Classified in: Business
Subjects: EARNINGS, Conference Call, Webcast

Pacific Premier Bancorp, Inc. Announces First Quarter 2019 Results (Unaudited) and a Quarterly Cash Dividend of $0.22 Per Share

Pacific Premier Bancorp, Inc. (NASDAQ: PPBI) (the "Company"), the holding company of Pacific Premier Bank (the "Bank"), reported net income for the first quarter of 2019 of $38.7 million, or $0.62 per diluted share, compared with net income of $39.6 million, or $0.63 per diluted share, for the fourth quarter of 2018 and net income of $28.0 million, or $0.60 per diluted share, for the first quarter of 2018. Financial results for the first quarter of 2019 include merger-related expense of $655,000.

For the three months ended March 31, 2019, the Company's return on average assets ("ROAA") was 1.34%, return on average equity ("ROAE") was 7.78% and return on average tangible common equity ("ROATCE") was 15.45%, compared to 1.37%, 8.15% and 16.65%, respectively, for the three months ended December 31, 2018 and 1.39%, 8.92% and 16.51%, respectively, for the three months ended March 31, 2018. Total assets as of March 31, 2019 were $11.6 billion compared with $11.5 billion at December 31, 2018 and $8.1 billion at March 31, 2018. 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, "We delivered another solid quarter of operating results that reflects the strength of the organization that we have built over the past few years. Our ability to generate high levels of profitability, including an ROAA of 1.34% and an ROATCE of 15.45% while also maintaining strong credit metrics is a testament to the talent and discipline of our employees. Given the strength of our performance, the Company's board of directors has authorized and declared a $0.22 per share dividend payable on May 15, 2019.

"We have been focused on continuous improvement throughout the organization and we are seeing the benefits created from the Grandpoint acquisition. Further, we have consolidated 5 branches in the past two quarters while maintaining our high level of service to clients. Our efficiency ratio was again below 50% during the first quarter of 2019 and we expect operating leverage to further improve in the coming quarters.

"Our disciplined balance sheet and risk management continue to result in a relatively stable core net interest margin and solid asset quality. Looking ahead, we will remain focused on closely matching our loan and deposit growth, while emphasizing loan production in the areas that produce attractive risk-adjusted yields. We expect balance sheet growth to accelerate as we move through the year owing to key investments in technology around API banking, Salesforce and cash management services," said Mr. Gardner.

INCOME STATEMENT HIGHLIGHTS

Net Interest Income and Net Interest Margin

Net interest income totaled $111.4 million in the first quarter of 2019, a decrease of $6.1 million, or 5.2%, from the fourth quarter of 2018. The decrease in net interest income reflected the impact of two fewer days of interest in the first quarter of 2019 compared to fourth quarter of 2018, lower accretion income as well as higher funding costs.

Net interest margin for the first quarter was 4.37%, compared with 4.49% in the prior quarter. The decrease was primarily driven by lower accretion income of $3.8 million in the first quarter of 2019 compared to $6.3 million in the fourth quarter of 2018. Our core net interest margin, which excludes the impact of accretion, decreased 3 basis points to 4.21%, compared to 4.24% in the prior quarter. The decrease in the core net interest margin was attributable to higher cost of funds, partially offset by a higher core yields on interest-earning assets, which excludes the impact of accretion. Cost of deposits increased 8 basis point to 0.63% during the quarter.

We anticipate our core net interest margin will be in the range of 4.15% to 4.20% in the second quarter of 2019.

Net interest income for the first quarter of 2019 increased $30.1 million, or 37.1%, compared to the first quarter of 2018. The increase was primarily related to an increase in average interest-earning assets of $3.01 billion, which resulted primarily from our acquisition of Grandpoint in the third quarter of 2018, as well as organic loan growth since the end of the first quarter of 2018.

Provision for Credit Losses

A provision for credit losses of $1.5 million was recorded for the first quarter of 2019, compared with a provision for credit losses of $2.3 million for the fourth quarter of 2018. The first quarter of 2019 provision for credit losses includes a $486,000 reduction in reserve for unfunded commitments primarily due to lower attributable loan commitments and loss rates. The prior quarter, comparably, included a $580,000 reduction in reserve for unfunded commitments. Net charge-offs were $228,000 in the first quarter of 2019 compared to $138,000 in the fourth quarter of 2018.

