Pacific Premier Bankcorp (PPBI)

[Enterprising Investor]

Pacific Premier Bancorp, Inc. Announces Second Quarter 2015 Results (7/22/15)

Second Quarter 2015 Summary

• Net income of $7.8 million, up $3.2 million over the prior year quarter

• Diluted earnings per share of $0.36

• Net interest margin of 4.26%

• Deposit costs reduced to 0.31%

• Loan originations of $284 million, an increase from $206 million in the prior quarter

• Efficiency ratio of 53.66%

• ROAA of 1.18% and ROATCE of 14.84%

• Tangible book value increased to $10.36 per share

• Completed systems conversion and consolidation of Independence Bank in April 2015

IRVINE, Calif.--(BUSINESS WIRE)--Pacific Premier Bancorp, Inc. (NASDAQ: PPBI) (the “Company”), the holding company of Pacific Premier Bank (the “Bank”), reported net income for the second quarter of 2015 of $7.8 million, or $0.36 per diluted share. This compares with net income of $1.8 million, or $0.09 per diluted share, for the first quarter of 2015 and net income of $4.6 million, or $0.27 per diluted share, for the second quarter of 2014.

For the first six months of 2015, the Company recorded net income of $9.6 million, or $0.46 per diluted share. This compares with net income of $7.3 million, or $0.42 per diluted share, for the first six months of 2014.

For the three months ended June 30, 2015, the Company’s return on average assets was 1.18% and return on average tangible common equity was 14.84%, compared with a return on average assets of 0.29% and a return on average tangible common equity of 4.04% for the three months ended March 31, 2015, and a return on average assets of 1.06% and a return on average tangible common equity of 11.96% for the three months ended June 30, 2014.

Steven R. Gardner, President and Chief Executive Officer of the Company, commented on the results, “We are pleased with our performance in the second quarter, as we delivered the most profitable quarter in our history and a 69% increase in earnings over the same period in 2014. This strong performance was driven by positive trends in loan production, deposit gathering, and an expansion in our net interest margin. In addition, following the integration of the Independence Bank acquisition, we are realizing a solid improvement in our operating leverage as reflected in our efficiency ratio of 53.66%.

“We are seeing good loan demand throughout our markets, which resulted in $284 million in new loan commitments during the second quarter, a record level for the Company. Our loan production is well diversified, with more than $20 million of originations in C&I, construction, franchise, and SBA lending businesses. The strong loan production enabled us to redeploy the excess liquidity we had built during the first quarter into higher yielding assets, which helped drive a 19 basis point improvement in our net interest margin compared to the prior quarter, excluding the impact from a special dividend received from the FHLB.

“We continue to utilize loan sales as part of our fee income and portfolio management strategies. During the second quarter, we sold $21 million in SBA loans - which generated $2.0 million in gain on sale income - and sold $68 million of other loans, generating $700,000 in gain on sale income.

“We continue to have strong loan and deposit pipelines, which we expect will drive quality balance sheet growth that should further enhance our profitability over the second half of 2015. Our organic growth and acquisition strategy is generating attractive returns for our shareholders and positions us well for those management teams and boards of directors that are seeking a high performing strategic partner," said Mr. Gardner.

Net Interest Income and Net Interest Margin

Net interest income totaled $26.8 million in the second quarter of 2015, up $3.6 million or 15.8% from the first quarter of 2015. The increase in net interest income reflected an increase in average interest-earning assets of $174.0 million, and an increase in the net interest margin of 27 basis points to 4.26%. The increase in average interest-earning assets during the second quarter of 2015 was primarily related to organic loan growth from new loan originations and higher utilization rates of warehouse mortgage lines of credit. Additionally, the increase was the result of a full quarter benefit of the loans acquired from the acquisition of Independence Bank, which added $332.9 million in loans at the end of January. The expansion in the net interest margin to 4.26% was mostly the result of an increase in the yield on earning assets. The increase in yield on earning assets was driven by a favorable asset mix arising from the $261.7 million growth in average loans and a $121.5 million decline in average cash balances. Lastly, the Company received a special dividend from the San Francisco Federal Home Loan Bank during the second quarter of approximately $500,000. This dividend had the impact of increasing the net interest margin by 8 bps.

Net interest income for the second quarter of 2015 increased $9.1 million or 51.2% compared to the second quarter of 2014. The increase was related to an increase in average interest-earning assets of $855 million, primarily related to our organic loan growth since the end of the second quarter of 2014 and our acquisition of Independence Bank during the first quarter of 2015, with our net interest margin remaining unchanged at 4.26%.

