Pacific Premier Bankcorp (PPBI)

[Enterprising Investor]

Pacific Premier Bancorp, Inc. Announces Second Quarter 2014 Results (7/23/14)

Second Quarter 2014 Summary

• Net income of $4.6 million, or $0.27 per fully diluted share

• Return on average tangible common equity of 11.96%

• Return on average assets of 1.06%

• Total assets increase 10% from the end of the prior quarter to $1.9 billion

• Loan originations increase to $152 million

• Total loans increase 11% from the end of the prior quarter

• Net interest margin of 4.26%

• Efficiency ratio improves to 56.56%

• Tangible book value per share increases $0.30 to $9.56

IRVINE, Calif.--(BUSINESS WIRE)--Pacific Premier Bancorp, Inc. (NASDAQ: PPBI) (the “Company”), the holding company of Pacific Premier Bank, reported net income for the second quarter of 2014 of $4.6 million, or $0.27 per diluted share. This compares with net income of $2.6 million, or $0.15 per diluted share, for the first quarter of 2014 and a net loss of $249,000, or ($0.02) per share, for the second quarter of 2013.

For the first six months of 2014, the Company recorded net income of $7.3 million, or $0.42 per diluted share. This compares with net income of $1.7 million, or $0.11 per diluted share, for the first six months of 2013.

The Company had one-time merger-related expenses totaling $626,000 associated with the acquisition of Infinity Franchise Holdings, LLC (“Infinity Franchise Holdings”) in the first quarter of 2014, $5.0 million associated with the acquisition of San Diego Trust Bank (“San Diego Trust”) in the second quarter of 2013 and $1.7 million associated with the acquisition of First Associations Bank (“First Associations”) in the first quarter of 2013. Excluding one-time merger-related expenses during the reporting periods, the Company’s reported net income for the second quarter of 2014 of $4.6 million, or $0.27 per diluted share, compares to an adjusted net income of $3.0 million, or $0.17 per diluted share, for the first quarter of 2014 and $3.0 million, or $0.19 per diluted share, for the second quarter of 2013. Also excluding one-time merger-related expenses, the Company reported adjusted net income of $7.7 million, or $0.44 per diluted share, for the first six months of 2014, compares to an adjusted net income of $6.1 million, or $0.39 per diluted share, for the first six months of 2013.

For the three months ended June 30, 2014, the Company’s return on average assets was 1.06% and return on average equity was 9.79%, compared with an adjusted 0.73% return on average assets and an adjusted 6.64% return on average equity for the three months ended March 31, 2014, and an adjusted 0.86% return on average assets and an adjusted 7.59% return on average equity for the three months ended June 30, 2013. For the three months ended June 30, 2014, the Company’s return on average tangible common equity was 11.96%, compared with 7.22% for the three months ended March 31, 2014, and a minus 0.41% for the three months ended June 30, 2013.

Steven R. Gardner, President and Chief Executive Officer of the Company, commented on the results, “The second quarter results reflect our employees’ ability to generate solid profitable growth. During the current quarter, we saw strong growth in net interest income and noninterest income while costs remained well contained. Following a number of quarters of elevated expenses related to acquisitions and upgrading our technology platform, we experienced a more normalized level of expenses in the second quarter. As a result, our efficiency ratio improved to 56.6%, which helped drive our return on tangible common equity to 11.96%.

“We had a very strong quarter of business development, resulting in $152 million in loan originations, which was well diversified with each of our major lending areas making significant contributions. Consistent with our focus on small- and middle-market business banking, nearly half of our loan production was in commercial and industrial loans. Our franchise lending group is providing an additional vehicle for C&I loan growth, contributing $28 million in loan originations in the second quarter, and the group continues to build its loan pipeline.

“Our strong loan growth outpaced deposit gathering in the second quarter moving our loan to deposit ratio to above 100%. We are comfortable running the business with an elevated ratio for a period of time. However, we anticipate seeing stronger deposit inflows in the second half of the year, driven by new customer relationships we are developing.

“With the diverse business mix we have developed, we see good opportunities to attract more commercial customers throughout Southern California. We believe that the greater Los Angeles area represents a largely untapped growth opportunity for Pacific Premier, and we are planning to steadily increase our penetration into this market in the coming quarters.”

