Pacific Premier Bancorp, Inc. Announces Third Quarter 2020 Results

·27-min read

Increases Quarterly Cash Dividend by 12% to $0.28 Per Share

Third Quarter 2020 Summary

  • Net income of $66.6 million, or $0.70 per diluted share

  • Return on average assets of 1.31%, return on average equity of 9.90%, and return on average tangible common equity of 16.44%

  • Net interest margin of 3.54% and core net interest margin of 3.23%

  • Cost of deposits of 0.20% in the third quarter, compared with 0.32% in the prior quarter

  • Non-maturity deposits of $14.6 billion, or 89.5% of total deposits

  • Noninterest bearing deposits represent 36.1% of total deposits

  • Nonperforming assets represent 0.14% of total assets

  • Converted Opus Bank's operating system and consolidated 20 branches in early October

Pacific Premier Bancorp, Inc. (NASDAQ: PPBI) (the "Company" or "Pacific Premier"), the holding company of Pacific Premier Bank (the "Bank"), reported net income of $66.6 million, or $0.70 per diluted share, for the third quarter of 2020, compared with a net loss of $99.1 million, or $1.41 per diluted share, for the second quarter of 2020 and net income of $41.4 million, or $0.69 per diluted share, for the third quarter of 2019. Financial results for the third quarter of 2020 reflected the Company's return to profitability after increasing its credit loss reserves in the first half of the year. These reserve increases were primarily due to the adverse impact of the COVID-19 pandemic on economic forecasts utilized by the Company in its current expected credit losses ("CECL") model and the initial establishment of the Day 1 reserves required by CECL methodology in conjunction with the closing of the Opus Bank ("Opus") acquisition during the second quarter of 2020.

Total assets were $19.84 billion at September 30, 2020, compared with $20.52 billion at June 30, 2020, and $11.81 billion at September 30, 2019. A reconciliation of the non-U.S. GAAP measure of ROATCE to the U.S. GAAP measure of common stockholders' equity is set forth at the end of this press release.

Steven R. Gardner, Chairman, President and Chief Executive Officer of the Company, commented, "We delivered solid financial results during the third quarter as we continued to execute well on our strategic priorities, including managing through the COVID-19 crisis, integrating the Opus Bank team, and enhancing our ability to drive franchise value. Pre-provision net revenue increased to $98 million, up 61% from the prior quarter, excluding merger-related expenses, and our efficiency ratio improved to 47%, which reflects our increased operating leverage, earnings power, and the sale of $1.13 billion of SBA PPP loans.

"Since the closing of the Opus Bank acquisition on June 1, 2020, we have successfully executed on our approach to integrating the two teams. In early October, we converted Opus’ core operating system and consolidated 20 branches. We have realized the estimated cost savings of 25% of Opus' pre-merger noninterest expenses and expect to achieve fully phased in cost savings by the end of this year. Our loan pipeline has grown during the quarter and we expect stronger production going forward. Our team is focused on driving new business opportunities and expanding existing relationships to grow deposits, loans, and fee income.

"While the COVID-19 pandemic is far from over, we are seeing encouraging trends in asset quality. Of the nearly $2.3 billion in temporary loan modifications we granted to clients earlier this year, the majority have resumed payments and 1.8% of total loans are currently subject to modifications. We believe the strength of our asset quality during an unprecedented economic downturn reflects the resilience of our clients’ businesses, our conservative underwriting standards, and our proactive approach to credit risk management."

Mr. Gardner concluded, "Given our strong capital position, our results of operations during the third quarter, and our current expectations regarding our future financial performance, I am pleased to announce that the Board of Directors has approved an increase in our common stock dividend to $0.28 per share. We believe we are well positioned to manage through the ongoing economic uncertainty, and that we have the ability to pursue additional strategic transactions to further enhance the value of our franchise should a compelling opportunity present itself."

FINANCIAL HIGHLIGHTS

Three Months Ended

September 30,

June 30,

September 30,

2020

2020

2019

Financial Highlights

(Dollars in thousands, except per share data)

Net income (loss)

$

66,566

$

(99,091

)

$

41,375

Diluted earnings (loss) per share

0.70

(1.41

)

0.69

Pre-provision net revenue (1)

$

97,713

$

60,566

$

58,425

Return on average assets

1.31

%

(2.61

)%

1.44

%

Return on average equity

9.90

(17.76

)

8.32

Return on average tangible common equity (1)

16.44

(29.40

)

16.27

Pre-provision net revenue on average assets (1)

1.92

1.60

2.04

Net interest margin

3.54

3.79

4.36

Core net interest margin (1)

3.23

3.59

4.12

Cost of deposits

0.20

0.32

0.71

Efficiency ratio (2)

47.4

52.9

50.9

Total assets

$

19,844,240

$

20,517,074

$

11,811,497

Total deposits

16,330,807

16,976,693

8,859,288

Non-maturity deposits as a percent of total deposits

89.5

%

88.7

%

84.8

%

Book value per share

$

28.48

$

28.14

$

33.50

Tangible book value per share (1)

18.01

17.58

18.41

Total risk-based capital ratio

16.00

%

15.69

%

13.40

%

________________

(1)

A reconciliation of the non-U.S. GAAP measures of pre-provision net revenue, return on average tangible common equity, pre-provision net revenue on average assets, core net interest margin, and tangible book value per share to the U.S. GAAP measures of net income, common stockholders' equity, and book value are set forth at the end of this press release.

(2)

Represents the ratio of noninterest expense less other real estate owned operations, amortization of intangible assets, and merger-related expense to the sum of net interest income before provision for credit losses and total noninterest income, less gains/(loss) on sale of securities, gain/(loss) from other real estate owned, and gain/(loss) from debt extinguishment.

INCOME STATEMENT HIGHLIGHTS

Net Interest Income and Net Interest Margin

Net interest income totaled $166.5 million in the third quarter of 2020, an increase of $36.3 million, or 27.8%, from the second quarter of 2020. The increase in net interest income reflected higher average interest-earning assets of $4.88 billion, related to the full quarter's impact of the Opus acquisition, compared with the second quarter of 2020, as well as increased investment securities purchases, higher accretion income, and a lower cost of funds driven by a lower cost of deposits.

The net interest margin for the third quarter of 2020 was 3.54%, compared with 3.79% in the prior quarter. Our core net interest margin, which excludes the impact of loan accretion income of $12.2 million, compared to $5.8 million in the prior quarter, certificates of deposit mark-to-market amortization, and other one-time adjustments, decreased 36 basis points to 3.23%, compared to 3.59% in the prior quarter. Excluding the Small Business Administration's Paycheck Protection Program ("PPP") loan portfolio, our core net interest margin decreased 39 basis points to 3.26%, compared to 3.65% in the prior quarter. The decrease was primarily attributable to the shift in interest-earning asset mix and lower loan and investment yields, partially offset by a lower cost of deposits. The lower interest-earning asset yield was driven primarily by the full quarter's impact of the Opus loan portfolio added in June that had lower yields, and the deployment of excess liquidity into lower yielding investment securities. The lower cost of funds was driven principally by lower rates paid on deposits.

Net interest income for the third quarter of 2020 increased $54.2 million, or 48.3%, compared to the third quarter of 2019. The increase was attributable to an increase in average interest-earning assets of $8.48 billion, which primarily resulted from the acquisition of Opus in the second quarter of 2020 and organic loan growth, as well as a higher average investment securities balance and a lower cost of funds, partially offset by lower average loan and investment yields and a higher average balance of deposits.

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED AVERAGE BALANCES AND YIELD DATA

Three Months Ended

September 30, 2020

June 30, 2020

September 30, 2019

Average
Balance

Interest
Income/
Expense

Average
Yield/
Cost

Average
Balance

Interest
Income/
Expense

Average
Yield/
Cost

Average
Balance

Interest
Income/
Expense

Average
Yield/
Cost

Assets

(Dollars in thousands)

Cash and cash equivalents

$

1,388,897

$

305

0.09

%

$

796,761

$

215

0.11

%

$

188,693

$

403

0.85

%

Investment securities

3,283,840

14,231

1.73

1,792,432

10,568

2.36

1,311,649

9,227

2.81

Loans receivable, net (1) (2)

14,034,868

167,455

4.75

11,242,721

133,339

4.77

8,728,536

122,974

5.59

Total interest-earning assets

$

18,707,605

$

181,991

3.87

$

13,831,914

$

144,122

4.19

$

10,228,878

$

132,604

5.14

Liabilities

Interest-bearing deposits

$

10,703,431

$

8,509

0.32

$

7,317,675

$

9,655

0.53

$

5,343,043

$

15,878

1.18

Borrowings

542,437

6,936

5.09

431,181

4,175

3.89

436,979

4,391

3.99

Total interest-bearing liabilities

$

11,245,868

$

15,445

0.55

$

7,748,856

$

13,830

0.72

$

5,780,022

$

20,269

1.39

Noninterest-bearing deposits

$

5,877,619

$

4,970,812

$

3,533,797

Net interest income

$

166,546

$

130,292

$

112,335

Net interest margin (3)

3.54

3.79

4.36

Cost of deposits

0.20

0.32

0.71

Cost of funds (4)

0.36

0.44

0.86

Ratio of interest-earning assets to interest-bearing liabilities

166.35

178.50

176.97

________________

(1)

Average balance includes loans held for sale and nonperforming loans and is net of deferred loan origination fees/costs and discounts/premiums.

