Pacific Premier Bancorp, Inc. Announces Third Quarter 2013 Results (Unaudited)

Pacific Premier Bancorp, Inc. (NASDAQ:PPBI) (the “Company”), the holding company of Pacific Premier Bank (the “Bank”), reported earnings for the third quarter of 2013 of $3.1 million, or $0.18 per share on a diluted basis, compared with adjusted earnings for the second quarter of 2013 of $3.0 million, or $0.19 per share on a diluted basis, before non-recurring merger-related expenses. Taking into account the one-time merger-related expenses of $5.0 million in connection with the acquisition of San Diego Trust Bank (“San Diego Trust”), which closed in June 2013, the Company recorded a net loss of $249,000, or $0.02 per share on a diluted basis, for the second quarter of 2013.

For the three months ended September 30, 2013, the Company’s return on average assets was 0.78% and return on average equity was 7.29%, compared with an adjusted return on average assets of 0.86% and an adjusted return on average equity of 7.59% for the three months ended June 30, 2013.

Steven R. Gardner, President and Chief Executive Officer of the Company, commented on the results, “We executed well in the third quarter on our strategies to redeploy our excess liquidity into higher yielding assets. Our loan portfolio grew 8% during the third quarter through a combination of strong loan production and opportunistic purchases of multi-family and single family residential mortgage loans. We generated loan growth of 18.8% in C&I and 10.1% in owner-occupied commercial real estate, which helped to offset reduced activity in our warehouse lending business. Most of our loan production occurred late in the third quarter, with our end-of-period gross loans being over $100 million higher than our average loans in the quarter, which we expect will result in further improvement in interest income in the fourth quarter.

“We are experiencing positive momentum in most of our lending groups, including C&I, CRE, construction, HOA, and SBA. We expect to see continued strength in our loan production, which we anticipate will result in further improvement in our mix of interest-earning assets and additional leverage from our operating model.

“We have now successfully completed the systems conversions for both First Associations Bank and San Diego Trust Bank, and the integration of their operations has gone very smoothly. We are continuing our efforts to capitalize on the attractive growth opportunities that exist in the San Diego market and the national HOA market. With these integrations completed, we are continuing our evaluation of additional strategic opportunities that can further expand our franchise and create additional value for our shareholders,” said Mr. Gardner.

Net Interest Income and Net Interest Margin

Net interest income totaled $15.0 million in the third quarter of 2013, up $1.4 million or 10.4%, compared with the second quarter of 2013. The increase in net interest income reflected higher average interest-earning assets of $154.3 million, partially offset by a decrease in net interest margin. The increase in average interest-earning assets during the third quarter of 2013 was primarily related to a full quarter’s impact of interest-earning assets acquired from San Diego Trust in June 2013. The increase in average assets for the third quarter of 2013 included loans of $77.4 million, investment securities of $48.8 million and cash and cash equivalents of $28.1 million.

The net interest margin for the third quarter of 2013 was 3.93%, compared with 4.01% in the second quarter of 2013. The decrease in net interest margin is primarily attributable to a decrease in yield on average interest-earning assets of 11 basis points, primarily from a higher mix of lower yielding investment securities and cash, which were acquired in our acquisition of San Diego Trust and a decrease in our loan portfolio yield. The loan portfolio yield for the third quarter was 5.49%, 20 basis points lower than the second quarter and primarily reflected lower rates on loan originations than the rates on our existing portfolio loans. Partially offsetting this decrease was lower deposit costs of 4 basis points resulting from an improved mix of lower cost deposits associated with the San Diego Trust acquisition and lowering our pricing on certificates of deposits.

Provision for Loan Losses

We recorded a $646,000 provision for loan losses during the third quarter of 2013, compared with $322,000 provision for loan losses for the second quarter of 2013. The credit quality of our loan portfolio continues to remain strong, which has allowed us to keep our allowance for loan losses unchanged during the quarter. Net loan charge-offs amounted to $646,000 in the third quarter of 2013, up $324,000 from $322,000 experienced during the second quarter of 2013. The increase in charge-offs was primarily attributable to three loans acquired in our FDIC assisted transactions.

Noninterest income

Noninterest income for the third quarter of 2013 amounted to $2.3 million, down $110,000 or 4.5%, compared with the second quarter of 2013. The decrease was primarily attributable to lower gains on the sale of investment securities of $763,000, a decline in loan servicing fees of $81,000, and a decline in other income of $75,000. Partially offsetting these decreases were higher gains on loan sales of $760,000 from the sale of $7.8 million in Small Business Administration (“SBA”) loans resulting in a 9% overall premium and $3.7 million in commercial real estate.