Net Interest Income and Net Interest Margin

Net interest income totaled $17.7 million in the second quarter of 2014, up $1.1 million or 6.4% from the first quarter of 2014. The increase in net interest income primarily reflected an increase in the average interest-earning assets of $98.4 million, partially offset by a decrease in net interest margin of 4 basis points. The increase in average assets for the second quarter of 2014 included increases in loans of $107.6 million and cash and cash equivalents of $9.3 million, partially offset by a decrease in investment securities of $18.6 million. The net interest margin for the second quarter of 2014 was 4.26%, compared with 4.30% in the first quarter of 2014. The decrease in net interest margin was primarily attributable to a decrease in yield on average interest-earning assets of 2 basis points, primarily from lower yielding loans of 8 basis points, and higher interest-bearing liability costs of 2 basis points, primarily from higher deposit costs of 3 basis points. The weighted average loan portfolio rate at June 30, 2014 was 4.94%, compared to 5.00% at March 31, 2014. The 6 basis point decrease primarily reflected lower rates on loan originations during the second quarter of 2014.

Net interest income for the second quarter of 2014 increased $4.1 million or 30.2%, compared to the second quarter of 2013. The increase in net interest income was primarily related to an increase in interest-earning assets of $306.3 million, primarily related to the acquisition of San Diego Trust, which occurred in the second quarter of 2013, and organic loan growth, and an increase in net interest margin of 25 basis points. The increase in the net interest margin was primarily related to a higher yield on interest-earning assets of 23 basis points, as we deployed liquidity received from our acquisitions of First Associations and San Diego Trust to increase the level of higher yielding loans within interest-earning assets. The margin also benefited from a drop in the cost of interest-bearing liabilities by 4 basis points.

For the first six months of 2014, net interest income totaled $34.3 million, up $7.8 million or 29.6% over net interest income for the first six months of 2013. The increase reflected an increase in interest-earning assets of $370.9 million while the net interest margin remained unchanged at 4.28%. The increase in interest-earning assets was primarily related to the acquisitions of First Associations and San Diego Trust in the first and second quarters of 2013, respectively, and our organic loan growth. The net interest margin included a decrease in the yield on interest-earning assets of 7 basis points along with an improved mix in higher yielding loans from leveraging the liquidity received from our acquisitions and a decrease in the cost of interest-bearing liabilities of 10 basis points with an improved mix of lower costing transaction accounts.

Provision for Loan Losses

We recorded a $1.0 million provision for loan losses during the second quarter of 2014, up from $949,000 for the first quarter of 2014 and $322,000 for the second quarter of 2013. The increase in the provision for loan losses in the second quarter of 2014 was attributable to the growth in our loan portfolio. In the second quarter of 2014, we had net loan recoveries of $18,000, compared to net loan charge-offs of $464,000 in the first quarter of 2014 and $322,000 in the second quarter of 2013.

For the first six months of 2014, we recorded a $2.0 million provision for loan losses, up from $618,000 recorded for the first six months of 2013. The $1.4 million increase in the provision for loan losses was primarily attributable to the organic growth in our loan portfolio. Net loan charge-offs amounted to $446,000 for the first six months of 2014, down from $618,000 for the first six months of 2013. Substantially all of the charge-offs in 2014 were attributable to loans that we acquired from our FDIC-assisted transactions.

Noninterest income

Noninterest income for the second quarter of 2014 was $2.5 million, up $419,000 or 20.4% from the first quarter of 2014. The increase from the prior quarter was primarily related to the following:
• A $750,000 increase in net gain from sale of loans. During the second quarter of 2014, we sold $12.8 million in Small Business Administration (“SBA”) loans at an overall premium of 10% and $276,000 in commercial non-owner occupied loans. That compares with sales of $4.7 million in SBA loans at an overall premium of 11% and $4.8 million in non-owner occupied and multi-family loans in the first quarter of 2014.
• A $201,000 increase in other income. During the first quarter of 2014, we recorded a non-recurring $180,000 market value loss related to loans held for sale that were moved to loans held for investment.

Partially offsetting these increases was a decrease of $574,000 in loan servicing fees, primarily as the result of the receipt in the first quarter of 2014 of a $500,000 loan fee related to the assumption of an existing loan.

