Pacific Premier Bancorp, Inc. Announces Second Quarter 2016 Results (Unaudited)

Pacific Premier Bancorp, Inc. Announces Second Quarter 2016 Results (Unaudited)

Second Quarter 2016 Summary

• Net income of $10.4 million, an increase of $1.8 million over the prior quarter, or 21.2%
• Diluted earnings per share of $0.37, an increase of $0.04 over the prior quarter, or 12.1%
• Net income of $10.7 million, or $0.38 per diluted share, adjusted for merger related expenses
• Growth in total loans of $72 million, 10% annualized
• Net interest margin expands to 4.51%
• Efficiency ratio of 54% and noninterest expense as a percent of assets of 2.59%
• Tangible book value per share increased to $11.87 per share compared to $10.36 as of June 30, 2015

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 2016 of $10.4 million, or $0.37 per diluted share, compared with net income of $8.6 million, or $0.33 per diluted share, for the first quarter of 2016 and net income of $7.8 million, or $0.36 per diluted share, for the second quarter of 2015. Net income for the second quarter of 2016 includes $0.5 million of pretax merger related expenses associated with the acquisition of Security California Bancorp ("Security"). Excluding the merger related expenses, adjusted net income for the second quarter of 2016 was $10.7 million, or $0.38 per diluted share, compared with adjusted net income of $10.7 million, or $0.41 per diluted share, for the first quarter of 2016 and adjusted net income of $7.8 million, or $0.36 per diluted share, for the second quarter of 2015.

For the three months ended June 30, 2016, the Company’s return on average assets was 1.17% and return on average tangible common equity was 13.48%, or 1.20% and 13.86% after adjusting for merger related expenses, respectively. For the three months ended March 31, 2016, the Company's return on average assets was 1.04% and the return on average tangible common equity was 12.02%. For the three months ended June 30, 2015, the Company's the return on average assets was 1.18% and the return on average tangible common equity was 14.83%.

Steve R. Gardner, Chairman and Chief Executive Officer of the Company, commented on the results, “During the second quarter we generated another solid quarter of earnings with $10.7 million of net income after adjusting for merger related expenses. Our adjusted average return on assets and average tangible common equity were strong at 1.20% and 13.86% respectively.

“We had another strong quarter of business development, highlighted by $299 million in new loan commitments, which resulted in 10% annualized growth of our loan portfolio net of loan paydowns. Our loan production continues to be well balanced within our C&I, franchise, owner-occupied commercial real estate and SBA loan portfolios. Although noninterest bearing deposits decreased at quarter end, our bankers generated attractive new business banking relationships in our core C&I and HOA lines of business which should add to our core deposits in the third quarter. The decrease in noninterest bearing balances in the second quarter was impacted by a number of factors, including the system conversion of Security, branch consolidations and seasonal customer trends. As we closed out the second quarter our loan and deposit pipelines were strong and are expected to benefit us in the second half of 2016.

“We have completed the integration and system conversion of the Security acquisition during the second quarter. The cost savings we projected have been fully realized, while at the same time, we continue to make investments to strengthen and expand other areas of our organization to ensure that we have the personnel and infrastructure necessary to effectively manage our current and future growth. The additions have been made throughout the organization, including business development, operations and within the executive and senior management ranks. We will continue to focus on adding quality assets to the balance sheet and drive additional revenue growth, so that we can achieve increased operating leverage going forward,” said Mr. Gardner.

FINANCIAL HIGHLIGHTS

INCOME STATEMENT HIGHLIGHTS

Net Interest Income and Net Interest Margin

Net interest income totaled $37.6 million in the second quarter of 2016, an increase of $3.4 million or 9.8% from the first quarter of 2016. The increase in net interest income reflected an increase in average interest-earning assets of $278 million and an increase in the net interest margin of 3 basis points to 4.51%. The increase in average interest-earning assets during the second quarter of 2016 was primarily related to a full quarter benefit of the Security acquisition, which added $467 million in loans, before purchase accounting adjustments, and a full quarter benefit of the $185 million multi-family loan pool purchased late in the first quarter of 2016.