Noninterest Income

Noninterest income for the first quarter of 2019 was $7.7 million, an increase of $711,000, or 10.2%, from the fourth quarter of 2018. The increase from the fourth quarter of 2018 was primarily due to a $427,000 increase in net gain from sales of investment securities, a $516,000 increase in other income and a $200,000 decrease in net gain from the sales of loans. The increase in other income included a favorable mark of $612,000 in Community Reinvestment Act ("CRA") related equity investments, compared to a loss of $148,000 in the prior quarter, and $292,000 in recoveries of pre-acquisition charged-off loans, compared to recoveries of $176,000 in prior quarter.

During the first quarter of 2019, the Bank sold $25.5 million of Small Business Administration ("SBA") loans for a net gain of $1.7 million, compared with the sale of $26.1 million of SBA loans for a net gain of $1.6 million during the prior quarter. The prior quarter also included the sale of $163.2 million of non-SBA loans for a net gain of $320,000.

We anticipate our noninterest income will range from $6.5 million to $7.0 million for the second quarter of 2019 based upon current SBA loan sale gain rates and normal, recurring business activities.

Noninterest income for the first quarter of 2019 increased $15,000, or 0.2%, compared to the first quarter of 2018. The increase from the first quarter of 2018 was primarily related to a $421,000 increase in net gain from sale of investment securities, a $299,000 increase in earnings on bank-owned life insurance ("BOLI"), a $210,000 increase in other service fee income and a $180,000 increase in service charges on deposit accounts, partially offset by a $1.2 million decrease in net gain from sales of loans.

Noninterest Expense

Noninterest expense totaled $63.6 million for the first quarter of 2019, a decrease of $3.7 million, or 5.4%, compared with the fourth quarter of 2018. The decrease was driven primarily by merger-related expense of $655,000 in the first quarter of 2019 compared with $2.6 million in the fourth quarter of 2018. Excluding merger-related expense, noninterest expense decreased $1.7 million to $62.9 million, primarily due to a full quarter's realization of cost savings attributable to the acquisition of Grandpoint. Compensation and benefits were also favorably impacted overall by lower staffing and incentives.

The Company anticipates that total operating expense will range from $64.0 million to $65.0 million for the second quarter of 2019.

Noninterest expense grew by $13.8 million, or 27.6% compared to the first quarter of 2018. The increase was primarily related to the additional costs from operations, personnel and branches retained from the acquisition of Grandpoint, core deposit intangible ("CDI") amortization expense, combined with our continued investment in personnel to support our organic growth in loans and deposits, partially offset by the reduction in merger-related expense.

Income Tax

For the first quarter of 2019, our effective tax rate was 28.3%, compared with 27.9% for the fourth quarter of 2018 and 24.1% for the first quarter of 2018. The slight increase in the effective tax rate for the first quarter of 2019 was primarily the result of a reduced tax benefit from stock-based compensation.

The Company expects our 2019 annual effective tax rate to be in the range of 27% to 28%.

The increase in the effective tax rate for the first quarter of 2019, compared to the first quarter of 2018, was primarily the result of $1.4 million reduced tax benefit from stock-based compensation.

BALANCE SHEET HIGHLIGHTS

Loans

Loans held for investment totaled $8.87 billion at March 31, 2019, an increase of $29.0 million, or 0.3%, from December 31, 2018, and an increase of $2.62 billion, or 42.0%, from March 31, 2018. The increase compared to the fourth quarter of 2018 was impacted by organic loan growth, partially offset by lower loan repayments and lower line utilization during the first quarter of 2019. The increase compared to the first quarter of 2018 was impacted by both organic loan growth and by the acquisition of Grandpoint, the latter of which added $2.4 billion of loans before fair value adjustments in the third quarter of 2018.

During the first quarter of 2019, the Bank generated $549.7 million of new loan commitments and $391.8 million of new loan fundings, compared with $730.0 million in new loan commitments and $531.5 million in new loan fundings for the fourth quarter of 2018 and $488.0 million in new loan commitments and $293.1 million in new loan fundings for the first quarter of 2018. The Bank experienced lower loan prepayments of $279.2 million in the first quarter of 2019 compared with $407.6 million in the prior quarter. The Bank also sold $25.5 million in loans in the first quarter compared with $189.3 million in the prior quarter, which included $26.1 million of SBA loans.