Compared with the second quarter of 2013, noninterest income for the second quarter of 2014 increased by $40,000 or 1.6%. The increase was primarily related to higher net gain from sale of loans of $1.1 million, partially offset by lower net gain from sale of investment securities of $970,000.

For the first six months of 2014, noninterest income totaled $4.5 million, up from $4.2 million for the first six months of 2013. The increase of $368,000 or 8.9% was primarily related to higher net gain from sale of loans of $901,000 and loan servicing fees of $494,000, partially offset by a lower net gain from sale of investment securities of $908,000 and other income of $197,000. The increase in loan servicing fees primarily related to a $500,000 loan fee associated with the assumption of an existing loan and the decrease in other income related to a nonrecurring $180,000 market value loss associated with loans held for sale, both of which occurred in the first half of 2014.

Noninterest Expense

Noninterest expense totaled $11.6 million for the second quarter of 2014, down $1.9 million or 14.0%, compared with the first quarter of 2014. The decrease was primarily related to the following:
• A $646,000 decrease in data processing and communications expense, primarily related to a nonrecurring $357,000 fee that was paid to terminate services from our payment processing system provider in the first quarter of 2014 and a more cost effective core operating system agreement;
• A $626,000 decrease in one-time merger-related expenses associated with the first quarter acquisition of Infinity Franchise Holdings;
• A $406,000 decrease in compensation and benefits costs, primarily related to lower employer payroll taxes in the second quarter, compared to the first quarter; and
• A $208,000 decrease in legal, audit and professional fees, primarily related to a $192,000 fee paid in the first quarter of 2014 for services related to the upgrade in our core operating system.

Compared to the second quarter of 2013, noninterest expense for the second quarter of 2014 decreased by $4.2 million or 26.6%. The decrease was primarily related to a $5.0 million decrease in one-time merger-related expenses, a $533,000 decrease in expenses related to other real estate owned operations and a $270,000 decrease in data processing and communications expenses. These decreases were partially offset by increases in the second quarter of 2014 in compensation and benefits expense of $798,000, premises and occupancy of $237,000 and deposit expenses of $232,000. These increases were primarily due to our acquisitions, as well as employees added in lending and credit areas to increase our loan production.

For the first six months of 2014, noninterest expense totaled $25.2 million, down $1.9 million or 6.9% from the first six months of 2013. The decrease was primarily related to a $6.1 million decrease in one-time merger-related expenses and a decrease of $557,000 in expenses related to other real estate owned operations, partially offset by increases of $2.6 million in compensation and benefits, $833,000 in deposit expenses, $532,000 in premises and occupancy expense, $297,000 in other expense, $226,000 in data processing and communications expense and $167,000 in FDIC insurance premiums. The increases in expenses were primarily due to costs associated with our acquisitions and expansion of our lending platform to increase loan production.

The Company’s efficiency ratio was 56.56% for the second quarter of 2014, compared to 67.96% for the first quarter of 2014 and 67.79% for the second quarter of 2013. The improvement in the current quarter efficiency ratio was primarily from higher net interest income and gains from sales of loans along with lower data processing and communications expense. For the second quarter of 2014, the Company’s noninterest expense to average asset ratio was 2.66%, compared to 3.27% in the first quarter of 2014, and 2.96% for the second quarter of 2013.

Income Tax

For the second quarter of 2014, our effective tax rate was 38.08%, compared with a 37.3% for the first quarter of 2014 and a negative effective tax rate of 57.6% for the second quarter of 2013. Operating results during the second quarter of 2013 included $955,000 of one-time merger-related costs that were treated as non-deductible for tax purposes. These expenses were largely the cause for the negative effective tax rate. For the first half of 2014, our effective tax rate was 37.79%, compared to 42.4% for the first half of 2013. The referenced one-time merger-related costs also impacted the difference between the effective tax rate for the first half of 2014, compared to the first half of 2013.