The expansion in the net interest margin from 4.48% to 4.51% was driven by a favorable asset mix arising from the $361 million growth in average loans and an $82.5 million decline in average cash and investment balances coupled with lower funding costs from 0.46% to 0.43%. Excluding the impact of accretion, the portfolio net interest margin increased 8 basis points, with accretion contributing 27 basis points in the second quarter of 2016 as compared to 32 basis points in the first quarter of 2016.

Net interest income for the second quarter of 2016 increased $10.5 million or 38.6% compared to the second quarter of 2015. The increase was related to an increase in average interest-earning assets of $828 million, which resulted primarily from our organic loan growth since the end of the second quarter of 2015 and our acquisition of Security during the first quarter of 2016. Our net interest margin for the second quarter of 2016 increased 25 basis points to 4.51% from the prior year. The expansion of the net interest margin was driven by an 18 basis point increase in the yield on earning assets, driven primarily by accretion income which added 27 basis points in the quarter.

Net interest margin information is presented in the following table for the periods indicated.

Provision for Loan Losses

A provision for loan losses was recorded for the current quarter in the amount of $1.6 million, as a result of growth in the loan portfolio from March 31, 2016 to June 30, 2016 compared with a provision for loan losses of $1.1 million in the quarter ending March 31, 2016. Net loan charge-offs were $1.1 million for the second quarter.

Noninterest income

Noninterest income for the second quarter of 2016 was $4.5 million, a decrease of $412 thousand or 8.5% from the first quarter of 2016. The decrease from the first quarter of 2016 was primarily related to a $759 thousand recovery recognized in the first quarter on a pre-acquisition loan charge-off and a $221 thousand decrease in net gain from the sales of investment securities, partially offset by a $218 thousand increase in net gain from the sale of loans. During the current quarter, $23 million in SBA loans were sold compared to $21 million in the prior quarter.

Compared to the second quarter of 2015, noninterest income for the second quarter of 2016 increased $69 thousand or 1.6%. The increase includes a higher net gain from the sales of investment securities of $392 thousand, a $183 thousand increase in deposit fees, and a $181 thousand increase in other income, offset by decreases of $597 thousand in net gain from sales of loans and $90 thousand in loan servicing fees.

Noninterest Expense

Noninterest expense totaled $23.7 million for the second quarter of 2016, an increase of $48 thousand or 0.2%, compared with the first quarter of 2016. Offsetting lower merger related expenses were increased compensation costs attributable primarily to higher staffing levels, resulting from the Security acquisition and new hires at the Bank, an increase in the off-balance sheet reserve, as well as an adjustment in core deposit intangible ("CDI") amortization related to the Security acquisition.

In comparison to the second quarter of 2015, noninterest expense grew by $6.5 million or 37.6%. The increase in expense was primarily related to the additional costs from the personnel and branches retained from the acquisition of Security, combined with our continued investment in personnel to support our organic growth in loans and deposits.

Income Tax

For the second quarter of 2016, our effective tax rate was 38.0%, compared with 40.2% for the first quarter of 2016 and 37.0% for the second quarter of 2015. The decrease in the effective tax rate was primarily the result of lower non-deductible merger related expenses incurred in the second quarter of 2016.

BALANCE SHEET HIGHLIGHTS

Loans

Loans held for investment totaled $2.92 billion at June 30, 2016, an increase of $69 million or 2.4% from March 31, 2016, and an increase of $802 million or 37.9% from June 30, 2015. The increase from March 31, 2016, was primarily due to $299 million in loan production, partially offset by $190 million in principal payments. The total end of period weighted average interest rate on loans, excluding fees and discounts, at June 30, 2016 was 4.84%, compared to 4.88% at March 31, 2016 and 4.89% at June 30, 2015.

Loan activity during the second quarter of 2016 included organic loan originations of $299 million, including construction loan originations of $74 million, commercial real estate loans of $66 million, commercial and industrial loan originations of $55 million, franchise loan originations of $47 million and SBA loan originations of $36 million. At June 30, 2016 our loan to deposit ratio was 100.0%, compared with 98.4% and 101.1% at March 31, 2016 and June 30, 2015, respectively.

