Pacific Premier Bancorp, Inc. Announces Second Quarter 2023 Financial Results and a Quarterly Cash Dividend of $0.33 Per Share

Second Quarter 2023 Summary

• Net income of $57.6 million, or $0.60 per diluted share
• Return on average assets of 1.09%, return on average equity of 8.11%, and return on average tangible common equity⁽¹⁾ of 12.66%
• Pre-provision net revenue (“PPNR”)⁽¹⁾ to average assets of 1.52%, annualized
• Net interest margin of 3.33%
• Cost of deposits of 1.27%, and cost of non-maturity deposits⁽¹⁾ of 0.71%
• Nonperforming assets to total assets of 0.08%, and net charge-offs to average loans of 0.03%
• Common equity tier 1 capital ratio of 14.34% and total risk-based capital ratio of 17.24%
• Tangible book value per share⁽¹⁾ of $19.79; tangible common equity ratio⁽¹⁾ of 9.59%
• Available liquidity of $10 billion; cash and cash equivalents increased to $1.46 billion and unused borrowing capacity of $8.53 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 $57.6 million, or $0.60 per diluted share, for the second quarter of 2023, compared with net income of $62.6 million, or $0.66 per diluted share, for the first quarter of 2023, and net income of $69.8 million, or $0.73 per diluted share, for the second quarter of 2022.

For the quarter ended June 30, 2023, the Company’s return on average assets (“ROAA”) was 1.09%, return on average equity (“ROAE”) was 8.11%, and return on average tangible common equity (“ROATCE”)⁽¹⁾ was 12.66%, compared to 1.15%, 8.87%, and 13.89%, respectively, for the first quarter of 2023, and 1.29%, 10.10%, and 16.07%, respectively, for the second quarter of 2022. Total assets were $20.75 billion at June 30, 2023, compared to $21.36 billion at March 31, 2023, and $21.99 billion at June 30, 2022.

Steven R. Gardner, Chairman, Chief Executive Officer, and President of the Company, commented, “We delivered solid results during a challenging second quarter. Our performance reflects our disciplined focus on prudent and proactive risk, liquidity, and capital management, as well as our commitment to expanding our long-term client relationships.

“Our track record of sound enterprise risk management, including the strategic actions we implemented during the first half of last year, has positioned us well in the face of economic uncertainty and turbulence in our industry. We are well-prepared to expand our business when compelling opportunities arise and once risk-adjusted spreads on new loans become more attractive given the dynamics of today’s interest rate environment. As always, our bankers are continuing to provide best-in-class service to our clients.

“I am proud of our team's exceptional efforts during the quarter, focusing not only on existing clients but also cultivating new banking relationships. We anticipate the ongoing uncertainty and industry challenges to continue until the Federal Reserve completes its cycle of tighter monetary policy. Our organization remains committed to providing stability for our clients, communities, and employees while delivering long-term value for our stockholders.”

INCOME STATEMENT HIGHLIGHTS

Net Interest Income and Net Interest Margin

Net interest income totaled $160.1 million in the second quarter of 2023, a decrease of $8.5 million, or 5.1%, from the first 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 yields on average interest-earning assets.

The net interest margin for the second quarter of 2023 decreased 11 basis points to 3.33%, from 3.44% in the prior quarter. The lower net interest margin was due to a higher cost of funds, partially offset by higher yields on interest-earning assets and higher loan prepayment fees.

Net interest income for the second quarter of 2023 decreased $12.7 million, or 7.3%, compared to the second 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 second quarter of 2023, the Company recorded $1.5 million of provision expense, compared to $3.0 million for the first quarter of 2023, and $469,000 for the second quarter of 2022. The provision for credit losses was impacted by changes to the overall size, composition, asset quality trends, and unfunded commitments of the loan portfolio, as well as changes in the Company's macroeconomic forecasts. The decrease in the provision expense for loan losses in the current quarter was primarily attributable to the decrease in loans held for investment.

Noninterest Income

Noninterest income for the second quarter of 2023 was $20.5 million, a decrease of $647,000 from the first quarter of 2023. The decrease was primarily due to a $1.7 million decrease in trust custodial account fees driven by annual tax fees earned during the first quarter, partially offset by a $770,000 increase in other income.

Noninterest income for the second quarter of 2023 decreased $1.7 million, compared to the second quarter of 2022. The decrease was primarily due to a $994,000 decrease in trust custodial account fees, a $903,000 decrease in escrow and exchange fees attributable to the lower transaction activity in the commercial real estate market, and a $791,000 decrease in net gain from loan sales, partially offset by an $858,000 increase in other income.