(2)

Interest income includes net discount accretion of $12.2 million, $5.8 million, and $6.0 million, respectively.

(3)

Represents annualized net interest income divided by average interest-earning assets.

(4)

Represents annualized total interest expense divided by the sum of average total interest-bearing liabilities and noninterest-bearing deposits.

Provision for Credit Losses

Provision for credit losses for the third quarter of 2020 was $4.2 million, a decrease of $156.4 million from the second quarter of 2020 and an increase of $2.6 million from the third quarter of 2019. The decrease from the second quarter of 2020 reflected improved economic conditions, lower loans held for investment, and the impact of Day 1 provision for credit losses associated with the acquisition of Opus during the second quarter of 2020. The credit loss reserve during the second quarter of 2020 resulted from unfavorable changes in economic forecasts employed in the Bank's CECL model and an $84.4 million Day 1 provision for credit losses resulting from the acquisition of Opus in June of 2020. The Company recognized a recapture of $492,000 of the provision for unfunded commitments in the third quarter of 2020, primarily due to lower outstanding unfunded commitments, compared with a provision of $10.4 million in the second quarter of 2020, $8.6 million of which represented the Day 1 provision related to the unfunded commitments from the Opus acquisition, and a $197,000 provision for unfunded commitments in the third quarter of 2019.

Three Months Ended

September 30,

June 30,

September 30,

2020

2020

2019

Provision for Credit Losses

(Dollars in thousands)

Provision for loan losses

$

4,702

$

150,257

$

1,365

Provision for unfunded commitments

(492

)

10,378

197

Total provision for credit losses

$

4,210

$

160,635

$

1,562

Noninterest Income

Noninterest income for the third quarter of 2020 was $26.8 million, an increase of $19.9 million from the second quarter of 2020. The increase was primarily due to a $11.6 million increase in net gain from the sales of loans, a $4.6 million increase in custodial account fees from a full quarter's impact of Pacific Premier Trust acquired in the Opus acquisition, a $1.2 million increase in net gain from sales of investment securities, as well as a $956,000 increase in earnings on bank-owned life insurance ("BOLI"), primarily due to additional BOLI from Opus. In addition, other income increased $687,000, primarily due to an $877,000 increase in escrow and exchange fee income attributable to the Commerce Escrow division acquired in the Opus acquisition.

During the third quarter of 2020, the Bank sold $1.16 billion of Small Business Administration ("SBA") loans, primarily PPP loans, for a net gain of $19.0 million and sold $96.2 million of other loans for a net loss of $9.4 million, compared with sales of $15.4 million of other loans for a net loss of $2.0 million during the prior quarter.

Noninterest income for the third quarter of 2020 increased $15.3 million, or 134.1%, compared to the third quarter of 2019. The increase was primarily related to a $7.2 million increase in net gain from the sales of loans, the addition of $7.0 million of custodial account fees following the Opus acquisition, a $2.1 million increase in other income primarily due to a $1.1 million increase of escrow and exchange fee income following the Opus acquisition, and a $1.4 million increase in earnings on BOLI, partially offset by a $3.1 million decrease in net gain from sales of investment securities.

The increase in net gain from sales of loans for the third quarter of 2020 compared to the same period last year was primarily due to the sales of $1.16 billion of SBA, primarily PPP loans, for a net gain of $19.0 million and the sale of $96.2 million of other loans for a net loss of $9.4 million, compared with sales of $26.3 million of SBA loans for a net gain of $2.3 million and $684,000 of other loans for a net gain of $8,000 during the third quarter of 2019.

Three Months Ended

September 30,

June 30,

September 30,

2020

2020

2019

Noninterest Income

(Dollars in thousands)

Loan servicing fees

$

481

$

434

$

546

Service charges on deposit accounts

1,593

1,399

1,440

Other service fee income

487

297

360

Debit card interchange fee income

944

457

421

Earnings on BOLI

2,270

1,314

861

Net gain (loss) from sales of loans

9,542

(2,032

)

2,313

Net gain (loss) from sales of investment securities

1,141

(21

)

4,261

Custodial account fees

6,960

2,397

Other income

3,340

2,653

1,228

Total noninterest income

$

26,758

$

6,898

$

11,430

Noninterest Expense

Noninterest expense totaled $98.6 million for the third quarter of 2020, a decrease of $17.4 million, or 15.0%, compared to the second quarter of 2020, primarily due to the decrease of $36.4 million in merger expense related to the Opus acquisition. Excluding merger-related expense, noninterest expense totaled $95.6 million, an increase of $19.0 million, or 24.8%, compared to the second quarter of 2020 driven primarily by a $8.0 million increase in compensation and benefits, a $2.9 million increase in premises and occupancy, a $2.3 million increase in data processing, and a $2.0 million increase in legal, audit and professional expense, all of which was primarily the result of the full quarter's impact of operations, personnel, and branches retained with the acquisition of Opus.

Noninterest expense increased by $33.2 million, or 50.9%, compared to the third quarter of 2019. The increase was primarily due to a $3.0 million merger-related expense related to the Opus acquisition, a $15.5 million increase in compensation and benefits, a $4.8 million increase in premises and occupancy, a $3.7 million increase in data processing, a $2.1 million increase in legal, audit and professional expense, and a $1.3 million increase in deposit expense as a result of the addition of operations, personnel, and branches retained with the acquisition of Opus.

Three Months Ended

September 30,

June 30,

September 30,

2020

2020

2019

Noninterest Expense

(Dollars in thousands)

Compensation and benefits

$

51,021

$

43,011

$

35,543

Premises and occupancy

12,373

9,487

7,593

Data processing

6,783

4,465

3,094

Other real estate owned operations, net

(17

)

9

64

FDIC insurance premiums

1,145

846

(10

)

Legal, audit and professional expense

5,108

3,094

3,058

Marketing expense

1,718

1,319

1,767

Office, telecommunications and postage expense

2,389

1,533

1,200

Loan expense

802

823

1,137

Deposit expense

4,728

4,958

3,478

Merger-related expense

2,988

39,346

(4

)

Amortization of intangible assets

4,538

4,066

4,281

Other expense

5,003

3,013

4,135

Total noninterest expense

$

98,579

$

115,970

$

65,336

Income Tax

For the third quarter of 2020, our income tax expense totaled $23.9 million, resulting in an effective tax rate of 26.5%, compared with an income tax benefit of $40.3 million and an effective tax rate of 28.9% for the second quarter of 2020, and an income tax expense of $15.5 million and an effective tax rate of 27.2% for the third quarter of 2019. The decrease in effective tax rate for the third quarter of 2020 was primarily due to permanent tax benefits which reduced the tax rate for the third quarter, while the same benefits increased the pre-tax loss rate in the second quarter. The income tax benefit from the second quarter of 2020 was the result of the significant pre-tax loss driven by the provision for credit losses and our merger-related costs associated with the Opus acquisition.

BALANCE SHEET HIGHLIGHTS

Loans

Loans held for investment totaled $13.45 billion at September 30, 2020, a decrease of $1.63 billion, or 10.8%, from June 30, 2020, and an increase of $4.69 billion, or 53.6%, from September 30, 2019. The decrease from June 30, 2020 was driven by the $1.26 billion sale of loans, primarily SBA PPP loans, as well as higher loan prepayments and payoffs, and lower line utilization rates in the third quarter of 2020. The increase from September 30, 2019 was primarily due to the acquisition of Opus, which added $5.94 billion in gross loans, or $5.81 billion of loans held for investment after purchase accounting adjustments at the time of acquisition.

