Second Quarter 2022 Summary

• Net income of $69.8 million, or $0.73 per diluted share
• Return on average assets of 1.29%, return on average equity of 10.10%, and return on average tangible common equity of 16.07%⁽¹⁾
• Pre-provision net revenue (“PPNR”) to average assets of 1.77%, annualized, and efficiency ratio of 49.0%⁽¹⁾
• Diversified loan growth of $356.3 million, or 9.7% annualized⁽²⁾
• Net interest margin of 3.49%, and core net interest margin of 3.33%⁽¹⁾
• Cost of deposits of 0.06%, and cost of core deposits of 0.04%⁽¹⁾
• Noninterest-bearing deposits represent 38.3% of total deposits
• Nonperforming assets to total assets of 0.20%, and classified assets to total assets of 0.48%

Pacific Premier Bancorp, Inc. (NASDAQ: PPBI) (the “Company” or “Pacific Premier”), the holding company of Pacific Premier Bank (the “Bank”), reported net income of $69.8 million, or $0.73 per diluted share, for the second quarter of 2022, compared with net income of $66.9 million, or $0.70 per diluted share, for the first quarter of 2022, and net income of $96.3 million, or $1.01 per diluted share, for the second quarter of 2021.

For the quarter ended June 30, 2022, the Company’s return on average assets (“ROAA”) was 1.29%, return on average equity (“ROAE”) was 10.10%, and return on average tangible common equity (“ROATCE”)⁽¹⁾ was 16.07%, compared to 1.28%, 9.34%, and 14.66%, respectively, for the first quarter of 2022, and 1.90%, 14.02%, and 22.45%, respectively, for the second quarter of 2021. Total assets increased to $21.99 billion at June 30, 2022, compared to $21.62 billion at March 31, 2022, and $20.53 billion at June 30, 2021.

Steven R. Gardner, Chairman, Chief Executive Officer, and President of the Company, commented, “We continued to deliver a high level of performance in the second quarter, while maintaining our conservative approach to managing credit, capital, and liquidity. Our disciplined approach has enabled us to generate higher earnings and returns compared to the prior quarter, despite a challenging operating environment.”

“The second quarter results reflect the strength and durability of our diversified business model resulting in a significant increase in revenue along with tightly controlled operating expenses. We were able to leverage our business development capabilities and deep client relationships to generate $1.5 billion in new loan commitments, which resulted in nearly 10% annualized loan growth. These results also reflect our ability to increase pricing and maintain underwriting discipline on new loan production while our cost of core deposits⁽¹⁾ remained low at 4 basis points.”

“We believe the strength of the franchise we have built, on a foundation of a low-cost, stable deposit base consisting of long-term client relationships, will serve us well throughout the remainder of the year and into 2023. We are well-positioned to effectively navigate through any economic environment and take advantage of the opportunities they may present to drive franchise value higher in future periods.”

FINANCIAL HIGHLIGHTS

INCOME STATEMENT HIGHLIGHTS

Net Interest Income and Net Interest Margin

Net interest income totaled $172.8 million in the second quarter of 2022, an increase of $10.9 million, or 6.8%, from the first quarter of 2022. The increase in net interest income was primarily attributable to higher average interest-earning assets and yields, as well as higher loan-related fees and accretion income as a result of increased prepayment activity.

The net interest margin for the second quarter of 2022 was 3.49%, compared with 3.41% in the prior quarter. The core net interest margin⁽⁶⁾, which excludes the impact of loan accretion income and other adjustments, was unchanged at 3.33%, compared to the prior quarter, reflecting a favorable remix towards higher yielding loans, higher loan-related fees, and a favorable impact from fair value hedges, partially offset by higher cost of funds.

Net interest income for the second quarter of 2022 increased $11.8 million, or 7.4%, compared to the second quarter of 2021. The increase was attributable to higher average loan balances and lower cost of funds.

Provision for Credit Losses

For the second quarter of 2022, the Company recorded a $469,000 provision expense, compared to a $448,000 provision expense for the first quarter of 2022, and a $38.5 million provision recapture for the second quarter of 2021. The provision expense for loan losses for the second quarter of 2022 was driven principally by loan growth and the impact of growing macroeconomic uncertainties. The current quarter's provision included a recapture for unfunded commitments largely due to changes in unfunded lending segment mix.