Noninterest Expense

Noninterest expense totaled $100.6 million for the second quarter of 2023, a decrease of $708,000 compared to the first quarter of 2023, primarily due to an $869,000 decrease in compensation and benefits from reduced staffing levels and payroll taxes, and a $785,000 decrease in legal and professional services expenses, partially offset by a $758,000 increase in deposit expense driven by higher deposit earnings credit rates.

Noninterest expense increased by $1.7 million compared to the second quarter of 2022. The increase was primarily due to a $5.1 million increase in deposit expense driven by higher deposit earnings credit rates, partially offset by a $4.1 million decrease in compensation and benefits from reduced staffing levels.

Income Tax

For the second quarter of 2023, income tax expense totaled $20.9 million, resulting in an effective tax rate of 26.6%, compared with income tax expense of $22.9 million and an effective tax rate of 26.8% for the first quarter of 2023, and income tax expense of $25.7 million and an effective tax rate of 26.9% for the second quarter of 2022.

BALANCE SHEET HIGHLIGHTS

Loans

Loans held for investment totaled $13.61 billion at June 30, 2023, a decrease of $561.5 million, or 4.0%, from March 31, 2023, and a decrease of $1.44 billion, or 9.6%, from June 30, 2022. The decrease from March 31, 2023 was attributable to higher loan prepayments, maturities, and loan sales. The decrease from June 30, 2022 was primarily driven by lower loan fundings due to our disciplined approach around credit risk management and lower loan demand, as well as loan sales.

During the second quarter of 2023, new loan commitments totaled $148.5 million, and loan fundings totaled $71.6 million, compared with $116.8 million in loan commitments and $66.9 million in new loan fundings for the first quarter of 2023, and $1.50 billion in loan commitments and $1.12 billion in new loan fundings for the second quarter of 2022. During the second quarter of 2023, new origination activity remained muted given the current environment compared to the production levels seen in the second quarter of 2022.

At June 30, 2023, the total loan-to-deposit ratio was 82.3%, consistent with 82.4% and 83.2% at March 31, 2023 and June 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 June 30, 2023 was 4.73%, compared to 4.68% at March 31, 2023, and 4.06% at June 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 was 6.72% in the second quarter of 2023, compared to 7.43% in the first quarter of 2023, and 4.11% in the second quarter of 2022. The decrease in weighted average interest rate on new loan commitments from the linked quarter was largely driven by the change in the loan commitment mix.

Asset Quality and Allowance for Credit Losses

At June 30, 2023, our allowance for credit losses (“ACL”) on loans held for investment was $192.3 million, a decrease of $3.1 million from March 31, 2023, and a decrease of $3.7 million from June 30, 2022. The slight decline in the ACL from March 31, 2023 and June 30, 2022 was commensurate with the relative decreases in loans held for investment balances.

During the second quarter of 2023, the Company incurred $3.7 million of net charge-offs, compared to $3.3 million during the first quarter of 2023, and $5.2 million during the second 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 June 30, 2023 increased to 1.41%, compared to 1.38% at March 31, 2023, and 1.30% at June 30, 2022. The fair value net discount on loans acquired through total bank acquisitions was $48.4 million, or 0.35% of total loans held for investment, as of June 30, 2023, compared to $52.2 million, or 0.37% of total loans held for investment, as of March 31, 2023, and $63.6 million, or 0.42% of total loans held for investment, as of June 30, 2022.

Nonperforming assets totaled $17.4 million, or 0.08% of total assets, at June 30, 2023, compared with $30.4 million, or 0.14% of total assets, at March 31, 2023, and $44.4 million, or 0.20% of total assets, at June 30, 2022. Loan delinquencies were $31.0 million, or 0.23% of loans held for investment, at June 30, 2023, compared to $20.8 million, or 0.15% of loans held for investment, at March 31, 2023, and $36.3 million, or 0.24% of loans held for investment, at June 30, 2022.

Classified loans totaled $119.9 million, or 0.88% of loans held for investment, at June 30, 2023, compared with $161.1 million, or 1.14% of loans held for investment, at March 31, 2023, and $106.2 million, or 0.71% of loans held for investment, at June 30, 2022.

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

Investment Securities

At June 30, 2023, available-for-sale (“AFS”) and held-to-maturity (“HTM”) investment securities were $2.01 billion and $1.74 billion, respectively, compared to $2.11 billion and $1.75 billion, respectively, at March 31, 2023, and $2.68 billion and $1.39 billion, respectively, at June 30, 2022.

In total, investment securities were $3.75 billion at June 30, 2023, a decrease of $112.5 million from March 31, 2023, and a decrease of $320.4 million from June 30, 2022. The decrease in the second quarter of 2023 compared to the prior quarter was primarily the result of $90.9 million in principal payments, amortization, and redemptions, and an increase of $21.7 million in AFS securities mark-to-market unrealized loss.