During the third quarter of 2020, the Bank generated $360.0 million of new loan commitments and funded $280.8 million of new loans, compared with $1.21 billion in new loan commitments and $1.19 billion in new funded loans for the second quarter of 2020, which primarily consisted of SBA PPP loans of $1.13 billion, and $536.9 million in new loan commitments and $356.6 million in new funded loans for the third quarter of 2019. The year-over-year decrease in new loans funded was primarily the result of a slowdown in loan demand. Business line utilization rates decreased to 33.9% at the end of the third quarter of 2020, compared with 37.9% at the end of the second quarter of 2020 and 40.3% at the end of third quarter of 2019.

At September 30, 2020, the ratio of loans held for investment to total deposits was 82.4%, compared with 88.8% and 98.9% at June 30, 2020 and September 30, 2019, respectively.

The following table presents the composition of the loan portfolio as of the dates indicated:

September 30,

June 30,

September 30,

2020

2020

2019

(Dollars in thousands)

Investor loans secured by real estate

Commercial real estate ("CRE") non-owner-occupied

$

2,707,930

$

2,783,692

$

2,052,118

Multifamily

5,142,069

5,225,557

1,610,643

Construction and land

337,872

357,426

507,114

SBA secured by real estate (1)

57,610

59,482

68,689

Total investor loans secured by real estate

8,245,481

8,426,157

4,238,564

Business loans secured by real estate (2)

CRE owner-occupied

2,119,788

2,170,154

1,847,443

Franchise real estate secured

359,329

364,647

344,954

SBA secured by real estate (3)

84,126

85,542

91,101

Total business loans secured by real estate

2,563,243

2,620,343

2,283,498

Commercial loans (4)

Commercial and industrial

1,820,995

2,051,313

1,353,793

Franchise non-real estate secured

515,980

523,755

549,711

SBA non-real estate secured

16,748

21,057

17,891

SBA PPP

1,128,780

Total commercial loans

2,353,723

3,724,905

1,921,395

Retail loans

Single family residential (5)

243,359

265,170

273,416

Consumer

45,034

46,309

40,603

Total retail loans

288,393

311,479

314,019

Gross loans held for investment (6)

13,450,840

15,082,884

8,757,476

Allowance for credit losses for loans held for investment (7)

(282,503

)

(282,271

)

(35,000

)

Loans held for investment, net

$

13,168,337

$

14,800,613

$

8,722,476

Loans held for sale, at lower of cost or fair value

$

1,032

$

1,007

$

7,092

________________

(1)

SBA loans that are collateralized by hotel/motel real property.

(2)

Loans to businesses that are collateralized by real estate where the operating cash flow of the business is the primary source of repayment.

(3)

SBA loans that are collateralized by real property other than hotel/motel real property.

(4)

Loans to businesses where the operating cash flow of the business is the primary source of repayment.

(5)

Single family residential includes home equity lines of credit, as well as second trust deeds.

(6)

Includes unaccreted fair value net purchase discounts of $126.3 million, $144.5 million, and $46.8 million as of September 30, 2020, June 30, 2020, and September 30, 2019, respectively.

(7)

The allowance for credit losses as of December 31, 2019 was accounted for under ASC 450 and ASC 310, which is reflective of probable incurred losses as of the balance sheet date. Effective January 1, 2020, the allowance for credit losses is accounted for under ASC 326, which is reflective of estimated expected lifetime credit losses.

The total end-of-period weighted average interest rate on loans, excluding fees and discounts, at September 30, 2020 was 4.34%, compared to 4.12% at June 30, 2020 and 5.00% at September 30, 2019. Excluding the SBA PPP loans, which had a coupon rate of 1%, the end-of-period weighted average interest rate on loans, excluding fees and discounts, at June 30, 2020 was 4.46%. The quarter-over-quarter and year-over-year decreases reflect the impact of lower rates on new originations as well as the repricing of loans as a result of the Board of Governors of the Federal Reserve System's (the "Federal Reserve Board") federal funds rate decreases in March 2020.

The following table presents the composition of new organic loan commitments originated during the quarters indicated:

September 30,

June 30,

September 30,

2020

2020

2019

(Dollars in thousands)

Investor loans secured by real estate

CRE non-owner-occupied

$

40,518

$

11,811

$

90,464

Multifamily

182,575

24,425

41,289

Construction and land

37,087

6,210

60,924

SBA secured by real estate (1)

14,302

Total investor loans secured by real estate

260,180

42,446

206,979

Business loans secured by real estate (2)

CRE owner-occupied

30,594

17,594

84,450

Franchise real estate secured

39,205

SBA secured by real estate (3)

799

1,204

9,655

Total business loans secured by real estate

31,393

18,798

133,310

Commercial loans (4)

Commercial and industrial

56,959

23,782

136,735

Franchise non-real estate secured

9,665

51,813

SBA non-real estate secured

315

539

SBA PPP

1,124,485

Total commercial loans

66,624

1,148,582

189,087

Retail loans

Single family residential (5)

2,137

6,110

Consumer

1,825

195

1,463

Total retail loans

1,825

2,332

7,573

Total loan commitments

$

360,022

$

1,212,158

$

536,949

________________

(1)

SBA loans that are collateralized by hotel/motel real property.

(2)

Loans to businesses that are collateralized by real estate where the operating cash flow of the business is the primary source of repayment.

(3)

SBA loans that are collateralized by real property other than hotel/motel real property.

(4)

Loans to businesses where the operating cash flow of the business is the primary source of repayment.

(5)

Single family residential includes home equity lines of credit, as well as second trust deeds.

The weighted average interest rate on new loan production was 3.61% in the third quarter of 2020 compared with 1.21% in the second quarter of 2020 and 5.28% in the third quarter of 2019. Excluding the SBA PPP loans, the weighted average interest rate on new loan production during the second quarter of 2020 was 3.97%.

Asset Quality and Allowance for Credit Losses

Effective January 1, 2020, the Company adopted the new CECL accounting standard, which replaces the incurred loss methodology. At September 30, 2020, our allowance for credit losses ("ACL") on loans held for investment was $282.5 million, a slight increase of $232,000 from June 30, 2020 and an increase of $247.5 million from September 30, 2019, and continues to reflect the impact of the COVID-19 pandemic and resulting uncertainty in the macroeconomic environment. The increase from the second quarter of 2020 was associated with the ongoing uncertainties of the economic forecast and changes in asset quality, offset by lower loans held for investment during the third quarter of 2020. The increase from the third quarter of 2019 was primarily due to the cumulative-effect Day 1 adjustment of $55.7 million from the adoption of the CECL model, the provision for loan losses of $180.3 million from the acquisition of Opus as well as the unfavorable changes in economic forecasts employed in the Bank's CECL model related to the COVID-19 pandemic during the first three quarters of 2020.

During the third quarter of 2020, the Company incurred $4.5 million of net charge-offs, compared to $4.7 million and $1.4 million during the second quarter of 2020 and the third quarter of 2019, respectively.

The following table provides the allocation of the ACL for loans held for investment as well as the activity in the ACL attributed to various segments in the loan portfolio as of and for the period indicated:

Three Months Ended September 30, 2020

Beginning
ACL Balance

Charge-offs

Recoveries

Provision for
Credit Losses

Ending
ACL Balance

(Dollars in thousands)

Investor loans secured by real estate

CRE non-owner occupied

$

63,007

$

(443

)

$

$

(8,459

)

$

54,105

Multifamily

63,511

3,825

67,336

Construction and land

18,804

(377

)

(2,870

)

15,557

SBA secured by real estate (1)

2,010

(145

)

34

3,428

5,327

Business loans secured by real estate (2)

CRE owner-occupied

48,213

(1,739

)

21

2,171

48,666

Franchise real estate secured

13,060

(1,072

)

11,988

SBA secured by real estate (3)

4,368

76

1,716

6,160

Commercial loans (4)

Commercial and industrial

41,967

(2,437

)

10

8,374

47,914

Franchise non-real estate secured

21,676

(207

)

865

(2,185

)

20,149

SBA non-real estate secured

600

(10

)

8

353

951

Retail loans

Single family residential (5)

1,479

2

(238

)

1,243

Consumer loans

3,576

(129

)

1

(341

)

3,107

Totals

$

282,271

$

(5,487

)

$

1,017

$

4,702

$

282,503

________________

(1)

SBA loans that are collateralized by hotel/motel real property.

(2)

Loans to businesses that are collateralized by real estate where the operating cash flow of the business is the primary source of repayment.

(3)

SBA loans that are collateralized by real property other than hotel/motel real property.

(4)

Loans to businesses where the operating cash flow of the business is the primary source of repayment.

(5)

Single family residential includes home equity lines of credit, as well as second trust deeds.

