Pacific Premier Bankcorp (PPBI)

[Enterprising Investor]

PPBI Announces First Quarter 2011 Results (4/28/11)

COSTA MESA, Calif., April 28, 2011 /PRNewswire/ -- 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 2011 of $4.8 million or $0.44 per share on a diluted basis, compared to first quarter of 2010 of $456,000 or $0.04 per share on a diluted basis.

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The Company's pre-tax income totaled $7.9 million for the quarter ended March 31, 2011, compared to $556,000 for the quarter ended March 31, 2010. The increase of $7.3 million between quarters was primarily due to:

•A $4.2 million increase from the gain recorded on the acquisition of certain assets and liabilities of the former Canyon National Bank ("Canyon National") from the Federal Deposit Insurance Corporation ("FDIC") as receiver;
•A $2.4 million increase in net interest income due to a higher net interest margin and a higher level of interest earning assets;
•A $1.1 million favorable change in net gain (loss) from the sale of loans; and
•A $950,000 decrease in provision for loan losses.


Partially offsetting the above favorable items was a $2.0 million increase in noninterest expense, primarily associated with higher compensation and benefits costs, legal and audit costs and other expenses.

Steven R. Gardner, President and Chief Executive Officer, commented on the recent acquisition of Canyon National, "This transaction significantly improves the Banks liability composition as Canyon National had an attractive deposit base totaling $204.7 million at a cost of 47 basis points including $149.6 million of transaction accounts. Since the closing of the acquisition, we have been working diligently to transition the accounts of our new customers over to the Bank in an efficient and seamless manner. The acquisition of Canyon National also enhanced the diversification of the Bank's loan portfolio by adding $45.4 million in owner-occupied CRE loans, $28.6 million in C&I loans, $27.9 million in residential one-to-four family residences and $27.6 million in non-owner occupied CRE loans."

Mr. Gardner also addressed the Company's results for the first quarter of 2011, "We are pleased with our financial results for the first quarter of 2011. Since the fourth quarter of 2009, our net interest margin has expanded each quarter, including the current quarter by 30 basis points to 4.21%, and is up 65 basis points as compared to 3.56% for the prior year period. We utilized the increased levels of liquidity in the first quarter of 2011 to pay off all of our $40.0 million in Federal Home Loan Bank advances, which reduced our current quarter average borrowings costs by 142 basis points when compared with the prior quarter."

Mr. Gardner continued, "We have been extremely pleased over the past several years with the asset quality we have been able to maintain due to both our conservative credit culture and our proactive approach to managing the loan portfolio. We will bring this same disciplined approach to the Coachella Valley and in particular the nonperforming assets we acquired in the transaction. At quarter end our delinquent loans increased to 3.79% of total loans and our nonperforming assets increased to 3.26% of total assets primarily due to the Canyon National acquisition. Within the first week of closing we immediately began mitigating potential losses through a multipronged approach to dispose of and/or resolve these problem assets."

Mr. Gardner continued, "As part of our focus on capital management, during the first quarter we repurchased and retired two outstanding warrants that were exercisable for an aggregate of 600,000 shares of the Company's common stock. The result of this transaction reduced the total amount of fully diluted shares outstanding by approximately 5.4%, and was accretive to the Company's fully diluted book value per share. It's with confidence in the Company's future that we took this step and we will continue to look for ways to effectively deploy capital to enhance shareholder value."

Mr. Gardner concluded, "We are starting to see evidence of a self-sustaining recovery in consumer and business spending and increasing confidence from business owners in our primary market areas. As a result, we anticipate that economic conditions will continue to gradually improve during 2011. However, we still expect elevated credit costs throughout the current year due to the softness in the real estate markets. We believe the Bank is well positioned to serve our existing customers, garner new business relationships and take advantage of growth opportunities, including additional FDIC assisted transactions in 2011."

