Pacific Premier Bancorp(PPBI) - 2024 Q2 - Quarterly Results

Financial Highlights Pacific Premier Bancorp achieved $41.9 million net income in Q2 2024, bolstering capital ratios and increasing loan production Q2 2024 Key Performance Indicators | Metric | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | Net Income ($ millions) | 41.9 | 47.0 | 57.6 | | Diluted EPS ($) | 0.43 | 0.49 | 0.60 | | ROAA (%) | 0.90 | 0.99 | 1.09 | | ROAE (%) | 5.76 | 6.50 | 8.11 | | ROATCE (Non-GAAP) (%) | 8.92 | 10.05 | 12.66 | | Net Interest Margin (%) | 3.26 | 3.39 | 3.33 | | Tangible Common Equity Ratio (Non-GAAP) (%) | 11.41 | 10.97 | 9.59 | | Common Equity Tier 1 Capital Ratio (%) | 15.89 | 15.02 | 14.34 | - CEO Steven R. Gardner highlighted the company's disciplined approach to balance sheet and risk management, resulting in capital ratios (TCE of 11.41%, CET1 of 15.89%) that are near the top of peer averages[51] - Business development saw increased loan production of $150.7 million. Total deposits declined due to clients paying down loans and seasonal factors like tax payments, while the deposit mix remained favorable with noninterest-bearing deposits at 31.6% of the total[51] - The company expects stabilization in loan and deposit balances in the second half of the year and is positioned to capitalize on future opportunities due to strong capital and liquidity levels[33][34] Income Statement Analysis Net interest income declined in Q2 2024, noninterest income decreased due to non-recurring gains, and noninterest expenses fell Net Interest Income and Net Interest Margin Net interest income for Q2 2024 was $136.4 million, a decrease of 6.0% from Q1 2024 and 14.8% from Q2 2023, driven by lower loan balances and higher funding costs - Net interest income decreased by $8.7 million (6.0%) from the first quarter of 2024, mainly due to lower average loan balances and higher cost of deposits[37] - The net interest margin (NIM) for Q2 2024 decreased 13 basis points to 3.26% from 3.39% in the prior quarter, primarily due to a higher cost of deposits[56] Net Interest Margin and Funding Costs | Metric | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | Net Interest Margin (%) | 3.26 | 3.39 | 3.33 | | Cost of Deposits (%) | 1.73 | 1.59 | 1.27 | | Cost of Funds (%) | 1.86 | 1.73 | 1.45 | Provision for Credit Losses The total provision for credit losses in Q2 2024 was $1.3 million, a significant reduction from $3.9 million in Q1 2024, including $1.8 million for loan losses Provision for Credit Losses Breakdown (in thousands) | Component | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | Provision for loan losses | $1,756 | $6,288 | $610 | | Provision for unfunded commitments | $(505) | $(2,425) | $1,003 | | Provision for held-to-maturity securities | $14 | $(11) | $(114) | | Total provision for credit losses | $1,265 | $3,852 | $1,499 | Noninterest Income Noninterest income for Q2 2024 was $18.2 million, a $7.6 million decrease from the previous quarter, primarily due to a non-recurring gain on debt extinguishment - The decrease from Q1 2024 was mainly due to the prior quarter's $5.1 million gain on debt extinguishment, a $1.7 million decrease in trust custodial account fees, and a $1.3 million decrease in Community Reinvestment Act (CRA) investment income[41] Noninterest Income Components (in thousands) | Component | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | Trust custodial account fees | $8,950 | $10,642 | $9,360 | | Earnings on bank owned life insurance | $4,218 | $4,159 | $3,487 | | Service charges on deposit accounts | $2,710 | $2,688 | $2,670 | | Other (loss) income | $(167) | $5,959 | $2,031 | | Total noninterest income | $18,222 | $25,774 | $20,539 | Noninterest Expense Total noninterest expense decreased by $5.1 million quarter-over-quarter to $97.6 million, primarily driven by a $3.1 million decrease in legal and professional services - The decrease from Q1 2024 was primarily due to a $3.1 million decrease in legal and professional services, driven by a $4.0 million insurance claim receivable[43] Noninterest Expense Components (in thousands) | Component | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | Compensation and benefits | $53,140 | $54,130 | $53,424 | | Deposit expense | $12,289 | $12,665 | $9,194 | | Premises and occupancy | $10,480 | $10,807 | $11,615 | | Legal and professional services | $1,078 | $4,143 | $4,716 | | Total noninterest expense | $97,567 | $102,633 | $100,644 | Income Tax Income tax expense for Q2 2024 totaled $13.9 million, resulting in an effective tax rate of 24.9%, lower than prior quarters Income Tax Expense and Effective Tax Rate | Metric | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | Income Tax Expense ($ millions) | 13.9 | 17.4 | 20.9 | | Effective