Provision for Loan Losses

We recorded a $1.8 million provision for loan losses during the second quarter of 2015, compared with $1.8 million for the first quarter of 2015 and $1.0 million for the second quarter of 2014. The provision for loan losses in the second quarter of 2015 was primarily related to growth in certain segments of the loan portfolio. Net loan charge-offs amounted to $379,000 in the second quarter of 2015, compared to $384,000 from the first quarter of 2015 and net loan recoveries of $18,000 from the second quarter of 2014.

Noninterest income

Noninterest income for the second quarter of 2015 was $4.7 million, an increase of $2.7 million or 132.6% from the first quarter of 2015. The increase from the first quarter of 2015 was primarily related to $2.7 million in net gain from the sale of loans.

Compared to the second quarter of 2014, noninterest income for the second quarter of 2015 increased $2.2 million or 90.7%. The increase was primarily related to an increase in gain on the sale of loans of $1.4 million and an increase in loan servicing fees of $442,000.

Noninterest Expense

Noninterest expense totaled $17.2 million for the second quarter of 2015, a decrease of $3.3 million or 15.9%, compared with the first quarter of 2015. The decrease was primarily related to the decrease in non-recurring merger-related expense of $4.0 million. Otherwise, non-interest expense grew by approximately $700,000 as the Company fully integrated the operations of Independence Bank during the quarter and incurred one-time severance costs unrelated to the merger of approximately $400,000.

Compared to the second quarter of 2014, noninterest expense for the second quarter of 2015 increased by $5.6 million or 47.9%. The increase in expense was primarily related to higher compensation and benefits costs of $3.0 million. Growth in non-interest expense is related to both the acquisition of Independence Bank and the continued investment in personnel and locations to support our organic growth in loans and deposits.

The Company’s efficiency ratio was 53.66%, 64.63%, and 56.56% for the quarters ended June 30, 2015, March 31, 2015 and June 30, 2014, respectively.

Income Tax

For the first and second quarter of 2015, our effective tax rate was 37.1%, compared with 38.08% for the second quarter of 2014. The decrease from our second quarter of 2014 effective tax rate was primarily related to low income tax credits and increased interest income from municipal securities.

Assets and Liabilities

At June 30, 2015, assets totaled $2.6 billion, a decrease of $116.2 million or 4.2% from March 31, 2015 and up $597.9 million or 29.3% from December 31, 2014. The decrease in total assets from March 31, 2015 was primarily related to a decrease in cash and cash equivalents of $95.3 million. The increase in assets since December 31, 2014 was principally the result of the acquisition of Independence Bank in the first quarter of 2015, which added $449.6 million in assets, including $332.9 million in loans, $56.1 million in investment securities available for sale, $28.0 million in goodwill and $11.3 million in bank owned life insurance. Additionally, organic loan growth and an increase in investment securities contributed to the increase in assets during the second quarter of 2015. The increase in assets at June 30, 2015 as compared to June 30, 2014 was related to both organic and acquisitive loan growth of $651.8 million, as well as growth in investment securities.

Investment securities available for sale totaled $280.4 million at June 30, 2015, relatively unchanged from March 31, 2015, and an increase of $78.8 million or 39.1% from December 31, 2014. The $45.3 million increase in investment securities as compared to $235.1 million at June 30, 2014, was primarily due to the acquisition of Independence Bank, which added $56.1 million in investment securities in the first quarter of 2015, along with our purchases of $20.1 million, partially offset by sales of $7.2 million and principal paydowns of $9.1 million. In general, the purchase of investment securities primarily resulted from our investing excess liquidity from our banking operations and to maintain a certain level of securities to our overall asset size, while the sales were made to help fund loan production and improve our interest-earning asset mix.

Loans held for investment totaled $2.1 billion at June 30, 2015, a decrease of $12.8 million or 0.6% from March 31, 2015, and an increase of $489.9 million or 30.1% from December 31, 2014. The increase since December 31, 2014 was primarily related to loans acquired from Independence Bank of $332.9 million at acquisition date, as well as our organic loan originations. This included increases in multifamily of $137.3 million, commercial owner occupied loans of $171.5 million, warehouse facilities of $84.3 million, commercial non-owner occupied of $43.6 million, construction of $34.8 million and SBA of $21.9 million. The $652.0 million increase in loans from June 30, 2014, including loans acquired from Independence Bank, included increases in real estate loans of $231.0 million, commercial and industrial loans of $134.9 million, warehouse facilities loans of $84.1 million, commercial owner occupied loans of $165.8 million and SBA loans of $35.2 million. The total end of period weighted average interest rate on loans, excluding fees and discounts, at June 30, 2015 was 4.89%, compared to 4.90% at March 31, 2015 and 4.94% at June 30, 2014.