Net Interest Income

Net interest income totaled $9.1 million in the first quarter of 2011, up $2.4 million or 36.7% from the first quarter of 2010. The increase reflected a higher net interest margin of 4.21% in the current quarter, compared with 3.56% in the first quarter of 2010, and an increase in average interest-earning assets of $116.2 million in the current quarter to total $865.0 million. The increase in the current quarter net interest margin of 65 basis points primarily reflected a decrease in the average costs on interest-bearing liabilities of 72 basis points that more than offset the decrease in the yield on interest-earning assets of one basis point. For the current quarter, the decrease in costs on our interest-bearing liabilities was primarily associated with a decline in our cost of deposits of 49 basis points from 1.70% to 1.21%, primarily as a result of the deposits acquired from Canyon National which changed our deposit composition to have a higher mix of lower costing transaction accounts, and a decline in our cost of borrowings of 188 basis points from the pay down of higher costing borrowings. The overall acquired deposit cost added at the time of acquisition was 47 basis points. The increase in average interest-earning assets during the current quarter of $116.2 million was primarily due to the Canyon National acquisition, which added $195.7 million in assets on February 11, 2011.

Provision for Loan Losses

The Company recorded a $106,000 provision for loan losses during the first quarter of 2011, compared with $1.1 million recorded in the first quarter of 2010. Strong credit quality metrics and recent charge-off history within our non-acquired loan portfolio was a significant determinate in estimating the adequacy of our allowance for loan losses and our resultant provision at the end of the first quarter of 2011. Net loan charge-offs amounted to $106,000 in the current quarter, down $686,000 from $792,000 experienced during the first quarter of 2010. The loan charge offs we experienced in the first quarter of 2011 were related to the sluggish economic conditions in our primary markets as well as the constraints on the financial markets in which we lend.

Noninterest income

Our noninterest income totaled $5.2 million in the first quarter of 2011, representing an increase of $6.0 million from the same period in the prior year. All of our noninterest income categories had favorable changes in the current quarter, but most prominent was from the $4.2 million gain recorded on the Canyon National acquisition, the $1.1 million favorable change from the gain on sale of loans in the current quarter, compared to a loss in the same period in the prior year, and the $260,000 increase in deposit fee income primarily associated with the acquired Canyon National deposits.

Noninterest Expense

Noninterest expense totaled $6.4 million in the first quarter of 2011, up $2.0 million or 47.1% from the same period in the prior year. The increase was almost entirely related to the Canyon National acquisition, which included one-time costs of approximately $550,000. Most all of our noninterest expense categories were higher which included increases in compensation and benefits costs of $1.2 million, primarily from an increase in employee count and termination costs, legal and audit fees of $267,000, other expenses of $304,000, premises and occupancy expenses of $174,000 and data processing and communication costs of $117,000.

Assets and Liabilities

At March 31, 2011, assets totaled $956.5 million, up $188.8 million or 24.6% from March 31, 2010 and up $129.7 million or 15.7% from December 31, 2010. The increase in assets over the first quarter of 2011 was primarily due to the Canyon National acquisition as loans held for investment, net increased $135.5 million, primarily related to acquired loans of $149.7 million, OREO increased $10.5 million, primarily from acquired OREO of $12.0 million, and other assets increased $5.4 million. Partially offsetting these increases were decreases in investment securities available for sale of $14.2 million, primarily from sales, and in cash and cash equivalents of $6.6 million.

Investment securities available for sale totaled $140.9 million at March 31, 2011, up $20.7 million or 17.2% from March 31, 2010, but down $14.2 million or 9.1% from December 31, 2010. The decrease during the first quarter of 2011 was primarily from the sale of $20.6 million of investment securities and principal payments of $5.7 million, partially offset by $12.8 million of investment securities purchased in the Canyon National acquisition. At March 31, 2011, 57 of our 77 private label mortgage-backed securities ("MBS") were classified as substandard or impaired and had a book value of $4.2 million and a market value of $3.7 million. Interest received from these securities is applied against their respective principal balances. All of our private label MBS were acquired when we redeemed our shares in certain mutual funds in 2008.

