence or uncertainty in domestic or foreign financial markets; the effect of acquisitions we have made or may make, 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; possible impairment charges to goodwill, including any impairment that may result from increased volatility in our stock price; 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; compliance risks, including the costs of monitoring, testing, and maintaining compliance with complex laws and regulations; the effectiveness of our risk management framework and quantitative models; the transition away from USD LIBOR and related uncertainty as well as the risk and costs related to our adoption of Secured Overnight Financing Rate (“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; possible credit-related impairments of securities held by us; changes in the level of our nonperforming assets and charge-offs; the impact of governmental efforts to restructure the U.S. financial regulatory system; the impact of recent or future changes in the FDIC insurance assessment rate or the rules and regulations related to the calculation of the FDIC insurance assessment amount, including any special assessments; 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; the possibility that we may reduce or discontinue the payments of dividends on our common stock; the possibility that we may discontinue, reduce or otherwise limit the level of repurchases of our common stock we may make from time to time pursuant to our stock repurchase program; 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, including the war between Russia and Ukraine and the war in the Middle East, which could impact business and economic conditions in the United States and abroad; public health crises and pandemics, including with respect to COVID-19, 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 incidents, and related potential costs and risks, including reputation, financial and litigation risks; climate change, including the enhanced regulatory, compliance, credit, and reputational risks and costs; natural disasters, earthquakes, fires, and severe weather; 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 2022 Annual Report on Form 10-K 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.