Noninterest Expense

Noninterest expense totaled $11.8 million for the third quarter of 2013, down $4.1 million or 25.8%, compared with the second quarter of 2013. The decrease primarily related to one-time expenses related to the San Diego Trust acquisition in the previous quarter of $5.0 million and a decline in other real estate owned operations of $575,000. These decreases were partially offset by higher expense primarily related to the full quarter impact of the San Diego Trust acquisition and costs related to higher loan production. Increases occurred within the following expense categories:

• Legal, audit and professional fees by $430,000;
• Premises and occupancy by $271,000;
• Compensation and benefits costs increased by $261,000;
• Other expense by $256,000;
• Loan expenses by $98,000;
• Data processing and communications expense by $69,000; and
• Office and postage expense of $53,000.

Income Tax

For the third quarter of 2013, our effective tax rate was 37.6%, compared with a negative 57.6% for the second quarter of 2013. Operating results during the second quarter of 2013 included $955,000 of merger-related costs associated with the San Diego Trust acquisition that were treated as non-deductible transaction costs, which was largely the cause for the negative effective tax rate. For the first three quarters of 2013, the effective tax rate was 39.4%, compared to 38.7% for the first three quarters of 2012.

Assets and Liabilities

At September 30, 2013, assets totaled $1.6 billion, up $10.6 million or 0.7% from June 30, 2013, and up $395.2 million or 33.7% from December 31, 2012. The increase in assets since year-end 2012 was primarily related to the acquisitions of First Associations Bank (“First Associations”), which added assets at the acquisition date of $394.1 million, partially offset by $78.5 million of First Associations deposits held by the Bank prior to the acquisition and San Diego Trust, which added assets at the acquisition date of $201.1 million. Partially offsetting increases in assets from these acquisitions was the liquidity used to reduce higher-cost deposits by $112.3 million and to pay down Federal Home Loan Bank (“FHLB”) borrowings of $29.0 million. The increase in assets during the third quarter of 2013 was primarily related to loans held for investment of $83.5 million, partially offset by a decrease in cash of $42.6 million and investment securities available for sale of $30.2 million.

Investment securities available for sale totaled $282.8 million at September 30, 2013, down $30.2 million or 9.6% from June 30, 2013, and up $198.8 million or 236.5% from December 31, 2012. The increase in securities since year-end 2012 was primarily due to the First Associations acquisition in March 2013, which added $222.4 million of investment securities at the acquisition date, the San Diego Trust acquisition in June, which added $124.8 million at the acquisition date, and purchases of $98.8 million of investment securities, partially offset by the sale of $210.9 million of securities, and $27.5 million in principal pay downs. During the third quarter of 2013, we purchased $92.6 million of investment securities as we put excess liquidity from our acquisitions to work. Towards the end of the third quarter of 2013, we were able to sell $109.3 million of investment securities to help fund two sizable loan purchases and improve our interest-earning asset mix.

Net loans held for investment totaled $1.1 billion at September 30, 2013, an increase of $83.5 million or 8.0% from June 30, 2013 and an increase of $156.8 million or 16.1% from December 31, 2012. The increase in loans from December 31, 2012 included loans from the San Diego Trust acquisition of $42.4 million and from First Associations acquisition of $26.4 million and was primarily associated with increases in real estate loan balances of $170.7 million, commercial owner occupied loans of $71.2 million and commercial and industrial loans of $58.4 million. Partially offsetting these increases was a decrease in warehouse facility loans of $146.7 million. The increase in loan balance from the end of the second quarter was primarily related to increases in one-to-four family loans of $68.0 million, multi-family loans of $46.1 million, commercial and industrial loans of $27.5 million and commercial owner occupied loans of $20.4 million, partially offset by a decrease in warehouse facilities of $86.2 million. During the third quarter of 2013, commitments on our warehouse repurchase facility credits decreased $13.8 million to a total of $303.5 million with our end of period utilization rates for these loans decreasing from 42.7% at June 30, 2013 to 16.18% at September 30, 2013.

Loan activity during the third quarter of 2013 included loan originations of $102.7 million, loan purchases of $124.4 million, partially offset by an increase in undisbursed loan funds of $100.1 million, loan repayments of $32.9 million and loan sales of $11.5 million. Our loan originations were well diversified and included commercial non-owner occupied of $36.6 million, commercial owner occupied of $20.1 million, homeowner’s association loans of $18.2 million, commercial and industrial of $14.1 million and multifamily of $5.1 million. Loan originations for the third quarter of 2013 had a weighted average rate of 4.67%, compared to 4.44% in the previous quarter. Our loan purchases included residential loans of $76.7 million and multifamily loans of $43.2 million. At September 30, 2013, our loan to deposit ratio was 88.9%, up from 80.6% at June 30, 2013, but down from 109.0% at December 31, 2012.

Deposits totaled $1.3 billion at September 30, 2013, down $30.1 million or 2.3% from June 30, 2013 and up $379.4 million or 41.9% from December 31, 2012. The increase in deposits since year-end 2012 was primarily related to the San Diego Trust and First Associations acquisitions. In the first quarter of 2013, the First Associations acquisition added deposits of $356.8 million at a cost of 21 basis points at the closing of the acquisition, partially offset by $78.5 million of First Associations deposits held by the Bank prior to acquisition. In the second quarter of 2013, the San Diego Trust acquisition added deposits of $183.9 million at a cost of 23 basis points at the closing of the acquisition. Excluding the deposit acquisition increases and $49.0 million of First Association’s deposits held at December 31, 2012, we had an adjusted net decrease in deposits of $112.3 million in the first three quarters of 2013. The net decrease in deposits for both the current quarter and the current year-to-date period primarily resulted from lowering our pricing on certificates of deposits, which resulted in a desired runoff upon maturity.