Assets and Liabilities

At June 30, 2014, assets totaled $1.9 billion, up $176.2 million or 10.0% from March 31, 2014, and up $207.3 million or 12.1% from December 31, 2013. The increase in assets from March 31, 2014 was primarily related to increases in loans held for investment of $141.4 million, investment securities of $33.0 million and investments in stock of $4.4 million, partially offset by a decrease in cash and cash equivalents of $4.1 million. The increase in assets since year-end 2013 was primarily related to loans held for investment of $226.6 million associated with organic loan growth and the acquisition of Infinity Franchise Holdings, which added assets at the acquisition date of $80.2 million. Partially offsetting those increases was a decrease in investment securities available for sale of $21.0 million and cash and cash equivalents of $6.5 million.

Investment securities available for sale totaled $235.1 million at June 30, 2014, up $33.0 million or 16.3% from March 31, 2014, but down $21.0 million or 8.2% from December 31, 2013. The increase in securities available for sale during the second quarter of 2014 was primarily due to purchases of $60.7 million and an increase in market value of $1.8 million, partially offset by sales totaling $21.8 million and principal pay downs of $7.2 million. The decrease in securities from December 31, 2013 was primarily related to sales of $77.8 million and principal pay downs of $13.4 million, partially offset by $66.3 million of investment security purchases and an improvement in unrealized loss on securities of $5.2 million. The purchase of investment securities primarily related to investing excess liquidity from our bank acquisitions, while the sales were made to help fund loan production and to improve our interest-earning asset mix by redeploying investment funds into loans.

Net loans held for investment totaled $1.46 billion at June 30, 2014, an increase of $140.3 million or 10.7% from March 31, 2014, and an increase of $225.1 million or 18.3% from December 31, 2013. The increase in loan balances since March 31, 2014 was primarily related to increases in commercial and industrial (“C&I”) loans of $47.7 million, warehouse facilities loans of $33.0 million, multi-family loans of $28.3 million, commercial non-owner occupied loans of $26.8 million, construction loans of $17.2 million and SBA loans of $4.1 million, partially offset by decreases in one-to-four family loans of $9.4 million and commercial owner occupied loans of $7.1 million. The increase in loans from December 31, 2013 included increases in C&I loans of $132.5 million, primarily from the acquisition of Infinity Franchise Holdings which added $78.8 million of total loans at the acquisition date, as well as increases in real estate loans of $64.0 million, warehouse facility loans of $26.5 million and SBA loans of $4.5 million, partially offset by decreases in one-to-four family loans of $13.2 million and commercial owner occupied loans of $4.3 million.

Loan activity during the second quarter of 2014 included loan originations of $152.2 million, of which $104.8 million were funded at origination, and loan purchases of $54.2 million, partially offset by loan repayments of $45.4 million, loan sales of $13.0 million and an increase in undisbursed loan funds of $7.3 million. During the second quarter of 2014, our loan originations were diversified across loan type and included $70.9 million in C&I loans, which consisted in part of $27.7 million in franchise business loans, $27.4 million in construction loans, $26.5 million in commercial non-owner occupied loans, $16.8 million in SBA loans, and $5.7 million in commercial owner occupied loans. Loan originations for the second quarter of 2014 had a weighted average rate of 5.05%, compared to a weighted average rate of 4.98% in the first quarter of 2014. At June 30, 2014, our loan to deposit ratio was 101.4%, up from 92.4% at March 31, 2014 and 95.2% at December 31, 2013.

At June 30, 2014, total deposits were $1.45 billion, up $10.4 million or 0.7% from March 31, 2014, and up $139.3 million or 10.7% from December 31, 2013. The increase in deposits since March 31, 2014 was primarily related to increases in certificates of deposit of $16.5 million and money market of $5.9 million, partially offset by a decrease in interest-bearing checking of $8.4 million. The increase in deposits since year-end 2013 included increases in certificates of deposit of $57.5 million, noninterest bearing checking of $44.1 million, money market of $31.5 million and interest-bearing checking of $8.0 million.

The total end of period weighted average cost of deposits at June 30, 2014 was 0.36%, up from 0.34% at March 31, 2014 and 0.33% at December 31, 2013.

