Pacific Premier Bancorp(PPBI) - 2025 Q2 - Quarterly Results

Financial Results and Corporate Highlights This section summarizes Pacific Premier Bancorp's Q2 2025 financial performance, highlighting a decline in net income and profitability ratios, alongside strategic merger progress and improved asset quality Second Quarter 2025 Summary Pacific Premier Bancorp reported a net income of $32.1 million, or $0.33 per diluted share, for the second quarter of 2025, representing a decline from prior periods, with key profitability metrics also decreasing Q2 2025 Key Financial Results | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Net Income | $32.1 million | $36.0 million | $41.9 million | | Diluted EPS | $0.33 | $0.37 | $0.43 | Q2 2025 Performance Ratios and Total Assets | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | ROAA | 0.71% | 0.80% | 0.90% | | ROAE | 4.33% | 4.87% | 5.76% | | ROATCE | 6.66% | 7.48% | 8.92% | | Total Assets | $17.78 billion | $18.09 billion | $18.33 billion | - The company announced a quarterly cash dividend of $0.33 per share[1] CEO Commentary and Outlook The CEO characterized the quarter's results as solid, emphasizing a prudent management approach while progressing towards the merger with Columbia Banking System - The company is focused on consummating its pending merger with Columbia Banking System, Inc. ("Columbia"), which is tracking ahead of plan and expected to close as soon as September 1, 2025, pending regulatory approvals[3][9] - Net interest margin expanded by 6 basis points to 3.12%, driven by a 5 basis point reduction in average deposit costs to 1.60%[4] - Asset quality trends remained strong, with nonperforming loans decreasing to $26.3 million and net recoveries of $349,000[5] - New loan commitments nearly doubled from the first quarter's levels to $578.5 million[6] - The company redeemed $150 million of higher-cost subordinated debt during the quarter and plans to redeem another $125 million in August, effectively eliminating remaining wholesale funding before the merger[6][8] Income Statement Analysis This section details the components of the income statement, including net interest income expansion due to lower funding costs, a credit loss provision reversal, and noninterest income and expense fluctuations Net Interest Income and Net Interest Margin Net interest income for Q2 2025 was $126.8 million, a 2.7% increase from the previous quarter, primarily due to lower cost of funds, expanding the net interest margin to 3.12% Net Interest Income and Margin Performance | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Net Interest Income | $126.8M | $123.4M | $136.4M | | Net Interest Margin | 3.12% | 3.06% | 3.26% | - The quarter-over-quarter increase in net interest income was mainly due to lower cost of funds and reduced average interest-bearing liabilities[12] - The year-over-year decrease was attributable to lower average interest-earning asset balances and yields[14] Provision for Credit Losses The company recorded a $2.1 million provision reversal for credit losses in Q2 2025, primarily driven by a decrease in loan balances and shifts in the loan portfolio's composition Provision for Credit Losses (in thousands) | Component | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Provision for loan losses | $(4,653) | $(3,562) | $1,756 | | Provision for unfunded commitments | $2,569 | $(143) | $(505) | | Total provision for credit losses | $(2,078) | $(3,718) | $1,265 | - The provision reversal was largely due to the decrease in loan balances and changes in loan composition, partially offset by increases related to higher unfunded commitments[18] Noninterest Income Noninterest income for Q2 2025 was $17.6 million, a significant decrease of $3.9 million from the prior quarter, primarily due to lower trust custodial fees, BOLI earnings, and a loss on debt redemption Noninterest Income (in thousands) | Category | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Trust custodial account fees | $8,815 | $10,307 | $8,950 | | Earnings on bank owned life insurance | $4,341 | $5,772 | $4,218 | | Other (loss) income | $(656) | $425 | $(167) | | Total noninterest income | $17,565 | $21,465 | $18,222 | - The quarter-over-quarter decrease was mainly due to a $1.5 million drop in trust fees, a $1.4 million decrease in BOLI earnings, and