Asset Quality and Allowance for Loan Losses

Nonperforming assets totaled $5.5 million or 0.15% of total assets at June 30, 2016, a decrease from $6.0 million or 0.17% of total assets at March 31, 2016. During the second quarter of 2016, nonperforming loans decreased $50 thousand to total $4.8 million and other real estate owned decreased $450 thousand to total $711 thousand.

At June 30, 2016, the allowance for loan losses was $19.0 million, an increase of $0.5 million from March 31, 2016. Loan loss provision for the quarter was $1.6 million while net chargeoffs were $1.1 million. The increase in the allowance for loan losses at June 30, 2016 was mainly attributable to the growth in certain segments of the loan portfolio. At June 30, 2016, our allowance for loan losses as a percent of nonaccrual loans was 397%, an increase from 383% at March 31, 2016. The ratio of allowance for loan losses to total loans at June 30, 2016 and March 31, 2016 was 0.65%, compared to 0.71% at June 30, 2015. Including the loan fair market value discounts recorded in connection with our acquisitions, the allowance for loan losses to total gross loans ratio was 0.89% at June 30, 2016, compared with 0.97% at March 31, 2016 and 0.94% at June 30, 2015.

Investment Securities Available for Sale

Investment securities available for sale totaled $245 million at June 30, 2016, a decrease of $24.2 million from March 31, 2016, and a decrease of $35.0 million from June 30, 2015. The decrease in the second quarter was primarily the result of $20.7 million in securities sold.

Deposits

At June 30, 2016, deposits totaled $2.93 billion, an increase of $25 million or 0.9% from March 31, 2016 and $835 million or 39.8% from June 30, 2015. At June 30, 2016, non-maturity deposits totaled $2.31 billion, a decrease of $10 million or 0.43% from March 31, 2016 and an increase of $745 million or 47.5% from June 30, 2015. During the second quarter of 2016, deposit increases included $69.7 million in wholesale/brokered certificates of deposits, $3.1 million in money market/savings deposits, and $8.0 million in demand deposits, offset by a decrease of $21.1 million in noninterest bearing deposits and $35.0 million in retail certificate deposits. Seasonal deposit and customer specific acquisition runoff partially offset by higher homeowners association ("HOA") deposits accounted for the slight decrease in non-maturity deposits. The increase in wholesale/brokered deposits was related to maturing time deposits in both the second quarter and July.

The weighted average cost of deposits for the three month period ending June 30, 2016 was 0.28% compared to 0.31% for the three month periods ending March 31, 2016 and June 30, 2015. A small Security certificate of deposit mark to market accretion adjustment accounted for 2 basis points of improvement.

Borrowings

At June 30, 2016, total borrowings amounted to $191 million, a decrease of $4.7 million or 2.4% from March 31, 2016 and a decrease of $47 million from June 30, 2015. At June 30, 2016, total borrowings represented 5.30% of total assets, compared to 5.48% and 9.01%, as of March 31, 2016 and June 30, 2015, respectively.

Capital Ratios

At June 30, 2016, our ratio of tangible common equity to total assets was 9.41%, with book value per share of $15.94 and tangible book value of $11.87 per share.

At June 30, 2016, the Bank exceeded all regulatory capital requirements with a ratio for tier 1 leverage capital of 11.04%, common equity tier 1 risk-based capital of 12.32%, tier 1 risk-based capital of 12.32% and total risk-based capital of 12.94%. 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, 2016, the Company had a ratio for tier 1 leverage capital of 9.88%, common equity tier 1 risk-based capital of 10.58%, tier 1 risk-based capital of 10.90% and total risk-based capital of 13.45%.

Conference Call and Webcast

The Company will host a conference call at 9:00 a.m. PT / 12:00 p.m. ET on July 20, 2016 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 July 27, 2016 at 877-344-7529, conference ID 10089502.

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, 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, Murrieta, Newport Beach, Orange, Palm Desert, Palm Springs, Redlands, Riverside, San Bernardino, and San Diego.

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; any oversupply of inventory and 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 2015 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).

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.

SELECTED FINANCIAL DATA