The ratio of allowance for credit losses to loans held for investment at September 30, 2020 was 2.10%, compared to 1.87% at June 30, 2020 and 0.40% at September 30, 2019. The ratio of allowance for credit losses to loans held for investment excluding SBA PPP loans at June 30, 2020 was 2.02%. Under the guidance of ASC 820: Fair Value Measurements and Disclosures, the fair value net discount on loans acquired through total bank acquisitions was $126.3 million, or 0.93% of total loans held for investment, as of September 30, 2020, compared to $144.5 million, or 0.95% of total loans held for investment, as of June 30, 2020, and $46.8 million, or 0.53% of total loans held for investment, as of September 30, 2019. The fair value net discount on loans acquired through total bank acquisitions was 1.03% of total loans held for investment excluding SBA PPP loans as of June 30, 2020.

Nonperforming assets totaled $27.5 million, or 0.14% of total assets, at September 30, 2020, compared with $34.2 million, or 0.17% of total assets, at June 30, 2020 and $8.2 million, or 0.07% of total assets, at September 30, 2019. During the third quarter of 2020, nonperforming loans decreased $6.6 million to $27.2 million and other real estate owned decreased to $334,000. The decrease in nonperforming loans from June 30, 2020 was primarily due to loan charge-offs, repayments, loan sales, and loans that were returned to accrual status, partially offset by new additions to nonaccrual status, primarily commercial and industrial loans. Total loan delinquencies were $29.4 million, or 0.22% of loans held for investment, at September 30, 2020, compared to $38.2 million, or 0.25% of loans held for investment, at June 30, 2020, and $11.2 million, or 0.13% of loans held for investment, at September 30, 2019.

Classified loans totaled $136.7 million, or 1.02% of loans held for investment, at September 30, 2020, compared with $89.9 million, or 0.60% of loans held for investment, at June 30, 2020. The increase in classified loans from the prior quarter was driven in part by the migration to substandard of approximately $26.9 million of loans previously subject to temporary loan modifications, as well as the net result of normal risk rating changes during the quarter.

Interest is not typically accrued on loans 90 days or more past due or when, in the opinion of management, there is reasonable doubt as to the timely collection of principal or interest. There were no loans 90 days or more past due and still accruing interest at September 30, 2020. There were no troubled debt restructured loans at September 30, 2020, compared to $700,000 at June 30, 2020 and none at September 30, 2019. At September 30, 2020, 54 loans totaling $118.3 million remain within their modification period due to COVID-19 hardship under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). Additionally, as of September 30, 2020, 56 loans totaling $119.4 million were in-process for potential modification, of which 37 loans totaling $101.7 million were extensions of previously modified loans. At June 30, 2020, the Company’s loan portfolio included 1,461 loans totaling $2.24 billion that were modified due to COVID-19.

September 30,

June 30,

September 30,

2020

2020

2019

Asset Quality

(Dollars in thousands)

Nonperforming loans

$

27,214

$

33,825

$

8,109

Other real estate owned

334

386

126

Nonperforming assets

$

27,548

$

34,211

$

8,235

Total classified assets (1)

$

137,042

$

90,334

$

39,879

Allowance for credit losses

282,503

282,271

35,000

Allowance for credit losses as a percent of total nonperforming loans

1,038

%

835

%

432

%

Nonperforming loans as a percent of loans held for investment

0.20

0.22

0.09

Nonperforming assets as a percent of total assets

0.14

0.17

0.07

Classified loans to total loans held for investment

1.02

0.60

0.45

Classified assets to total assets

0.69

0.44

0.34

Net loan charge-offs for the quarter ended

$

4,470

$

4,650

$

1,391

Net loan charge-offs for quarter to average total loans

0.03

%

0.04

%

0.02

%

Allowance for credit losses to loans held for investment (2)

2.10

1.87

0.40

Allowance for credit losses to loans held for investment, excluding SBA PPP loans (2)

2.10

2.02

0.40

Delinquent Loans

30 - 59 days

$

7,084

$

6,248

$

1,715

60 - 89 days

1,086

4,133

3,212

90+ days

21,206

27,807

6,297

Total delinquency

$

29,376

$

38,188

$

11,224

Delinquency as a percentage of loans held for investment

0.22

%

0.25

%

0.13

%

________________

(1)

Includes substandard loans and other real estate owned.

(2)

At September 30, 2020, 58% of loans held for investment include an aggregate fair value net discount of $126.3 million, or 0.93% of loans held for investment. At June 30, 2020, 56% of loans held for investment include an aggregate fair value net discount of $144.5 million, or 0.95% of loans held for investment (1.03% of loans held for investment excluding SBA PPP loans). At September 30, 2019, 41% of loans held for investment include an aggregate fair value net discount of $46.8 million, or 0.53% of loans held for investment.

Investment Securities

Investment securities totaled $3.63 billion at September 30, 2020, an increase of $1.3 billion, or 53.2%, from June 30, 2020, and an increase of $2.33 billion, or 179.8%, from September 30, 2019. The increase in the third quarter of 2020 compared to the prior quarter was primarily the result of $1.59 billion in purchases, partially offset by $211.4 million in sales, $96.0 million in principal payments, amortization and redemptions, and a $17.6 million decrease in mark-to-market fair value adjustment. The increase in investment securities from September 30, 2019 was primarily the result of $2.36 billion in purchases, $829.9 million acquired from Opus, and a $21.5 million increase in mark-to-market fair value adjustment, partially offset by $679.2 million in sales and $202.3 million in principal payments, amortization and redemptions. The Company’s assessment of held-to-maturity and available-for-sale investment securities indicated that no ACL was required as of January 1, 2020 or September 30, 2020.

Deposits

At September 30, 2020, deposits totaled $16.33 billion, a decrease of $645.9 million, or 3.8%, from June 30, 2020 and an increase of $7.47 billion, or 84.3%, from September 30, 2019. At September 30, 2020, non-maturity deposits totaled $14.61 billion, or 89.5% of total deposits, a decrease of $445.6 million, or 3.0%, from June 30, 2020 and an increase $7.10 billion, or 94.4%, from September 30, 2019. During the third quarter of 2020, deposit decreases included $281.3 million in money market and savings deposits, $160.5 million in interest-checking, $109.9 million in retail certificates of deposits, $90.4 million in brokered certificates of deposit, and $3.7 million in noninterest-bearing deposits as compared to the second quarter of 2020. The increase in deposits from September 30, 2019 was primarily due to the acquisition of Opus.

The weighted average cost of deposits for the three-month period ending September 30, 2020 was 0.20%, compared to 0.32% for the three-month period ending June 30, 2020, and 0.71% for the three-month period ending September 30, 2019. The decrease in the weighted average cost of deposits in the third quarter of 2020 compared to the prior quarter was principally driven by lower pricing across all deposit product categories as well as a 3 basis point increase in the credit amortization of the CD mark to market adjustment.

The end of period weighted average rate of deposits at September 30, 2020 was 0.23%.

September 30,

June 30,

September 30,

2020

2020

2019

Deposit Accounts

(Dollars in thousands)

Noninterest-bearing checking

$

5,895,744

$

5,899,442

$

3,623,546

Interest-bearing:

Checking

2,937,910

3,098,454

529,401

Money market/savings

5,778,688

6,060,031

3,362,453

Retail certificates of deposit

1,542,029

1,651,976

1,019,433

Wholesale/brokered certificates of deposit

176,436

266,790

324,455

Total interest-bearing

10,435,063

11,077,251

5,235,742

Total deposits

$

16,330,807

$

16,976,693

$

8,859,288

Cost of deposits

0.20

%

0.32

%

0.71

%

Noninterest-bearing deposits as a percentage of total deposits

36.1

34.8

40.9

Non-maturity deposits as a percent of total deposits

89.5

88.7

84.8

Core deposits as a percent of total deposits (1)

96.0

94.9

90.6

________________

(1)

Core deposits are all transaction accounts and non-brokered certificates of deposit less than $250,000.

Borrowings

At September 30, 2020, total borrowings amounted to $542.4 million, a slight increase of $62,000 from June 30, 2020 and a decrease of $279.9 million from September 30, 2019. Total borrowings at September 30, 2020 included $41.0 million of Federal Home Loan Bank of San Francisco ("FHLB") advances and $501.4 million of subordinated debt. At September 30, 2020, total borrowings represented 2.7% of total assets, compared to 2.6% and 7.0%, as of June 30, 2020 and September 30, 2019, respectively. The decrease in borrowings at September 30, 2020 as compared to September 30, 2019 was primarily due to lower FHLB advances, partially offset by the issuance in June 2020 of $150 million in aggregate principal amount of the Company's 5.375% Fixed-to-Floating Rate Subordinated Notes (the "Notes") due June 15, 2030, as well as the $135 million aggregate principal amount of subordinated notes assumed by the Bank in connection with the acquisition of Opus in the second quarter of 2020.