a $1.3 million loss on debt extinguishment[20] Noninterest Expense Noninterest expense totaled $104.4 million in Q2 2025, an increase of $4.1 million from Q1 2025, almost entirely due to $6.7 million in merger-related expenses Noninterest Expense (in thousands) | Category | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Compensation and benefits | $53,268 | $52,812 | $53,140 | | Merger-related expense | $6,712 | $— | $— | | Legal and professional services | $2,223 | $4,861 | $1,078 | | Total noninterest expense | $104,376 | $100,292 | $97,567 | - The increase in noninterest expense was primarily driven by $6.7 million in merger-related expenses[23][24] - Excluding merger-related expenses, noninterest expense decreased by $2.6 million compared to Q1 2025[23] Income Tax For the second quarter of 2025, income tax expense was $10.0 million, corresponding to an effective tax rate of 23.7%, lower than prior quarters Income Tax Expense and Effective Tax Rate | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Income Tax Expense | $10.0 million | $12.2 million | $13.9 million | | Effective Tax Rate | 23.7% | 25.4% | 24.9% | Balance Sheet Analysis This section provides an in-depth review of the balance sheet, focusing on loan portfolio composition, strong asset quality, investment securities, deposit trends, reduced borrowings, and robust capital ratios Loans Loans held for investment decreased by 1.0% quarter-over-quarter to $11.90 billion at the end of Q2 2025, despite robust new origination activity - Loans held for investment totaled $11.90 billion at June 30, 2025, a decrease of 1.0% from March 31, 2025, and 4.7% from June 30, 2024[27] - New loan commitments increased significantly to $578.5 million in Q2 2025, compared to $319.3 million in Q1 2025 and $150.7 million in Q2 2024[28] Loan Portfolio Composition (June 30, 2025) | Loan Category | Balance (in billions) | % of Total | | :--- | :--- | :--- | | Investor loans secured by real estate | $7.67 | 64.4% | | Business loans secured by real estate | $2.18 | 18.3% | | Commercial loans | $1.83 | 15.4% | | Retail loans | $0.23 | 1.9% | | Total Loans Held for Investment | $11.90 | 100.0% | Allowance for Credit Losses and Asset Quality Asset quality remained strong and improved year-over-year, with the allowance for credit losses at 1.43% of loans, stable nonperforming assets, and net recoveries - The allowance for credit losses (ACL) on loans was $170.7 million, or 1.43% of loans held for investment, down from 1.46% at March 31, 2025[33][36] - The company recorded net recoveries of $349,000 in Q2 2025, compared to net charge-offs of $10.3 million in Q2 2024[34] Key Asset Quality Metrics | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Nonperforming assets to total assets | 0.15% | 0.15% | 0.28% | | Delinquency as a % of loans HFI | 0.02% | 0.02% | 0.14% | | Classified loans to total loans HFI | 0.75% | 0.74% | 1.47% | Investment Securities Total investment securities decreased by $188.9 million during the quarter to $3.27 billion, primarily due to principal payments and redemptions, partially offset by new purchases Investment Securities Portfolio (in billions) | Date | AFS Securities | HTM Securities | Total Securities | | :--- | :--- | :--- | :--- | | June 30, 2025 | $1.58 | $1.69 | $3.27 | | March 31, 2025 | $1.76 | $1.70 | $3.46 | | June 30, 2024 | $1.32 | $1.71 | $3.03 | - The decrease in Q2 2025 was primarily due to principal payments, amortization, and redemptions totaling $288.4 million, partially offset by purchases of $99.4 million[43] Deposits Total deposits decreased by 1.2% from the prior quarter to $14.50 billion, driven by declines in noninterest-bearing checking and brokered CDs, though the deposit mix remains strong with improved cost Deposit Balances (in billions) | Date | Total Deposits | Non-Maturity Deposits | Noninterest-Bearing Deposits | | :--- | :--- | :--- | :--- | | June 30, 2025 | $14.50 | $12.54 | $4.69 | | March 31, 2025 | $14.67 | $12.60 | $4.83 | | June 30, 2024 | $14.63 | $12.24 | $4.62 | - The weighted average cost of total deposits for Q2 2025 decreased to 1.60% from 1.65% in Q1 2025[49] - Non-maturity deposits constituted 86.5% of total deposits, and noninterest-bearing deposits were 32.3% of total deposits[48][52] Borrowings Total borrowings were significantly reduced to $124.0 million