Tax Rate (%) | 24.9 | 27.0 | 26.6 | Balance Sheet Analysis Total assets decreased to $18.33 billion, with loans and deposits declining, while asset quality improved Loans Loans held for investment totaled $12.49 billion at quarter-end, a 4.0% decrease from Q1 2024, primarily due to increased prepayments, despite increased new loan origination activity - Loans held for investment decreased by $522.1 million (4.0%) from March 31, 2024, due to increased prepayments, maturities, and a decrease in credit line draws[90] - New loan commitments increased to $150.7 million in Q2 2024, up from $45.6 million in Q1 2024 and $148.5 million in Q2 2023[64] Loan Portfolio Composition (in thousands) | Loan Category | June 30, 2024 | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | :--- | | Investor loans secured by real estate | $8,206,124 | $8,390,158 | $8,826,439 | | Business loans secured by real estate | $2,417,673 | $2,492,726 | $2,657,344 | | Commercial loans | $1,822,597 | $2,087,328 | $2,106,395 | | Retail loans | $71,758 | $74,183 | $73,234 | | Total Loans Held for Investment | $12,489,951 | $13,012,071 | $13,610,282 | Allowance for Credit Losses (ACL) The Allowance for Credit Losses (ACL) on loans was $183.8 million, a decrease of $8.5 million from the prior quarter, reflecting portfolio changes and net charge-offs of $10.3 million - The ACL decreased by $8.5 million from March 31, 2024, reflecting changes in loan portfolio size, composition, and economic forecasts[68] - Net charge-offs of $10.3 million were incurred, primarily related to the sale of substandard non-owner-occupied CRE and multifamily loans[94] ACL Ratios | Metric | June 30, 2024 | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | :--- | | ACL to Loans Held for Investment (%) | 1.47 | 1.48 | 1.41 | Asset Quality Asset quality metrics improved in Q2 2024, with nonperforming assets decreasing to $52.1 million (0.28% of total assets) and classified loans declining Key Asset Quality Metrics (in thousands) | Metric | June 30, 2024 | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | :--- | | Nonperforming assets | $52,119 | $64,054 | $17,421 | | Nonperforming assets to total assets (%) | 0.28 | 0.34 | 0.08 | | Total classified assets | $183,833 | $204,937 | $120,216 | | Total delinquency | $17,923 | $12,178 | $30,951 | | Delinquency as a % of loans | 0.14 | 0.09 | 0.23 | Investment Securities Total investment securities increased by $155.7 million to $3.03 billion, primarily due to purchases of AFS U.S. Treasury securities, comprising $1.32 billion AFS and $1.71 billion HTM securities - The increase in Q2 2024 was mainly from $443.1 million in purchases of AFS U.S. Treasury securities, partially offset by $291.5 million in principal payments, amortization, and redemptions[100] - The portfolio consists of $1.32 billion in available-for-sale (AFS) and $1.71 billion in held-to-maturity (HTM) securities as of June 30, 2024[73] Deposits Total deposits decreased by 3.7% quarter-over-quarter to $14.63 billion, driven by reductions in noninterest-bearing and money market accounts, though non-maturity deposits remain strong at 83.7% - Total deposits decreased by $560.2 million (3.7%) from Q1 2024, largely due to reductions in noninterest-bearing checking and money market/savings accounts[102] - Non-maturity deposits totaled $12.24 billion, representing 83.7% of total deposits[76] Deposit Costs | Metric | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | Weighted Average Cost of Total Deposits (%) | 1.73 | 1.59 | 1.27 | | Weighted Average Cost of Non-Maturity Deposits (%) | 1.17 | 1.06 | 0.71 | Borrowings Total borrowings remained stable at $532.2 million, composed of $200.0 million in FHLB term advances and $332.2 million in subordinated debt, with $8.65 billion in unused borrowing capacity - Total borrowings at June 30, 2024 were $532.2 million, comprised of $200.0 million of FHLB term advances and $332.2 million of subordinated debt[79] - Unused borrowing capacity was $8.65 billion as of June 30, 2024, from FHLB, correspondent banks, and the Federal Reserve's discount window[108] Capital and Shareholder Returns Capital ratios significantly strengthened in Q2 2024, with a $0.33 per share dividend declared Capital Ratios Capital ratios strengthened across the board in Q2 2024, with the tangible common equity to tangible assets ratio increasing to 11.41% and the Common Equity Tier 1 (CET1) capital ratio rising to 15.89% - Tangible book value per share increased by $0.25 to $20.58, and the tangible common equity to tangible assets ratio increased 44 basis points to 11.41% compared to Q1 2024[80] - The Company and Bank exceeded all minimum regulatory capital ratios, including the fully phased-in capital conservation buffer, and the Bank qualified