Capital Ratios

At September 30, 2020, our ratio of tangible common equity to total assets was 9.01%, compared with 8.50% at June 30, 2020 and 10.01% at September 30, 2019, with a tangible book value per share of $18.01, compared with $17.58 at June 30, 2020 and $18.41 at September 30, 2019.

The Company implemented the CECL model commencing January 1, 2020 and elected to phase in the full effect of CECL on regulatory capital over the five-year transition period. At September 30, 2020, the Company exceeded all regulatory minimum capital adequacy requirements, inclusive of the fully phased in capital conservation buffer, with a tier 1 leverage ratio of 9.09%, common equity tier 1 capital ratio of 11.71%, tier 1 capital ratio of 11.71%, and total capital ratio of 16.00%.

At September 30, 2020, the Bank had a tier 1 leverage ratio of 10.33%, common equity tier 1 capital ratio of 13.31%, tier 1 capital ratio of 13.31%, and total capital ratio of 15.38%. The decrease in tier 1 leverage ratios from June 30, 2020 and September 30, 2019 reflected the full quarter's impact of the acquisition of Opus on average total consolidated assets. These capital ratios each exceeded the "well capitalized" standards defined by the federal banking regulators of 7.00% for tier 1 leverage ratio, 6.5% for common equity tier 1 capital ratio, 8.50% for tier 1 capital ratio, and 10.50% for total capital ratio inclusive of the fully phased in capital conservation buffer.

September 30,

June 30,

September 30,

Capital Ratios

2020

2020

2019

Pacific Premier Bancorp, Inc. Consolidated

Tier 1 leverage ratio

9.09

%

12.00

%

10.34

%

Common equity tier 1 capital ratio

11.71

11.32

10.93

Tier 1 capital ratio

11.71

11.32

11.04

Total capital ratio

16.00

15.69

13.40

Tangible common equity ratio (1)

9.01

8.50

10.01

Pacific Premier Bank

Tier 1 leverage ratio

10.33

%

13.49

%

12.20

%

Common equity tier 1 capital ratio

13.31

12.73

13.01

Tier 1 capital ratio

13.31

12.73

13.01

Total capital ratio

15.38

14.81

13.41

Share Data

Book value per share

$

28.48

$

28.14

$

33.50

Tangible book value per share (1)

18.01

17.58

18.41

Dividend per share

0.25

0.25

0.22

Closing stock price (2)

20.14

21.68

31.19

Shares issued and outstanding

94,375,521

94,350,902

59,364,340

Market capitalization (2)(3)

$

1,900,723

$

2,045,528

$

1,851,574

________________

(1)

A reconciliation of the non-U.S. GAAP measures of tangible common equity and tangible book value per share to the U.S. GAAP measures of common stockholders' equity and book value per share is set forth below.

(2)

As of the last trading day prior to period end.

(3)

Dollars in thousands.

Dividend and Stock Repurchase Program

On October 23, 2020, the Company's Board of Directors declared a $0.28 per share dividend, payable on November 13, 2020 to stockholders of record as of November 6, 2020. In December 2019, the Company’s Board of Directors approved a new stock repurchase program, which authorized the repurchase of up to $100 million of its common stock. To date, the Company has not repurchased any shares under the new stock repurchase program and has suspended the stock repurchase program indefinitely.

Subsequent events

On October 5, 2020, the Bank completed the client account and computer system conversion for the Opus acquisition. At the same time, as a result of the Opus acquisition, the Bank consolidated 20 branch offices primarily in California, Washington, and Arizona into nearby branch offices with minimal disruption to clients and daily operations. The consolidated branches were identified largely based on the proximity of neighboring branches, historic growth, and market opportunity to improve further the overall efficiency of operations in line with the Bank's ongoing cost reduction initiatives. After the branch consolidations, the Bank operates 65 branches in major metropolitan markets in California, Washington, Oregon, Arizona, and Nevada.

Conference Call and Webcast

The Company will host a conference call at 9:00 a.m. PT / 12:00 p.m. ET on October 27, 2020 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 November 3, 2020 at (877) 344-7529, conference ID 10148225.

About Pacific Premier Bancorp, Inc.

Pacific Premier Bancorp, Inc. (Nasdaq: PPBI) is the parent company of Pacific Premier Bank, a California-based commercial bank focused on serving small, middle-market, and corporate businesses throughout the western United States in major metropolitan markets in California, Washington, Oregon, Arizona, and Nevada. Founded in 1983, Pacific Premier Bank has grown to become one of the largest banks in the western region of the United States, with approximately $20 billion in total assets. Pacific Premier Bank provides banking products and services, including deposit accounts, digital banking, and treasury management services, to businesses, professionals, entrepreneurs, real estate investors, and nonprofit organizations. We also offer a wide array of loan products, such as commercial business loans, lines of credit, SBA loans, commercial real estate loans, agribusiness loans, franchise lending, home equity lines of credit, and construction loans. Pacific Premier Bank offers commercial escrow services and facilitates 1031 Exchange transactions through its Commerce Escrow division. Pacific Premier Bank offers clients IRA custodial services through its Pacific Premier Trust division, which has approximately $15 billion of assets under custody and approximately 44,000 client accounts comprised of self-directed investors, financial institutions, capital syndicators, and financial advisors. Additionally, Pacific Premier Bank provides nationwide customized banking solutions to Home Owners' Associations and Property Management companies. Pacific Premier Bank is an Equal Housing Lender and Member FDIC. For additional information about Pacific Premier Bancorp, Inc. and Pacific Premier Bank, visit our website: www.ppbi.com.

FORWARD-LOOKING STATEMENTS

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 including, without limitation, plans, strategies and goals, and statements about the Company’s expectations regarding revenue and asset growth, financial performance and profitability, loan and deposit growth, yields and returns, loan diversification and credit management, stockholder value creation, tax rates and the impact of the Opus acquisition and other acquisitions.

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. The COVID-19 pandemic is adversely affecting us, our customers, counterparties, employees and third-party service providers, and given its ongoing and dynamic nature, the ultimate extent of the impacts on our business, financial position, results of operations, liquidity and prospects is uncertain. Continued deterioration in general business and economic conditions, including further increases in unemployment rates, or turbulence in domestic or global financial markets could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and further increase stock price volatility, which could result in impairment to our goodwill in future periods. In addition, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, could affect us in substantial and unpredictable ways, including the potential adverse impact of loan modifications and payment deferrals implemented consistent with recent regulatory guidance. Other 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/deflation, interest rate, market and monetary fluctuations; the effect of acquisitions we have made or may make, such as our recent Opus acquisition, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions, and/or the failure to effectively integrate an acquisition target into our operations; the timely development of competitive new products and services and the acceptance of these products and services by new and existing customers; the impact of changes in financial services policies, laws and regulations, including those concerning taxes, banking, securities and insurance, and the application thereof by regulatory bodies; the effectiveness of our risk management framework and quantitative models; changes in the level of our nonperforming assets and charge-offs; the expected discontinuation of LIBOR and uncertainty regarding potential alternative reference rates, including SOFR; the effect of changes in accounting policies and practices or accounting standards, as may be adopted from time-to-time by bank regulatory agencies, the U.S. Securities and Exchange Commission ("SEC"), the Public Company Accounting Oversight Board, the Financial Accounting Standards Board or other accounting standards setters, including ASU 2016-13 (Topic 326), "Measurement of Credit Losses on Financial Instruments," commonly referenced as the CECL model, which has changed how we estimate credit losses and may further increase the required level of our allowance for credit losses in future periods; possible credit related impairments of securities held by us; possible impairment charges to goodwill; the impact of current governmental efforts to restructure the U.S. financial regulatory system, including any amendments to the Dodd-Frank Wall Street Reform and Consumer Protection Act; changes in consumer spending, borrowing and savings habits; the effects of our lack of a diversified loan portfolio, including the risks of geographic and industry concentrations; our ability to attract deposits and other sources of liquidity; the possibility that we may reduce or discontinue the payments of dividends on our common stock; 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; geopolitical conditions, including acts or threats of terrorism, actions taken by the United States or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the United States and abroad; public health crisis and pandemics, including the COVID-19 pandemic, and their effects on the economic and business environments in which we operate, including on our credit quality and business operations, as well as the impact on general economic and financial market conditions; cybersecurity threats and the cost of defending against them, including the costs of compliance with potential legislation to combat cybersecurity at a state, national or global level; unanticipated regulatory or legal proceedings; and our 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 Company's 2019 Annual Report on Form 10-K and quarterly report on Form 10-Q for the period ended March 31, 2020 and June 30, 2020 filed with the SEC and available at the SEC’s Internet site (http://www.sec.gov).