Noninterest Income

Noninterest income for the second quarter of 2022 was $22.2 million, a decrease of $3.7 million from the first quarter of 2022. The decrease was primarily due to a $2.2 million decrease in net gain from sales of investment securities and a $1.2 million decrease in trust custodial account fees due primarily to the timing of annual tax fees billed in the first quarter of 2022.

During the second quarter of 2022, the Bank sold $45.1 million of investment securities for a net loss of $31,000, compared to the sales of $658.5 million of investment securities for a net gain of $2.1 million in the first quarter of 2022.

Additionally, during the second quarter of 2022, the Bank sold $23.4 million of Small Business Administration (“SBA”) and U.S. Department of Agriculture (“USDA”) loans for a net gain of $1.1 million, compared to the sales of $17.8 million of SBA loans for a net gain of $1.5 million in the first quarter of 2022.

Noninterest income for the second quarter of 2022 decreased $4.5 million, or 17.0%, compared to the second quarter of 2021. The decrease was primarily due to a $5.1 million decrease in net gain from sales of investment securities and a $2.8 million decrease in other income, primarily from higher CRA investment income, partially offset by a $2.5 million increase in trust custodial account fees.

Noninterest Expense

Noninterest expense totaled $99.0 million for the second quarter of 2022, an increase of $1.3 million compared to the first quarter of 2022, primarily driven by a $608,000 increase in data processing, a $581,000 increase in compensation and benefits, and a $561,000 increase in legal and professional services, partially offset by a $750,000 decrease in other expense.

Noninterest expense increased by $4.5 million compared to the second quarter of 2021. The increase was primarily due to a $4.1 million increase in compensation and benefits.

Income Tax

For the second quarter of 2022, income tax expense totaled $25.7 million, resulting in an effective tax rate of 26.9%, compared with income tax expense of $22.7 million and an effective tax rate of 25.4% for the first quarter of 2022, and income tax expense of $35.3 million and an effective tax rate of 26.8% for the second quarter of 2021. Our estimated effective tax rate for the full year is expected to be in the range of 26% to 27%.

BALANCE SHEET HIGHLIGHTS

Loans

Loans held for investment totaled $15.05 billion at June 30, 2022, an increase of $313.9 million, or 2.1%, from March 31, 2022, and an increase of $1.45 billion, or 10.7%, from June 30, 2021. The increase from March 31, 2022 was primarily driven by loan fundings and higher commercial line utilization rates, partially offset by higher prepayments and maturities. Commercial line utilization rates increased to an average of 41.6% for the second quarter of 2022, compared to an average of 39.5% for the first quarter of 2022 and 32.0% for the second quarter of 2021.

During the second quarter of 2022, loan commitments totaled $1.50 billion and new loan fundings totaled $1.12 billion, compared with $1.46 billion in loan commitments and $1.06 billion in new loan fundings for the first quarter of 2022, and $1.58 billion in loan commitments and $1.15 billion in new loan fundings for the second quarter of 2021. The increase in new loan fundings from the prior quarter was primarily due to growth in our multifamily, commercial real estate (“CRE”) non-owner-occupied, CRE owner-occupied, and commercial and industrial (“C&I”) loan segments.

At June 30, 2022, the total loan-to-deposit ratio was 83.2%, compared with 83.4% and 79.9% at March 31, 2022 and June 30, 2021, 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 June 30, 2022 was 4.06%, compared to 3.92% at March 31, 2022, and 4.11% at June 30, 2021. The quarter-over-quarter increase reflects higher rates on new originations and the repricing of loans as a result of the Federal Reserve Bank's interest rate increases since March 2022. The year-over-year decrease reflects the continued impact from the prepayments of higher rate loans.

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

The weighted average interest rate on new loan commitments was 4.11% in the second quarter of 2022, compared to 3.55% in the first quarter of 2022, and 3.59% in the second quarter of 2021.

Asset Quality and Allowance for Credit Losses

At June 30, 2022, our allowance for credit losses (“ACL”) on loans held for investment was $196.1 million, a decrease of $1.4 million from March 31, 2022, and a decrease of $36.7 million from June 30, 2021. The ACL as of June 30, 2022 was reflective of the improvement in asset quality, offset by higher loans held for investment as well as the impact of growing macroeconomic uncertainties. The decrease in ACL from June 30, 2021 was primarily due to favorable changes in the macroeconomic forecasts related to the COVID-19 pandemic.