The decrease in investment securities from June 30, 2022 was primarily the result of $535.3 million in sales, $352.7 million in principal payments, discounts from the AFS securities transferred to HTM, amortization, and redemptions, and an increase of $45.3 million in AFS securities mark-to-market unrealized loss, partially offset by $606.0 million in purchases.

Deposits

At June 30, 2023, total deposits were $16.54 billion, a decrease of $667.9 million, or 3.9%, from March 31, 2023, and a decrease of $1.54 billion, or 8.5%, from June 30, 2022.

At June 30, 2023, non-maturity deposits⁽¹⁾ totaled $13.46 billion, or 81.4% of total deposits, a decrease of $752.7 million, or 5.3%, from March 31, 2023, and a decrease of $3.17 billion, or 19.1%, from June 30, 2022. The decreases from prior quarters were largely driven by the industry-wide turmoil experienced in March and May 2023 and partially by clients redeploying funds into higher yielding alternatives.

At June 30, 2023, maturity deposits totaled $3.08 billion, an increase of $84.7 million, or 2.8%, from March 31, 2023, and an increase of $1.63 billion, or 111.8%, from June 30, 2022. The increase in the second quarter of 2023 compared to the prior quarter was primarily due to an increase of $108.9 million in retail certificates of deposit, partially offset by a $24.5 million decrease in brokered certificates of deposit. The increase from June 30, 2022 was primarily driven by increases in brokered and retail certificates of deposit.

The weighted average cost of total deposits for the second quarter of 2023 was 1.27%, compared to 0.94% for the first quarter of 2023, and 0.06% for the second quarter of 2022. The increases in the weighted average cost of deposits for the second quarter of 2023, compared to the first quarter of 2023 and the second quarter of 2022, were principally driven by higher pricing across deposit categories and a greater mix of maturity deposits. The weighted average cost of non-maturity deposits⁽¹⁾ for the second quarter of 2023 was 0.71%, compared to 0.54% for the first quarter of 2023, and 0.04% for the second quarter of 2022.

At June 30, 2023, the end-of-period weighted average rate of total deposits was 1.40%, compared to 1.15% at March 31, 2023, and 0.13% at June 30, 2022. At June 30, 2023, the end-of-period weighted average rate of non-maturity deposits was 0.78%, compared to 0.61% at March 31, 2023, and 0.06% at June 30, 2022.

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

Borrowings

At June 30, 2023, total borrowings amounted to $1.13 billion, remaining flat from March 31, 2023, and an increase of $200.6 million from June 30, 2022. Total borrowings at June 30, 2023 were comprised of $800.0 million of Federal Home Loan Bank of San Francisco (“FHLB”) term advances and $331.5 million of subordinated debt. The increase in borrowings at June 30, 2023 as compared to June 30, 2022 was due to a $200.0 million increase in FHLB term advances that were utilized to manage interest rate risk and liquidity.

As of June 30, 2023, our unused borrowing capacity was $8.53 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 accessed during the second quarter of 2023.

Capital Ratios

At June 30, 2023, our common stockholder's equity was $2.85 billion, or 13.73% of total assets, compared with $2.83 billion, or 13.25%, at March 31, 2023, and $2.76 billion, or 12.53%, at June 30, 2022, with a book value per share of $29.71, compared with $29.58 at March 31, 2023, and $29.01 at June 30, 2022. At June 30, 2023, the ratio of tangible common equity to tangible assets⁽¹⁾ was 9.59%, compared with 9.20% at March 31, 2023, and 8.52% at June 30, 2022, and tangible book value per share⁽¹⁾ was $19.79, compared with $19.61 at March 31, 2023, and $18.86 at June 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 June 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 July 25, 2023, the Company's Board of Directors declared a $0.33 per share dividend, payable on August 14, 2023 to stockholders of record as of August 7, 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 second quarter of 2023, the Company did not repurchase any shares of common stock.

Subsequent Events

On July 12, 2023, as part of its interest rate sensitivity management, the Company entered into two $150.0 million in notional amount, $300.0 million in aggregate, of pay-fixed and receive-floating interest rate swaps associated with certain fixed rate loans, primarily multifamily and commercial real estate loans, to manage its exposure to changes in fair value on these instruments attributable to changes in the designated SOFR benchmark interest rate. These two interest rate swaps are structured as 15-month and 18-month terms, respectively, and designated as fair value hedges using the portfolio layer method. Under the swap agreement, the Company receives variable-rate interest payments in exchange for making fixed-rate payments over the lives of the contracts without exchanging the notional amounts.

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, 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 August 3, 2023, at (877) 344-7529, conference ID 2138296.

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 $21 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 37,000 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. 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; 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, 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.