Loan activity during the second quarter of 2015 included organic loan originations of $283.7 million that were offset by $88.4 million in loans sold, $112.4 million in loan repayments, and a $95.5 million increase in undisbursed loan funds. The first quarter of 2015 included loans acquired from Independence Bank, organic loan originations of $206.3 million and loan purchases of $30.3 million and a decrease in undisbursed loan funds of $39.4 million, partially offset by loan repayments of $106.4 million. At June 30, 2015 our loan to deposit ratio was 101.1%, compared with 104.3% and 99.9% at March 31, 2015 and December 31, 2014, respectively.

At June 30, 2015, deposits totaled $2.1 billion, up $52.8 million or 2.6% from March 31, 2015 and $650.4 million or 45.0% from June 30, 2014. During the second quarter of 2015, deposit increases included $15.9 million of noninterest bearing deposits and wholesale/brokered certificate of deposits of $50.6 million. The increase in deposits since the end of the second quarter of 2014 was due to organic growth and the acquisition of Independence Bank, which added $336.0 million in deposits.

The weighted average cost of deposits for the three month period ending June 30, 2015 was 0.31%, a decrease from 0.34% for both the first quarter of 2015 and the second quarter of 2014.

At June 30, 2015, total borrowings amounted to $237.7 million, a decrease of $176.0 million or 42.5% from March 31, 2015 and $27.9 million from June 30, 2014. At June 30, 2015, total borrowings represented 9.0% of total assets, compared to 15.0% and 13.8%, as of March 31, 2015 and June 30, 2014, respectively.

Asset Quality

Nonperforming assets totaled $5.1 million or 0.19% of total assets at June 30, 2015, down from $5.7 million or 0.21% at March 31, 2015. During the second quarter of 2015, nonperforming loans decreased $281,000 to total $4.4 million and other real estate owned decreased $286,000 to $711,000.

At June 30, 2015, our allowance for loan losses was $15.1 million, up $1.5 million from March 31, 2015. At June 30, 2015, our allowance for loan losses as a percent of nonaccrual loans was 344.59%, up from 292.64% at March 31, 2015. The increase in the allowance for loan losses at June 30, 2015 was mainly attributable to the growth in certain segments of the loan portfolio. At June 30, 2015, the ratio of allowance for loan losses to total gross loans was 0.71%, up from 0.64% at March 31, 2015 and 0.66% at June 30, 2014. Including the loan fair market value discounts recorded in connection with our acquisitions, the allowance for loan losses to total gross loans ratio was 0.94% at June 30, 2015, compared with 0.90% at March 31, 2015 and 0.87% at December 31, 2014.

Capital Ratios

At June 30, 2015, our ratio of tangible common equity to total assets was 8.65%, with a tangible book value of $10.36 per share and a book value per share of $13.09.

At June 30, 2015, the Bank exceeded all regulatory capital requirements with a ratio for tier 1 leverage capital of 10.94%, common equity tier 1 risk-based capital of 12.54%, tier 1 risk-based capital of 12.54% and total risk-based capital of 13.20%. These capital ratios exceeded the “well capitalized” standards defined by the federal banking regulators of 5.00% for tier 1 leverage capital, 6.5% for common equity tier 1 risk-based capital, 8.00% for tier 1 risk-based capital and 10.00% for total risk-based capital. At June 30, 2015, the Company had a ratio for tier 1 leverage capital of 8.98%, common equity tier 1 risk-based capital of 9.92%, tier 1 risk-based capital of 10.24% and total risk-based capital of 13.53%.

Conference Call and Webcast

The Company will host a conference call at 9:00 a.m. PT / 12:00 p.m. ET on July 22, 2015 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 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 29, 2015 at 877-344-7529, conference ID 10068939.

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 middle market business 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, commercial real estate, construction, residential warehouse and SBA loans, as well as specialty banking products for homeowners associations and franchise lending nationwide. Pacific Premier Bank serves its customers through its 16 full-service depository branches in Southern California located in the cities of Corona, Encinitas, Huntington Beach, Irvine, Los Alamitos, Newport Beach, Palm Desert, Palm Springs, Riverside, San Bernardino, San Diego, Seal Beach and Tustin.

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