During the second quarter of 2022, the Company incurred $5.2 million of net charge-offs, largely attributable to one C&I lending relationship, compared to $446,000 of net charge-offs during the first quarter of 2022 and $1.1 million of net charge-offs during the second quarter of 2021.

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 June 30, 2022 was 1.30%, compared to 1.34% at March 31, 2022 and 1.71% at June 30, 2021. The fair value net discount on loans acquired through total bank acquisitions was $63.6 million, or 0.42% of total loans held for investment, as of June 30, 2022, compared to $71.2 million, or 0.48% of total loans held for investment, as of March 31, 2022, and $94.4 million, or 0.69% of total loans held for investment, as of June 30, 2021.

Nonperforming assets totaled $44.4 million, or 0.20% of total assets, at June 30, 2022, compared with $55.3 million, or 0.26% of total assets, at March 31, 2022, and $34.4 million, or 0.17% of total assets, at June 30, 2021. Total loan delinquencies were $36.3 million, or 0.24% of loans held for investment, at June 30, 2022, compared to $43.7 million, or 0.30% of loans held for investment, at March 31, 2022, and $19.3 million, or 0.14% of loans held for investment, at June 30, 2021.

Classified loans totaled $106.2 million, or 0.71% of loans held for investment, at June 30, 2022, compared with $122.5 million, or 0.83% of loans held for investment, at March 31, 2022, and $131.4 million, or 0.97% of loans held for investment, at June 30, 2021.

Interest typically is not 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. At June 30, 2022, there were no loans 90 days or more past due and still accruing interest, compared with one CRE owner-occupied loan of $1.8 million in default for more than 90 days and still accruing interest as of March 31, 2022. There were $16.6 million of troubled debt restructured loans at June 30, 2022, compared with $16.9 million at March 31, 2022, and $17.8 million at June 30, 2021.

Investment Securities

At June 30, 2022, available-for-sale (“AFS”) and held-to-maturity (“HTM”) investment securities were $2.68 billion and $1.39 billion, respectively, compared to $3.22 billion and $996.4 million, respectively, at March 31, 2022. During the second quarter of 2022, the Company reassessed classification of certain investments and transferred to HTM, at fair value, the remaining AFS municipal bond portfolio totaling $444.6 million, which the Company intends to hold to maturity.

In total, investment securities were $4.07 billion at June 30, 2022, a decrease of $148.7 million from March 31, 2022, and a decrease of $436.6 million from June 30, 2021. The decrease in the second quarter of 2022 compared to the prior quarter was primarily the result of $161.0 million in principal payments, discounts from the AFS securities transferred from HTM, amortization, and redemptions, a $56.6 million decrease resulting from mark-to-market fair value adjustments, and $45.1 million in investment securities sales, partially offset by $114.0 million in investment securities purchases.

The decrease in investment securities from June 30, 2021 was primarily the result of $1.13 billion in sales, $584.7 million in principal payments, discounts from the AFS securities transferred from HTM, amortization, and redemptions, and a $266.5 million decrease resulting from mark-to-market fair value adjustments, partially offset by $1.55 billion in purchases.

Deposits

At June 30, 2022, total deposits were $18.08 billion, an increase of $395.4 million, or 2.2%, from March 31, 2022, and an increase of $1.07 billion, or 6.3%, from June 30, 2021.

At June 30, 2022, core deposits⁽¹⁾ totaled $16.63 billion, or 91.9% of total deposits, a decrease of $26.7 million, or 0.2%, from March 31, 2022, and an increase of $876.1 million, or 5.56%, from June 30, 2021. The decrease in the second quarter of 2022 compared to the prior quarter was primarily due to the decreases of $324.8 million in money market and savings deposits, and $172.2 million in noninterest-bearing checking deposits, offset by an increase of $470.4 million in interest-bearing checking deposits. The increase from June 30, 2021 was primarily driven by an increase in business checking deposits, partially offset by the decreases in money market/savings deposits.

At June 30, 2022, non-core deposits totaled $1.46 billion, an increase of $422.1 million, or 40.7%, from March 31, 2022, and an increase of $193.4 million, or 15.3%, from June 30, 2021. The increase in the second quarter of 2022 compared to the prior quarter was primarily due to the addition of $599.7 million in brokered certificates of deposit, partially offset by the decreases of $175.0 million in retail certificates of deposit and $2.6 million in brokered money market deposits. The increase from June 30, 2021 was primarily driven by an increase in brokered certificates of deposit, partially offset by decreases in retail certificates of deposit and brokered money market deposits.