The Company undertakes no obligation to revise or publicly release any revision or update to these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.

(PPBI-ER)

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands)

(Unaudited)

September 30,

June 30,

March 31,

December 31,

September 30,

2020

2020

2020

2019

2019

ASSETS

Cash and due from banks

$

641,739

$

158,784

$

108,285

$

135,847

$

166,238

Interest-bearing deposits with financial institutions

461,338

1,182,946

425,747

191,003

261,477

Cash and cash equivalents

1,103,077

1,341,730

534,032

326,850

427,715

Interest-bearing time deposits with financial institutions

2,845

2,845

2,708

2,708

2,711

Investments held-to-maturity, at amortized cost

27,980

32,557

34,553

37,838

40,433

Investment securities available-for-sale, at fair value

3,600,731

2,336,066

1,337,761

1,368,384

1,256,655

FHLB, FRB, and other stock, at cost

116,819

94,658

92,858

93,061

92,986

Loans held for sale, at lower of amortized cost or fair value

1,032

1,007

111

1,672

7,092

Loans held for investment

13,450,840

15,082,884

8,754,869

8,722,311

8,757,476

Allowance for credit losses

(282,503

)

(282,271

)

(115,422

)

(35,698

)

(35,000

)

Loans held for investment, net

13,168,337

14,800,613

8,639,447

8,686,613

8,722,476

Accrued interest receivable

73,112

78,408

38,294

39,442

38,603

Other real estate owned

334

386

441

441

126

Premises and equipment

80,326

76,542

61,615

59,001

62,851

Deferred income taxes, net

108,050

105,859

15,249

Bank owned life insurance

290,875

305,901

113,461

113,376

112,716

Intangible assets

90,012

94,550

79,349

83,312

87,560

Goodwill

898,434

901,166

808,322

808,322

808,322

Other assets

282,276

344,786

218,008

154,992

151,251

Total assets

$

19,844,240

$

20,517,074

$

11,976,209

$

11,776,012

$

11,811,497

LIABILITIES:

Deposit accounts:

Noninterest-bearing checking

$

5,895,744

$

5,899,442

$

3,943,260

$

3,857,660

$

3,623,546

Interest-bearing:

Checking

2,937,910

3,098,454

577,966

586,019

529,401

Money market/savings

5,778,688

6,060,031

3,499,305

3,406,988

3,362,453

Retail certificates of deposit

1,542,029

1,651,976

897,680

973,465

1,019,433

Wholesale/brokered certificates of deposit

176,436

266,790

174,861

74,377

324,455

Total interest-bearing

10,435,063

11,077,251

5,149,812

5,040,849

5,235,742

Total deposits

16,330,807

16,976,693

9,093,072

8,898,509

8,859,288

FHLB advances and other borrowings

41,000

41,006

521,017

517,026

604,558

Subordinated debentures

501,443

501,375

215,269

215,145

217,825

Deferred income taxes, net

1,371

301

Accrued expenses and other liabilities

282,905

343,353

143,934

131,367

140,527

Total liabilities

17,156,155

17,862,427

9,973,292

9,763,418

9,822,499

STOCKHOLDERS’ EQUITY:

Common stock

930

930

586

586

584

Additional paid-in capital

2,351,532

2,348,415

1,596,680

1,594,434

1,590,168

Retained earnings

289,960

247,078

361,242

396,051

368,051

Accumulated other comprehensive income

45,663

58,224

44,409

21,523

30,195

Total stockholders' equity

2,688,085

2,654,647

2,002,917

2,012,594

1,988,998

Total liabilities and stockholders' equity

$

19,844,240

$

20,517,074

$

11,976,209

$

11,776,012

$

11,811,497

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

September 30,

September 30,

2020

2020

2019

2020

2019

INTEREST INCOME

Loans

$

167,455

$

133,339

$

122,974

$

414,059

$

366,310

Investment securities and other interest-earning assets

14,536

10,783

9,630

35,843

29,951

Total interest income

181,991

144,122

132,604

449,902

396,261

INTEREST EXPENSE

Deposits

8,509

9,655

15,878

28,651

45,153

FHLB advances and other borrowings

113

217

1,214

1,411

9,099

Subordinated debentures

6,823

3,958

3,177

13,827

7,627

Total interest expense

15,445

13,830

20,269

43,889

61,879

Net interest income before provision for credit losses

166,546

130,292

112,335

406,013

334,382

Provision for credit losses

4,210

160,635

1,562

190,299

3,422

Net interest (loss) income after provision for credit losses

162,336

(30,343

)

110,773

215,714

330,960

NONINTEREST INCOME

Loan servicing fees

481

434

546

1,395

1,353

Service charges on deposit accounts

1,593

1,399

1,440

4,707

4,211

Other service fee income

487

297

360

1,095

1,079

Debit card interchange fee income

944

457

421

1,749

2,637

Earnings on BOLI

2,270

1,314

861

4,920

2,622

Net gain (loss) from sales of loans

9,542

(2,032

)

2,313

8,281

4,944

Net gain (loss) from sales of investment securities

1,141

(21

)

4,261

8,880

4,900

Custodial account fees

6,960

2,397

9,357

Other income

3,340

2,653

1,228

7,747

3,689

Total noninterest income

26,758

6,898

11,430

48,131

25,435

NONINTEREST EXPENSE

Compensation and benefits

51,021

43,011

35,543

128,408

102,778

Premises and occupancy

12,373

9,487

7,593

30,028

22,645

Data processing

6,783

4,465

3,094

14,501

9,060

Other real estate owned operations, net

(17

)

9

64

6

129

FDIC insurance premiums

1,145

846

(10

)

2,358

1,530

Legal, audit and professional expense

5,108

3,094

3,058

11,328

9,601

Marketing expense

1,718

1,319

1,767

4,449

4,689

Office, telecommunications and postage expense

2,389

1,533

1,200

5,025

3,721

Loan expense

802

823

1,137

2,447

3,015

Deposit expense

4,728

4,958

3,478

14,674

10,729

Merger-related expense

2,988

39,346

(4

)

44,058

656

Amortization of intangible assets

4,538

4,066

4,281

12,567

12,998

Other expense

5,003

3,013

4,135

11,331

11,298

Total noninterest expense

98,579

115,970

65,336

281,180

192,849

Net income (loss) before income taxes

90,515

(139,415

)

56,867

(17,335

)

163,546

Income tax expense (benefit)

23,949

(40,324

)

15,492

(10,550

)

44,926

Net income (loss)

$

66,566

$

(99,091

)

$

41,375

$

(6,785

)

$

118,620

EARNINGS (LOSS) PER SHARE

Basic

$

0.71

$

(1.41

)

$

0.69

$

(0.10

)

$

1.93

Diluted

$

0.70

$

(1.41

)

$

0.69

$

(0.10

)

$

1.92

WEIGHTED AVERAGE SHARES OUTSTANDING

Basic

93,529,967

70,425,027

59,293,218

74,391,688

60,853,081

Diluted

93,719,167

70,425,027

59,670,855

74,391,688

61,201,858

SELECTED FINANCIAL DATA

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED AVERAGE BALANCES AND YIELD DATA

Three Months Ended

September 30, 2020

June 30, 2020

September 30, 2019

Average
Balance

Interest
Income/
Expense

Average
Yield/Cost

Average
Balance

Interest
Income/
Expense

Average
Yield/Cost

Average
Balance

Interest
Income/
Expense

Average
Yield/Cost

Assets

(Dollars in thousands)

Interest-earning assets:

Cash and cash equivalents

$

1,388,897

$

305

0.09

%

$

796,761

$

215

0.11

%

$

188,693

$

403

0.85

%

Investment securities

3,283,840

14,231

1.73

1,792,432

10,568

2.36

1,311,649

9,227

2.81

Loans receivable, net (1)(2)

14,034,868

167,455

4.75

11,242,721

133,339

4.77

8,728,536

122,974

5.59

Total interest-earning assets

18,707,605

181,991

3.87

13,831,914

144,122

4.19

10,228,878

132,604

5.14

Noninterest-earning assets

1,659,156

1,343,396

1,232,963

Total assets

$

20,366,761

$

15,175,310

$

11,461,841

Liabilities and Equity

Interest-bearing deposits:

Interest checking

$

3,001,738

$

1,191

0.16

%

$

1,417,846

$

844

0.24

%

$

553,588

$

688

0.49

%

Money market

5,490,541

4,855

0.35

4,242,990

5,680

0.54

3,107,570

7,736

0.99

Savings

357,768

109

0.12

283,632

101

0.14

239,601

103

0.17

Retail certificates of deposit

1,587,712

1,857

0.47

1,148,874

2,251

0.79

1,044,174

4,867

1.85

Wholesale/brokered certificates of deposit

265,672

497

0.74

224,333

779

1.40

398,110

2,484

2.48

Total interest-bearing deposits

10,703,431

8,509

0.32

7,317,675

9,655

0.53

5,343,043

15,878

1.18

FHLB advances and other borrowings

41,041

113

1.10

143,813

217

0.61

214,264

1,214

2.25

Subordinated debentures

501,396

6,823

5.44

287,368

3,958

5.51

222,715

3,177

5.71

Total borrowings

542,437

6,936

5.09

431,181

4,175

3.89

436,979

4,391

3.99

Total interest-bearing liabilities

11,245,868

15,445

0.55

7,748,856

13,830

0.72

5,780,022

20,269

1.39

Noninterest-bearing deposits

5,877,619

4,970,812

3,533,797

Other liabilities

553,407

223,920

157,711

Total liabilities

17,676,894

12,943,588

9,471,530

Stockholders' equity

2,689,867

2,231,722

1,990,311

Total liabilities and equity

$

20,366,761

$

15,175,310

$

11,461,841

Net interest income

$

166,546

$

130,292

$

112,335

Net interest margin (3)

3.54

%

3.79

%

4.36

%

Cost of deposits

0.20

0.32

0.71

Cost of funds (4)

0.36

0.44

0.86

Ratio of interest-earning assets to interest-bearing liabilities

166.35

178.50

176.97

________________

(1)

Average balance includes loans held for sale and nonperforming loans and is net of deferred loan origination fees/costs and discounts/premiums.

(2)

Interest income includes net discount accretion of $12.2 million, $5.8 million, and $6.0 million, respectively.

(3)

Represents annualized net interest income divided by average interest-earning assets.

(4)

Represents annualized total interest expense divided by the sum of average total interest-bearing liabilities and noninterest-bearing deposits.

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

LOAN PORTFOLIO COMPOSITION

September 30,

June 30,

March 31,

December 31,

September 30,

2020

2020

2020

2019

2019

(Dollars in thousands)

Investor loans secured by real estate

CRE non-owner-occupied

$

2,707,930

$

2,783,692

$

2,040,198

$

2,070,141

$

2,052,118

Multifamily

5,142,069

5,225,557

1,625,682

1,575,726

1,610,643

Construction and land

337,872

357,426

377,525

438,786

507,114

SBA secured by real estate (1)

57,610

59,482

61,665

68,431

68,689

Total investor loans secured by real estate

8,245,481

8,426,157

4,105,070

4,153,084

4,238,564

Business loans secured by real estate (2)

CRE owner-occupied

2,119,788

2,170,154

1,887,632

1,846,554

1,847,443

Franchise real estate secured

359,329

364,647

371,428

353,240

344,954

SBA secured by real estate (3)

84,126

85,542

83,640

88,381

91,101

Total business loans secured by real estate

2,563,243

2,620,343

2,342,700

2,288,175

2,283,498

Commercial loans (4)

Commercial and industrial

1,820,995

2,051,313

1,458,969

1,393,270

1,353,793

Franchise non-real estate secured

515,980

523,755

547,793

564,357

549,711

SBA non-real estate secured

16,748

21,057

16,265

17,426

17,891

SBA PPP

1,128,780

Total commercial loans

2,353,723

3,724,905

2,023,027

1,975,053

1,921,395

Retail loans

Single family residential (5)

243,359

265,170

237,180

255,024

273,416

Consumer

45,034

46,309

46,892

50,975

40,603

Total retail loans

288,393

311,479

284,072

305,999

314,019

Gross loans held for investment (6)

13,450,840

15,082,884

8,754,869

8,722,311

8,757,476

Allowance for credit losses for loans held for investment (7)

(282,503

)

(282,271

)

(115,422

)

(35,698

)

(35,000

)

Loans held for investment, net

$

13,168,337

$

14,800,613

$

8,639,447

$

8,686,613

$

8,722,476

Loans held for sale, at lower of cost or fair value

$

1,032

$

1,007

$

111

$

1,672

$

7,092

________________

(1)

SBA loans that are collateralized by hotel/motel real property.

(2)

Loans to businesses that are collateralized by real estate where the operating cash flow of the business is the primary source of repayment.

(3)

SBA loans that are collateralized by real property other than hotel/motel real property.

(4)

Loans to businesses where the operating cash flow of the business is the primary source of repayment.

(5)

Single family residential includes home equity lines of credit, as well as second trust deeds.

(6)

Includes unaccreted fair value net purchase discounts of $126.3 million, $144.5 million, and $46.8 million as of September 30, 2020, June 30, 2020, and September 30, 2019, respectively.

(7)

The allowance for credit losses as of December 31, 2019 and prior were accounted for under ASC 450 and ASC 310, which is reflective of probable incurred losses as of the balance sheet date. Effective January 1, 2020, the allowance for credit losses is accounted for under ASC 326, which is reflective of estimated expected lifetime credit losses.

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

ASSET QUALITY INFORMATION

September 30,

June 30,

March 31,

December 31,

September 30,

2020

2020

2020

2019

2019

Asset Quality

(Dollars in thousands)

Nonperforming loans

$

27,214

$

33,825

$

20,610

$

8,527

$

8,109

Other real estate owned

334

386

441

441

126

Nonperforming assets

$

27,548

$

34,211

$

21,051

$

8,968

$

8,235

Total classified assets (1)

$

137,042

$

90,334

$

54,586

$

45,387

$

39,879

Allowance for credit losses

282,503

282,271

115,422

35,698

35,000

Allowance for credit losses as a percent of total nonperforming loans

1,038

%

835

%

560

%

419

%

432

%

Nonperforming loans as a percent of loans held for investment

0.20

0.22

0.24

0.10

0.09

Nonperforming assets as a percent of total assets

0.14

0.17

0.18

0.08

0.07

Classified loans to total loans held for investment

1.02

0.60

0.62

0.52

0.45

Classified assets to total assets

0.69

0.44

0.46

0.39

0.34

Net loan charge-offs for the quarter ended

$

4,470

$

4,650

$

1,344

$

2,318

$

1,391

Net loan charge-offs for the quarter to average total loans

0.03

%

0.04

%

0.02

%

0.03

%

0.02

%

Allowance for credit losses to loans held for investment (2)

2.10

1.87

1.32

0.41

0.40

Allowance for credit losses to loans held for investment, excluding SBA PPP loans (2)

2.10

2.02

1.32

0.41

0.40

Delinquent Loans

30 - 59 days

$

7,084

$

6,248

$

8,285

$

2,104

$

1,715

60 - 89 days

1,086

4,133

1,502

10,559

3,212

90+ days

21,206

27,807

19,084

6,439

6,297

Total delinquency

$

29,376

$

38,188

$

28,871

$

19,102

$

11,224

Delinquency as a percent of loans held for investment

0.22

%

0.25

%

0.33

%

0.22

%

0.13

%

________________

(1)

Includes substandard loans and other real estate owned.

(2)

At September 30, 2020, 58% of loans held for investment include a fair value net discount of $126.3 million, or 0.93% of loans held for investment. At June 30, 2020, 56% of loans held for investment include a fair value net discount of $144.5 million, or 0.95% of loans held for investment (1.03% of loans held for investment excluding SBA PPP loans). At September 30, 2019, 41% of loans held for investment include a fair value net discount of $46.8 million, or 0.53% of loans held for investment.

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

NONACCRUAL LOANS (1)

Collateral
Dependent
Loans

ACL

Non-Collateral
Dependent
Loans

ACL

Total
Nonaccrual
Loans

Nonaccrual
Loans With
No ACL

(Dollars in thousands)

September 30, 2020

Investor loans secured by real estate

CRE non-owner-occupied

$

2,838

$

$

$

$

2,838

$

2,838

Multifamily

Construction and land

895

895

895

SBA secured by real estate (2)

1,264

1,264

1,264

Total investor loans secured by real estate

4,997

4,997

4,997

Business loans secured by real estate (3)

CRE owner-occupied

6,105

6,105

6,105

Franchise real estate secured

SBA secured by real estate (4)

1,084

1,084

1,084

Total business loans secured by real estate

7,189

7,189

7,189

Commercial loans (5)

Commercial and industrial

4,309

557

1,790

266

6,099

2,809

Franchise non-real estate secured

7,742

1,165

7,742

SBA not secured by real estate

737

737

737

Total commercial loans

5,046

557

9,532

1,431

14,578

3,546

Retail Loans

Single family residential (6)

450

450

450

Consumer loans

Total retail loans

450

450

450

Totals nonaccrual loans

$

17,682

$

557

$

9,532

$

1,431

$

27,214

$

16,182

________________

(1)

The ACL for nonaccrual loans is determined based on a discounted cash flow methodology unless the loan is considered collateral dependent. The ACL for collateral dependent loans is determined based on the estimated fair value of the underlying collateral.