as 'well capitalized'[81] Consolidated Capital Ratios | Ratio | June 30, 2024 | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | :--- | | Tangible common equity ratio (Non-GAAP) (%) | 11.41 | 10.97 | 9.59 | | Common equity tier 1 capital ratio (%) | 15.89 | 15.02 | 14.34 | | Tier 1 capital ratio (%) | 15.89 | 15.02 | 14.34 | | Total capital ratio (%) | 19.01 | 18.23 | 17.24 | Dividend and Stock Repurchase Program On July 22, 2024, the Board of Directors declared a quarterly cash dividend of $0.33 per share, with no shares repurchased during Q2 2024 - A dividend of $0.33 per share was declared, payable on August 12, 2024, to stockholders of record as of August 5, 2024[82] - No shares of common stock were repurchased during the second quarter of 2024[82] Appendix: Financial Tables This appendix provides detailed unaudited financial statements, including income statements, balance sheets, and non-GAAP reconciliations Consolidated Statements of Income Presents the company's revenues, expenses, and net income for the three and six months ended June 30, 2024, and June 30, 2023 - This table provides a detailed breakdown of the company's income statement for the current and comparative periods[7] Consolidated Balance Sheets Details the company's assets, liabilities, and stockholders' equity as of June 30, 2024, compared to several prior quarter-ends - This table provides a snapshot of the company's financial position at the end of the reporting period and previous periods[132] Consolidated Average Balances and Yield Data Provides average balances for assets and liabilities, along with corresponding interest income/expense and average yields/costs, used to calculate net interest margin - This table details the average balances, interest, and yields/costs for interest-earning assets and interest-bearing liabilities[8][133] Loan Portfolio Composition Presents a detailed breakdown of the loan portfolio by category for the current and several preceding quarters - This table shows the composition of the loan portfolio across various real estate and commercial loan types over the last five quarters[117][134] Asset Quality Information Contains key asset quality metrics, including nonperforming assets, classified assets, allowance for credit losses, and delinquency data over the last five quarters - This table provides a trend analysis of key asset quality indicators over the past five quarters[11][118] Nonaccrual and Past Due Loans Provides detailed information on nonaccrual loans, including collateral dependency, and a breakdown of loans by past due status - These tables detail the composition of nonaccrual loans and the aging of past due loans as of June 30, 2024[12][14][121] Credit Risk Grades Classifies the loan portfolio by internal credit risk grades (Pass, Special Mention, Substandard, Doubtful) for each loan category - This table shows the internal risk rating distribution of the gross loan portfolio as of June 30, 2024[15][140] GAAP to Non-GAAP Reconciliations Provides reconciliations for non-GAAP financial measures used in the report, such as ROATCE, tangible book value per share, efficiency ratio, and adjusted pre-provision net revenue - This section reconciles non-GAAP measures like Return on Average Tangible Common Equity (ROATCE), Tangible Common Equity Ratio, Efficiency Ratio, and Pre-Provision Net Revenue to their GAAP counterparts[21][25][141] Other Information This section provides conference call details, a corporate overview, and a standard forward-looking statements disclaimer Conference Call and Webcast The company will host a conference call on July 24, 2024, at 9:00 a.m. PT to discuss the financial results, with a live webcast and archived version available online - A conference call to discuss financial results is scheduled for July 24, 2024, at 9:00 a.m. PT / 12:00 p.m. ET[4] About Pacific Premier Bancorp, Inc. Pacific Premier Bancorp, Inc. is the parent company of Pacific Premier Bank, a commercial bank with approximately $18 billion in total assets, serving businesses and investors across the western U.S. - Pacific Premier Bancorp, Inc. is the parent of Pacific Premier Bank, one of the largest banks headquartered in the western U.S. with approximately $18 billion in total assets[129] Forward-Looking Statements This section contains a standard disclaimer regarding forward-looking statements, cautioning that actual results may differ materially due to various risks and uncertainties - The report contains forward-looking statements based on management's current expectations, which are subject to inherent risks and uncertainties[5] - Key risks include U.S. economic strength, interest rate policies, deposit competition, credit risk, regulatory changes, and geopolitical conditions[5][130]