During the third quarter of 2013, we had a decrease in retail certificates of deposit of $51.1 million, partially offset by increases in noninterest-bearing accounts of $18.5 million and interest-bearing transaction accounts of $2.5 million. These deposit changes have increased the mix of our transaction accounts to 77.7% at September 30, 2013, up from 74.3% at June 30, 2013 and 60.1% at year-end 2012. The total end of period cost of deposits at September 30, 2013 was 0.30%, down from 0.35% at June 30, 2013 and 0.51% at December 31, 2012.

At September 30, 2013, total borrowings amounted to $96.8 million, up $38.4 million or 65.7% from June 30, 2013, but down $29.0 million or 23.1% from December 31, 2012. The decrease in borrowings since year-end 2012 was primarily related to the reduction of FHLB overnight advances taken out to fund loans, partially offset by an increase of $23.0 million in repurchase agreement debt related to our homeowner’s association business. The increase from the prior quarter included $35 million in FHLB overnight advances used to fund our loan growth with the remainder related to repurchase agreement debt associated with our homeowner’s association depositors. Total borrowings at September 30, 2013 represented 6.2% of total assets and had an end of period weighted average cost of 1.32%, compared with 3.7% of total assets at a weighted average cost of 2.13% at June 30, 2013, and 10.7% of total assets at a weighted average cost of 1.19% at December 31, 2012.

Asset Quality

At September 30, 2013, nonperforming assets totaled $2.3 million or 0.15% of total assets, down from $3.2 million or 0.21% of total assets at June 30, 2013. During the third quarter of 2013, nonperforming loans decreased $879,000 to total $1.2 million and other real estate owned remained unchanged at $1.2 million.

Our allowance for loan losses at September 30, 2013 was $8.0 million, unchanged from June 30, 2013. At September 30, 2013, the drop in our nonaccrual loans resulted in an increase in our allowance for loan losses as a percent of nonaccrual loans to 693.3% at September 30, 2013, compared with 393.4% at June 30, 2013. At September 30, 2013, the ratio of allowance for loan losses to total gross loans was 0.70%, down from 0.75% at June 30, 2013. Including the loan fair market value discounts recorded from our past acquisitions with our allowance for loan losses to total gross loans, our ratio was 1.06% at September 30, 2013, compared with 1.11% at June 30, 2013.

Capital Ratios

At September 30, 2013, our ratio of tangible common equity to total assets was 9.51%, with a tangible book value of $8.82 per share and a book value per share of $10.28.

At September 30, 2013, the Bank exceeded all regulatory capital requirements with a ratio for tier 1 leverage capital of 10.02%, tier 1 risked-based capital of 13.28% and total risk-based capital of 13.96%. 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 September 30, 2013, the Company had a ratio for tier 1 leverage capital of 10.19%, tier 1 risked-based capital of 13.48% and total risk-based capital of 14.16%.

Conference Call and Webcast

The Company will host a conference call at 9:00 a.m. PT / 12:00 p.m. ET on October 23, 2013 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 (888) 549-7880, conference ID 4645499. Additionally a telephone replay will be made available through October 31, 2013 at (800) 406-7325, conference ID 4645499.

The Company owns all of the capital stock of the Bank. The Bank provides business and consumer banking products to 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 and one office in Dallas, Texas.

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. 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; inflation, interest rate, market and monetary fluctuations; the timely development of competitive new products and services and the acceptance of these products and services by new and existing customers; the willingness of users to substitute competitors’ products and services for the Company’s products and services; the impact of changes in financial services policies, laws and regulations (including the Dodd-Frank Wall Street Reform and Consumer Protection Act) and of governmental efforts to restructure the U.S. financial regulatory system; technological changes; the effect of acquisitions that the Company may make, if any, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from its acquisitions; changes in the level of the Company’s nonperforming assets and charge-offs; oversupply of inventory and continued deterioration in values of California real estate, both residential and commercial; the effect of changes in accounting policies and practices, as may be adopted from time-to-time by bank regulatory agencies, the 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 impairment of securities held by us; changes in consumer spending, borrowing and savings habits; the effects of the Company’s lack of a diversified loan portfolio, including the risks of geographic and industry concentrations; ability to attract deposits and other sources of liquidity; 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; unanticipated regulatory or judicial proceedings; and the Company’s 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 2012 Annual Report on Form 10-K, as amended, of Pacific Premier Bancorp, Inc. filed with the SEC and available at the SEC’s Internet site (http://www.sec.gov).

The Company specifically disclaims any obligation to update any factors or to publicly announce the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.