Net loans held for investment totaled $691.1 million at March 31, 2011, an increase of $153.2 million or 28.5% from March 31, 2010. During the first quarter of 2011, loans held for investment increased $135.5 million or 24.4% from the same period in the prior year and included acquired loans of $149.7 million, loan originations of $18.6 million, purchases of $2.6 million and loan sales of $12.1 million. At March 31, 2011, the loans to deposits ratio was 84.1%, down from 89.3% at March 31, 2010 and from 85.6% at December 31, 2010. At March 31, 2011, our allowance for loan losses was unchanged from the prior year end balance and essentially the same as the prior year-ago quarter balance at $8.9 million. The allowance for loan losses as a percent of nonaccrual loans was 43.0% at March 31, 2011, down from 213.3% at March 31, 2010 and 271.0% at December 31, 2010. At March 31, 2011, the ratio of allowance for loan losses to total gross loans was 1.3%, down from 1.7% at March 31, 2010 and 1.6% at December 31, 2010.

Deposits totaled $832.8 million at March 31, 2011, up $219.9 million or 35.9% from March 31, 2010 and $173.5 million or 26.3% from December 31, 2010. The increase in deposits over the first quarter of 2011 was primarily due to deposits acquired from Canyon National of $204.7 million, partially offset by a decrease in non-acquisition deposits of $25.3 million, essentially all in certificates of deposit. In the first quarter of 2011, we had growth in interest-bearing transaction accounts of $84.7 million, in noninterest-bearing accounts of $71.0 million, in wholesale certificates of deposit of $11.9 million and in retail certificates of deposit of $6.0 million. At March 31, 2011, the Company had no brokered deposits. As result of the Canyon National acquisition and reduction in non-acquisition certificates of deposit, the total cost of deposits at March 31, 2011 decreased to 1.07%, from 1.64% at March 31, 2010 and from 1.40% at December 31, 2010.

At March 31, 2011, total borrowings amounted to $38.8 million, down $38.0 million or 49.5% from March 31, 2010 and $40.0 million or 50.8% from December 31, 2010. During the first quarter of 2011 and as a result of the liquidity we received from the Canyon National acquisition, we paid off $40.0 million in fixed rate Federal Home Loan Bank term advances. Total borrowings at March 31, 2011 represented 4.1% of total assets and had a weighted average cost of 3.04%, compared with 10.01% of total assets at a weighted average cost of 3.96% at March 31, 2010 and 9.53% of total assets and at a weighted average cost of 1.62% at December 31, 2010.

Nonperforming Assets

At March 31, 2011, nonperforming assets totaled $31.2 million or 3.26% of total assets, up from $10.5 million or 1.36% at March 31, 2010 and $3.3 million or 0.40% at December 31, 2010. The increase during the first quarter of 2011 was primarily associated with the Canyon National acquisition as nonperforming loans increased $17.4 million to $20.7 million, while acquired OREO properties equaled our current quarter ending balance of $10.5 million. During the current quarter, all OREO properties that we held prior to the acquisition were sold.

Regulatory Capital Ratios

At March 31, 2011, our ratio of tangible common equity to total assets was 8.11% with a basic book value per share of $7.90 and diluted book value per share of $7.64.

At March 31, 2011, the Bank exceeded all regulatory capital requirements with a ratio for tier 1 leverage capital of 9.09%, tier 1 risked-based capital of 10.29% and total risk-based capital of 11.40%. 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 March 31, 2011, the Company had a ratio for tier 1 leverage capital of 9.19%, tier 1 risked-based capital of 10.33% and total risk-based capital of 11.44%.

The Company owns all of the capital stock of the Bank. The Bank provides business and consumer banking products to its customers through our nine full-service depository branches in Southern California located in the cities of Costa Mesa, Huntington Beach, Los Alamitos, Newport Beach, Palm Desert, Palm Springs, San Bernardino and Seal Beach.

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