At June 30, 2014, total borrowings amounted to $265.6 million, up $159.8 million or 151.0% from March 31, 2014 and $51.2 million or 23.9% from December 31, 2013. The change in borrowings primarily related to overnight Federal Home Loan Bank (“FHLB”) advances used to supplement the funding of loans as deposit levels fluctuate. Additionally, during the second quarter of 2014, repurchase agreement debt related to our home owners associations (“HOA”) business decreased $219,000 to $16.8 million. At June 30, 2014, total borrowings represented 13.8% of total assets and had an end of period weighted average cost of 0.61%, compared with 6.1% of total assets at a weighted average cost of 1.22% at March 31, 2014 and 12.5% of total assets at a weighted average cost of 0.63% at December 31, 2013.

Asset Quality

At June 30, 2014, nonperforming assets totaled $2.7 million or 0.14% of total assets, down from $3.4 million or 0.20% of total assets at both March 31, 2014 and December 31, 2013. During the second quarter of 2014, nonperforming loans decreased $733,000 to total $1.9 million and other real estate owned remained unchanged at $752,000.

At June 30, 2014, our allowance for loan losses was $9.7 million, up $1.0 million from March 31, 2014 and $1.5 million from December 31, 2013. At June 30, 2014, our allowance for loan losses as a percent of nonaccrual loans was 501.44%, up from 324.8% at March 31, 2014 and 364.3% at December 31, 2013. At June 30, 2014, the ratio of allowance for loan losses to total gross loans was 0.66%, unchanged from the percentage at both March 31, 2014 and December 31, 2013. Including the loan fair market value discounts recorded in connection with our acquisitions, the allowance for loan losses to total gross loans ratio was 0.85% at June 30, 2014, compared with 0.88% at March 31, 2013 and 0.93% at December 31, 2013.

Stock Repurchase Program and Capital Ratios

During the second quarter of 2014, we repurchased 175,543 shares of our Company’s common stock at a weighted average cost of $14.08. The repurchases were made pursuant to a stock repurchase program authorized by the Company’s Board of Directors in June 2012. The current program authorizes the repurchase of up to 1,000,000 shares of the Company’s common stock. Through June 30, 2014, the Company has repurchased 262,897 shares of its common stock at an average cost of $14.13 under the current authorization.

At June 30, 2014, our ratio of tangible common equity to total assets was 8.62%, with a tangible book value of $9.56 per share and a book value per share of $11.26.

At June 30, 2014, Pacific Premier Bank exceeded all regulatory capital requirements with a ratio for tier 1 leverage capital of 9.85%, tier 1 risked-based capital of 10.83% and total risk-based capital of 11.46%. These capital ratios exceeded the “well capitalized” standards defined by the federal banking regulators of 5.00% for tier 1 leverage capital, 6.00% for tier 1 risked-based capital and 10.00% for total risk-based capital. At June 30, 2014, the Company had a ratio for tier 1 leverage capital of 10.04%, tier 1 risked-based capital of 10.99% and total risk-based capital of 11.62%.

Conference Call and Webcast

The Company will host a conference call at 9:00 a.m. PT / 12:00 p.m. ET on July 23, 2014 to discuss its financial results. Analysts and investors may participate in the question-and-answer session. The conference call will be webcast live on the Investor Relations section of the Company’s website www.ppbi.com and an archived version of the webcast will made be available in the same location shortly after the live call has ended. The conference call can be accessed by telephone at 888-317-6016 and ask to join the “Pacific Premier Bancorp” conference call. Additionally a telephone replay will be made available through July 31, 2014 at 877-344-7529, access code 10049444.

About Pacific Premier Bancorp, Inc.

Pacific Premier Bancorp, Inc. is the holding company for Pacific Premier Bank, one of the largest community banks headquartered in Southern California. Pacific Premier Bank is a business bank primarily focused on serving small- and medium-sized businesses in the counties of Los Angeles, Orange, Riverside, San Bernardino and San Diego, California. Pacific Premier Bank offers a diverse range of lending products including commercial, CRE, construction, residential warehouse and SBA loans, as well as specialty banking products for HOAs and franchise lending nationwide. Pacific Premier Bank serves its customers through its 13 full-service depository branches in Southern California located in the cities of Encinitas, Huntington Beach, Irvine, Los Alamitos, Newport Beach, Palm Desert, Palm Springs, San Bernardino, San Diego and Seal Beach.

http://www.businesswire.com/news/home/20140723005445/en/Pacific-Premier-Bancorp-Announces-Quarter-2014-Results#.U8-yPYlOWUk