(2)

SBA loans that are collateralized by hotel/motel real property.

(3)

Loans to businesses that are collateralized by real estate where the operating cash flow of the business is the primary source of repayment.

(4)

SBA loans that are collateralized by real property other than hotel/motel real property.

(5)

Loans to businesses where the operating cash flow of the business is the primary source of repayment.

(6)

Single family residential includes home equity lines of credit, as well as second trust deeds.

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

PAST DUE STATUS

Days Past Due

Current

30-59

60-89

90+

Total

(Dollars in thousands)

September 30, 2020

Investor loans secured by real estate

CRE non-owner-occupied

$

2,707,169

$

$

$

761

$

2,707,930

Multifamily

5,142,069

5,142,069

Construction and land

336,977

895

337,872

SBA secured by real estate (1)

56,346

673

591

57,610

Total investor loans secured by real estate

8,242,561

673

2,247

8,245,481

Business loans secured by real estate (2)

CRE owner-occupied

2,114,484

250

5,054

2,119,788

Franchise real estate secured

359,329

359,329

SBA secured by real estate (3)

83,116

1,010

84,126

Total business loans secured by real estate

2,556,929

250

6,064

2,563,243

Commercial loans (4)

Commercial and industrial

1,810,027

5,717

836

4,415

1,820,995

Franchise non-real estate secured

508,237

7,743

515,980

SBA not secured by real estate

15,691

320

737

16,748

Total commercial loans

2,333,955

6,037

836

12,895

2,353,723

Retail loans

Single family residential (5)

242,985

374

243,359

Consumer loans

45,034

45,034

Total retail loans

288,019

374

288,393

Total loans

$

13,421,464

$

7,084

$

1,086

$

21,206

$

13,450,840

________________

(1)

SBA loans that are collateralized by hotel/motel real property.

(2)

Loans to businesses that are collateralized by real estate where the operating cash flow of the business is the primary source of repayment.

(3)

SBA loans that are collateralized by real property other than hotel/motel real property.

(4)

Loans to businesses where the operating cash flow of the business is the primary source of repayment.

(5)

Single family residential includes home equity lines of credit, as well as second trust deeds.

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES

CREDIT RISK GRADES

Pass

Special
Mention

Substandard

Total Gross
Loans

(Dollars in thousands)

September 30, 2020

Investor loans secured by real estate

CRE non-owner-occupied

$

2,700,363

$

4,090

$

3,477

$

2,707,930

Multifamily

5,141,510

559

5,142,069

Construction and land

336,977

895

337,872

SBA secured by real estate (1)

52,555

5,055

57,610

Total investor loans secured by real estate

8,231,405

4,090

9,986

8,245,481

Business loans secured by real estate (2)

CRE owner-occupied

2,073,543

32,289

13,956

2,119,788

Franchise real estate secured

359,329

359,329

SBA secured by real estate (3)

77,971

6,155

84,126

Total business loans secured by real estate

2,510,843

32,289

20,111

2,563,243

Commercial loans (4)

Commercial and industrial

1,708,175

42,368

70,452

1,820,995

Franchise non-real estate secured

484,500

31,480

515,980

SBA not secured by real estate

11,380

1,661

3,707

16,748

Total commercial loans

2,204,055

44,029

105,639

2,353,723

Retail loans

Single family residential (5)

242,373

57

929

243,359

Consumer loans

44,991

43

45,034

Total retail loans

287,364

57

972

288,393

Total loans

$

13,233,667

$

80,465

$

136,708

$

13,450,840

________________

(1)

SBA loans that are collateralized by hotel/motel real property.

(2)

Loans to businesses that are collateralized by real estate where the operating cash flow of the business is the primary source of repayment.

(3)

SBA loans that are collateralized by real property other than hotel/motel real property.

(4)

Loans to businesses where the operating cash flow of the business is the primary source of repayment.

(5)

Single family residential includes home equity lines of credit, as well as second trust deeds.

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
GAAP RECONCILIATIONS
(Dollars in thousands, except per share data)

The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance. However, these non-GAAP financial measures are supplemental and are not a substitute for an analysis based on GAAP measures. As other companies may use different calculations for these adjusted measures, this presentation may not be comparable to other similarly titled adjusted measures reported by other companies.

For periods presented below, return on average tangible common equity is a non-GAAP financial measure derived from GAAP based amounts. We calculate this figure by excluding amortization of intangible assets expense from net income and excluding the average intangible assets and average goodwill from the average stockholders' equity during the periods indicated. Management believes that the exclusion of such items from this financial measure provides useful information to gain an understanding of the operating results of our core business.

Three Months Ended

September 30,

June 30,

September 30,

2020

2020

2019

Net income (loss)

$

66,566

$

(99,091

)

$

41,375

Plus: amortization of intangible assets expense

4,538

4,066

4,281

Less: amortization of intangible assets expense tax adjustment

1,301

1,166

1,240

Net income (loss) for average tangible common equity

$

69,803

$

(96,191

)

$

44,416

Average stockholders' equity

$

2,689,867

$

2,231,722

$

1,990,311

Less: average intangible assets

92,768

84,148

90,178

Less: average goodwill

898,430

838,725

808,322

Average tangible common equity

$

1,698,669

$

1,308,849

$

1,091,811

Return on average equity

9.90

%

(17.76

)%

8.32

%

Return on average tangible common equity

16.44

%

(29.40

)%

16.27

%

Pre-provision net revenue is a non-GAAP financial measure derived from GAAP-based amounts. We calculate the pre-provision net revenue by excluding income tax, provision for credit losses and merger-related expenses from the net income. Management believes that the exclusion of such items from this financial measure provides useful information to gain an understanding of the operating results of our core business and a better comparison to the financial results of prior periods.

Three Months Ended

September 30,

June 30,

September 30,

2020

2020

2019

Interest income

$

181,991

$

144,122

$

132,604

Interest expense

15,445

13,830

20,269

Net interest income

166,546

130,292

112,335

Noninterest income

26,758

6,898

11,430

Revenue

193,304

137,190

123,765

Noninterest expense

98,579

115,970

65,336

Add: merger-related expense

2,988

39,346

(4

)

Pre-provision net revenue

97,713

60,566

58,425

Pre-provision net revenue (annualized)

$

390,852

$

242,264

$

233,700

Average assets

$

20,366,761

$

15,175,310

$

11,461,841

Pre-provision net revenue on average assets

0.48

%

0.40

%

0.51

%

Pre-provision net revenue on average assets (annualized)

1.92

%

1.60

%

2.04

%

Tangible book value per share and tangible common equity to tangible assets (the "tangible common equity ratio") are non-GAAP financial measures derived from GAAP based amounts. We calculate tangible book value per share by dividing tangible common equity by common shares outstanding, as compared to book value per share, which we calculate by dividing common stockholders' equity by shares outstanding. We calculate the tangible common equity ratio by excluding the balance of intangible assets from common stockholders' equity and dividing by tangible assets. We believe that this information is consistent with the treatment by bank regulatory agencies, which exclude intangible assets from the calculation of risk-based capital ratios. Accordingly, we believe that these non-GAAP financial measures provide information that is important to investors and that is useful in understanding our capital position and ratios.

September 30,

June 30,

March 31,

December 31,

September 30,

2020

2020

2020

2019

2019

Total stockholders' equity

$

2,688,085

$

2,654,647

$

2,002,917

$

2,012,594

$

1,988,998

Less: intangible assets

988,446

995,716

887,671

891,634

895,882

Tangible common equity

$

1,699,639

$

1,658,931

$

1,115,246

$

1,120,960

$

1,093,116

Book value per share

$

28.48

$

28.14

$

33.40

$

33.82

$

33.50

Less: intangible book value per share

10.47

10.55

14.80

14.98

15.09

Tangible book value per share

$

18.01

$

17.58

$

18.60

$

18.84

$

18.41

Total assets

$

19,844,240

$

20,517,074

$

11,976,209

$

11,776,012

$

11,811,497

Less: intangible assets

988,446

995,716

887,671

891,634

895,882

Tangible assets