The weighted average cost of total deposits for the second quarter of 2022 was 0.06%, compared to 0.04% for the first quarter of 2022, and 0.08% for the second quarter of 2021. The weighted average cost of core deposits⁽²⁾ for the second quarter was 0.04%, compared to 0.03% for the first quarter of 2022, and 0.06% for the second quarter of 2021.

At June 30, 2022, the end of period weighted average rate of total deposits was 0.13% and the end of period weighted average rate of core deposits was 0.06%, compared to 0.04% and 0.03%, respectively at March 31, 2022.

Borrowings

At June 30, 2022, total borrowings amounted to $930.9 million, an increase of $160,000 from March 31, 2022, and an increase of $454.3 million from June 30, 2021. Total borrowings at June 30, 2022 were comprised of $600.0 million of Federal Home Loan Bank of San Francisco (“FHLB”) term advances and $330.9 million of subordinated debt. The increase in borrowings at June 30, 2022 as compared to March 31, 2022 was primarily due to the amortization of the subordinated debt issuance costs. The increase in borrowings at June 30, 2022 as compared to June 30, 2021 was primarily due to an increase of $600.0 million in FHLB term advances, partially offset by redemptions of $135.0 million in subordinated notes and $10.4 million junior subordinated debt securities. At June 30, 2022, total borrowings represented 4.2% of total assets, compared to 4.3% and 2.3% as of March 31, 2022 and June 30, 2021, respectively.

Capital Ratios

At June 30, 2022, our common stockholder's equity was $2.76 billion, or 12.53% of total assets, compared with $2.78 billion, or 12.87%, at March 31, 2022, and $2.81 billion, or 13.70%, at June 30, 2021, with a book value per share of $29.01, compared with $29.31 at March 31, 2022, and $29.72 at June 30, 2021. At June 30, 2022, our ratio of tangible common equity to tangible assets⁽¹⁾ was 8.52%, compared with 8.79% at March 31, 2022, and 9.38% at June 30, 2021, and our tangible book value per share⁽¹⁾ was $18.86, compared with $19.12 at March 31, 2022, and $19.38 at June 30, 2021. The decreases in the ratio of tangible common equity to tangible assets and tangible book value per share at June 30, 2022 from the prior quarter were primarily driven by the other comprehensive loss from the impact of higher interest rates on our AFS securities portfolio.

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 June 30, 2022, 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 July 19, 2022, the Company's Board of Directors declared a $0.33 per share dividend, payable on August 12, 2022 to stockholders of record as of August 1, 2022. 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 second quarter of 2022, the Company did not repurchase any shares of common stock.

Restructuring

During July 2022, the Company completed a staff restructuring by eliminating 53 positions, or approximately 3% of the workforce. As a result, the Company will incur one-time severance and other employee-related costs totaling $1.1 million in the third quarter of 2022. The workforce reduction will not have a material impact to the Company's financial position or results of operations.

Conference Call and Webcast

The Company will host a conference call at 9:00 a.m. PT / 12:00 p.m. ET on July 21, 2022 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 July 28, 2022, at (877) 344-7529, conference ID 3670384.

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 headquartered in the western region of the United States, with approximately $22 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 41,000 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, 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. Given the ongoing and dynamic nature of the COVID-19 pandemic, the ultimate extent of the impacts on our business, financial position, results of operations, liquidity, and prospects remain uncertain. Continued deterioration in general business and economic conditions, including the tight labor market, supply chain disruptions, inflationary pressures, or turbulence in domestic or global financial markets could adversely affect our revenues, 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 or other intangible assets in future periods. Changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to the COVID-19 pandemic, 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, 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 transition away from USD LIBOR and related uncertainty as well as the risk and costs related to our adoption of 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; the impact of current and possible future governmental efforts to restructure the U.S. financial regulatory system; changes in consumer spending, borrowing, and savings habits; the effects of our lack of a diversified loan portfolio, including the risks of geographic and industry concentrations; 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; 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, which could impact business and economic conditions in the United States and abroad; cybersecurity threats and the cost of defending against them; 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 2021 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.