At March 31, 2019, the ratio of loans held for investment to total deposits was 101.7%, compared with 102.1% and 100.8% at December 31, 2018 and March 31, 2018, respectively.

The following table presents the composition of the loan portfolio for the period indicated:

The total end-of-period weighted average interest rate on loans, excluding fees and discounts, at March 31, 2019 was 5.13%, compared to 5.13% at December 31, 2018 and 5.04% at March 31, 2018. The quarter-over- quarter comparison is unchanged, while the year-over-year increase reflects the impact of higher rates on new loan originations as well as the favorable repricing of loans as a result of the 2018 Federal Reserve Bank fed funds rate increases, partially offset by the lower yields associated with the Grandpoint acquisition.

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

The weighted average rate on new loan production was 5.67% in the first quarter of 2019 compared with 5.35% in the fourth quarter of 2018 and 5.27% in the first quarter of 2018.

Asset Quality and Allowance for Loan and Lease Losses

At March 31, 2019, our allowance for loan and lease losses was $37.9 million, an increase of $1.8 million from December 31, 2018. The provision for loan losses for the first quarter of 2019 was $2.0 million, while net charge-offs were $228,000.

The ratio of allowance for loan losses to loans held for investment at March 31, 2019 amounted to 0.43%, compared to 0.41% and 0.49% at December 31, 2018 and March 31, 2018, 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 $57.2 million, or 0.65% of total loans held for investment as of March 31, 2019, compared to $61.0 million, or 0.69% of total loans held for investment as of December 31, 2018.

Nonperforming assets totaled $13.1 million, or 0.11% of total assets, at March 31, 2019, an increase of $8.0 million from December 31, 2018. During the first quarter of 2019, nonperforming loans increased $8.0 million to $12.9 million and other real estate owned increased $33,000 to $180,000, while other assets owned remained unchanged at $13,000. Loan delinquencies were $15.8 million, or 0.18% of loans held for investment, at March 31, 2019, compared to $12.9 million, or 0.15% of loans held for investment, at December 31, 2018.

The increase in nonperforming assets during the first quarter of 2019 was primarily attributable to the downgrade of one franchise loan, for which the Company has established a $1.6 million specific reserve.

Investment Securities

Investments securities available-for-sale totaled $1.22 billion at March 31, 2019, an increase of $66.9 million, or 5.8%, from December 31, 2018, and $327.5 million, or 36.9%, from March 31, 2018. The increase in the first quarter of 2019 compared to prior quarter was primarily the result of $252.5 million in purchases and mark-to-market fair value adjustment increases of $15.0 million, partially offset by $169.5 million in sales and $31.2 million in principal payments, amortization and redemptions. The increase compared to the same period last year was primarily the result of $392.9 million of investment securities from the acquisition of Grandpoint.

Deposits

At March 31, 2019, deposits totaled $8.72 billion, an increase of $56.8 million, or 0.7%, from December 31, 2018 and $2.52 billion, or 40.7%, from March 31, 2018. At March 31, 2019, non-maturity deposits totaled $7.12 billion, or 81.7% of total deposits, a decrease of $124.6 million, or 1.7%, from December 31, 2018 and an increase of $2.05 billion, or 40.4%, from March 31, 2018. During the first quarter of 2019, deposit increases included $34.2 million in interest checking and $183.0 million in brokered certificates of deposit, partially offset by decreases of $87.0 million in money market/savings deposits and $71.8 million in noninterest-bearing deposits. During the first quarter of 2019, the Bank added brokered certificates of deposits as rates moved favorably to these funding sources compared with higher cost, overnight borrowing rates.

The weighted average cost of deposits for the three-month period ending March 31, 2019 was 0.63%, compared to 0.55% for the three-month period ending December 31, 2018, and 0.39% for the three-month period ending March 31, 2018. The increase in the weighted average cost of deposits in the first quarter of 2019 compared to the prior quarter was primarily driven by higher rates in retail and brokered certificates of deposits and, to a lesser extent, money market accounts.