at the end of Q2 2025, a decrease of $148.6 million, primarily due to the early redemption of subordinated notes - Total borrowings decreased by $148.6 million from March 31, 2025, to $124.0 million at June 30, 2025[53] - The decrease was due to the early redemption of $150.0 million in subordinated notes[53] - As of June 30, 2025, the company had $9.15 billion in unused borrowing capacity[54] Capital Ratios The company's capital position strengthened in Q2 2025, with the tangible common equity ratio increasing to 12.14% and robust Common Equity Tier 1 and total capital ratios Key Capital Ratios | Ratio | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Tangible common equity ratio | 12.14% | 11.87% | 11.41% | | Common equity tier 1 capital ratio | 17.00% | 16.99% | 15.89% | | Total capital ratio | 18.85% | 20.23% | 19.01% | | Tangible book value per share | $21.10 | $20.98 | $20.58 | - The company and bank exceeded all minimum regulatory capital requirements and the bank qualified as 'well capitalized'[57] - The Board of Directors declared a $0.33 per share dividend, payable on August 15, 2025[59] Financial Statements and Supplementary Data This section presents comprehensive consolidated financial statements, including balance sheets, income statements, and detailed breakdowns of the loan portfolio and asset quality metrics Consolidated Statements of Financial Condition This section provides the detailed consolidated balance sheet as of June 30, 2025, with comparative data for the four preceding quarters, itemizing assets, liabilities, and stockholders' equity Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Total Assets | $17,783,172 | $18,085,583 | $18,332,325 | | Loans held for investment, net | $11,731,416 | $11,848,011 | $12,306,148 | | Total Deposits | $14,497,373 | $14,666,232 | $14,627,654 | | Total Liabilities | $14,807,754 | $15,118,494 | $15,408,561 | | Total Stockholders' Equity | $2,975,418 | $2,967,089 | $2,923,764 | Consolidated Statements of Operations This section presents the detailed consolidated income statement for the three and six months ended June 30, 2025, with comparative data, breaking down income, expenses, and earnings per share Consolidated Income Statement Highlights (Three Months Ended, in thousands) | Account | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Net interest income | $126,755 | $123,367 | $136,394 | | Provision for credit losses | $(2,078) | $(3,718) | $1,265 | | Total noninterest income | $17,565 | $21,465 | $18,222 | | Total noninterest expense | $104,376 | $100,292 | $97,567 | | Net income | $32,061 | $36,021 | $41,905 | Loan Portfolio and Asset Quality Details This section provides a detailed breakdown of the loan portfolio by type, asset quality metrics, nonaccrual loan details, past due status, and credit risk grades, indicating strong asset quality - The loan portfolio is primarily composed of investor loans secured by real estate ($7.67 billion), with multifamily loans ($5.26 billion) being the largest single category[76] - Total nonaccrual loans decreased to $26.3 million from $52.1 million a year prior[78] - Total delinquent loans (30+ days past due) were extremely low at $2.0 million, or 0.02% of the portfolio, down from $17.9 million a year ago[78][83] - The vast majority of the loan portfolio, $11.67 billion out of $11.91 billion, is rated as 'Pass' grade[86] GAAP to Non-GAAP Reconciliations This section reconciles key non-GAAP financial measures to GAAP equivalents, providing adjusted performance metrics by excluding merger-related expenses and intangible asset amortization Non-GAAP Reconciliations This section provides reconciliations for several non-GAAP financial measures to their nearest GAAP equivalents, offering a clearer view of the company's core operational performance Key Non-GAAP Metrics (Q2 2025) | Metric | GAAP | Adjusted (Non-GAAP) | | :--- | :--- | :--- | | ROAA | 0.71% | 0.82% | | ROATCE | 6.66% | 7.60% | | Efficiency Ratio | 65.3% | 65.3% | | Tangible Book Value Per Share | N/A | $21.10 | - Non-GAAP adjustments for Q2 2025 primarily exclude $6.7 million in merger-related expenses and $2.5 million in amortization of intangible assets[92][94] - The cost of non-maturity deposits, a non-GAAP measure, was calculated at 1.21% for Q2 2025, a slight increase from 1.20% in the prior quarter[97]