Borrowings

At March 31, 2019, total borrowings amounted to $720.0 million, a decrease of $58.0 million, or 7.5%, from December 31, 2018 and an increase of $131.3 million, or 22.3%, from March 31, 2018. Total borrowings for the quarter included $609.6 million of advances from the Federal Home Loan Bank of San Francisco ("FHLB") and $110.4 million of subordinated debt. At March 31, 2019, total borrowings represented 6.2% of total assets, compared to 6.8% and 7.3%, as of December 31, 2018 and March 31, 2018, respectively.

Capital Ratios

At March 31, 2019, our ratio of tangible common equity to total assets was 10.32%, compared with 10.02% at December 31, 2018, and 9.63% at March 31, 2018, with a tangible book value per share of $17.56, compared with $16.97 at December 31, 2018 and $15.63 at March 31, 2018.

At March 31, 2019, the Company had a tier 1 leverage ratio of 10.69%, common equity tier 1 capital ratio of 11.08%, tier 1 capital ratio of 11.32% and total capital ratio of 12.58%.

At March 31, 2019, the Bank exceeded all regulatory capital requirements with a tier 1 leverage ratio of 11.39%, common equity tier 1 capital ratio of 12.07%, tier 1 capital ratio of 12.07% and total capital ratio of 12.49%. These capital ratios each exceeded the "well capitalized" standards defined by the federal banking regulators of 5.00% for tier 1 leverage ratio, 6.5% for common equity tier 1 capital ratio, 8.00% for tier 1 capital ratio and 10.00% for total capital ratio.

Dividend and Stock Repurchase Program

On April 19, 2019, the Company's Board of Directors declared a $0.22 per share dividend, payable on May 15, 2019 to stockholders of record on May 1, 2019. The Company did not repurchase any shares under the recently approved stock repurchase program, which authorized the repurchase of up to $100 million of its common stock.

Conference Call and Webcast

The Company will host a conference call at 9:00 a.m. PT / 12:00 p.m. ET on April 23, 2019 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 April 30, 2019 at (877) 344-7529, conference ID 10130038.

About Pacific Premier Bancorp, Inc.

Pacific Premier Bancorp, Inc. is the holding company for Pacific Premier Bank, one of the largest banks headquartered in Southern California with approximately $11.6 billion in assets. Pacific Premier Bank is a business bank primarily focused on serving small and middle market businesses in the counties of Orange, Los Angeles, Riverside, San Bernardino, San Diego, San Luis Obispo and Santa Barbara, California, as well as markets in the states of Arizona, Nevada and Washington. Through its more than 40 depository branches, Pacific Premier Bank offers a diverse range of lending products including commercial, commercial real estate, construction, and SBA loans, as well as specialty banking products for homeowners associations and franchise lending nationwide.

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 Grandpoint 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. These risks and uncertainties include, but re 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 may make, such as our recent acquisition of Grandpoint Capital Inc., 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 effect of changes in accounting policies and practices, 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 other-than-temporary impairments of securities held by us; 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 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; 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 2018 Annual Report on Form 10-K of Pacific Premier Bancorp, Inc. filed with the SEC and available at the SEC's Internet site (http://www.sec.gov).

Pacific Premier 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.

SELECTED FINANCIAL DATA

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

For periods presented below, return on average tangible common equity is a non-U.S. GAAP financial measures derived from U.S. 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 measures provides useful information to gain an understanding of the operating results of our core business. However, this non-GAAP financial measure is supplemental and is not a substitute for an analysis based on GAAP measures. As other companies may use different calculations for this adjusted measure, this presentation may not be comparable to other similarly titled adjusted measures reported by other companies.

Tangible book value per share and tangible common equity to tangible assets (the "tangible common equity ratio") are non-U.S. GAAP financial measures derived from U.S. 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-U.S. GAAP financial measures provide information that is important to investors and that is useful in understanding our capital position and ratios. However, these non-U.S. GAAP financial measures are supplemental and are not a substitute for an analysis based on U.S. GAAP measures. As other companies may use different calculations for these measures, this presentation may not be comparable to other similarly titled measures reported by other companies.

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