Pacific Premier Bancorp(PPBI) - 2023 Q2 - Quarterly Report

PART I Financial Statements Presents Pacific Premier Bancorp's unaudited consolidated financial statements for Q2 2023, covering financial condition, income, comprehensive income, equity, cash flows, and detailed notes Consolidated Statements of Financial Condition (Unaudited) Total assets and liabilities decreased as of June 30, 2023, driven by reduced loans and deposits, while stockholders' equity slightly increased Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $1,463,677 | $1,101,249 | | Investment securities (AFS & HTM) | $3,749,395 | $3,989,116 | | Loans held for investment, net | $13,417,949 | $14,480,647 | | Goodwill | $901,312 | $901,312 | | Total assets | $20,747,883 | $21,688,017 | | Liabilities | | | | Total deposits | $16,539,875 | $17,352,401 | | FHLB advances and other borrowings | $800,000 | $1,000,000 | | Total liabilities | $17,898,749 | $18,889,628 | | Stockholders' Equity | | | | Total stockholders' equity | $2,849,134 | $2,798,389 | | Total liabilities and stockholders' equity | $20,747,883 | $21,688,017 | Consolidated Statements of Income (Unaudited) Net income for Q2 2023 and the six months ended June 30, 2023, decreased year-over-year, primarily due to lower net interest income from increased funding costs Income Statement Highlights (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $160,092 | $172,765 | $328,702 | $334,604 | | Provision for credit losses | $1,499 | $469 | $4,515 | $917 | | Noninterest income | $20,539 | $22,193 | $41,725 | $48,087 | | Noninterest expense | $100,644 | $98,974 | $201,996 | $196,622 | | Net income | $57,636 | $69,803 | $120,198 | $136,707 | | Diluted EPS | $0.60 | $0.73 | $1.26 | $1.44 | Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Comprehensive income significantly improved in Q2 2023 compared to a loss in Q2 2022, despite lower net income, due to a smaller other comprehensive loss related to available-for-sale securities Comprehensive Income (Loss) Summary (in thousands) | Component | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $57,636 | $69,803 | $120,198 | $136,707 | | Other Comprehensive (Loss), net of tax | $(12,738) | $(70,785) | $(10,220) | $(207,156) | | Comprehensive Income (Loss) | $44,898 | $(982) | $109,978 | $(70,449) | Consolidated Statements of Stockholders' Equity (Unaudited) Total stockholders' equity increased from year-end 2022 to June 30, 2023, driven by net income, partially offset by cash dividends and other comprehensive loss - For the six months ended June 30, 2023, stockholders' equity increased by $50.7 million, from $2.798 billion to $2.849 billion[17] - Key changes in equity for the first half of 2023 included: +$120.2 million from net income, -$63.0 million from cash dividends, and -$10.2 million from other comprehensive loss[17] Consolidated Statements of Cash Flows (Unaudited) Net cash increased for the six months ended June 30, 2023, driven by operating and investing activities, partially offset by financing outflows from decreased deposits Net Cash Flow Summary (Six Months Ended June 30, in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $176,409 | $210,378 | | Net cash provided by (used in) investing activities | $1,267,050 | $(482,829) | | Net cash (used in) provided by financing activities | $(1,081,031) | $940,546 | | Net increase in cash and cash equivalents | $362,428 | $668,095 | Notes to Consolidated Financial Statements (Unaudited) Provides detailed disclosures supporting financial statements, including new accounting standards, portfolio details, credit quality, ACL, goodwill, debt, and fair value measurements - The company adopted ASU 2022-02 on January 1, 2023, which eliminated the accounting guidance for Troubled Debt Restructurings (TDRs) and introduced new disclosure requirements for loan modifications to borrowers experiencing financial difficulty[32] - The use of the London Interbank Offered Rate (LIBOR) was discontinued after June 30, 2023, with the company transitioning to the Secured Overnight Financing Rate (SOFR) as its primary alternative reference rate[37] - During the first half of 2023, the company transferred $410.7 million of Available-for-Sale (AFS) collateralized mortgage obligations to Held-to-Maturity (HTM) securities to be held to maturity[46] - The Allowance for Credit Losses (ACL) for loans was $192.3 million as of June 30, 2023, compared to $195.7 million at year-end 2022, with the ACL for off-balance sheet commitments at $24.5 million[118][122] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting decreased Q2 2023 net income due to margin compression, and outlines strategic actions to enhance liquidity and maintain strong capital ratios General and Recent Developments The company operates 59 branches in the Western U.S., focusing on small- to middle-market businesses, and is actively monitoring the impact of inflation, rising rates, and bank failures on its operations - The company identifies key risks from the current economic environment, including pressure on loan growth, potential credit quality deterioration, the need for higher provisions for credit losses (ACL), and increased deposit costs and competition[208][209] - In response to market conditions, the company has taken strategic actions to enhance liquidity, including increasing FHLB borrowings, using brokered deposits, and potentially liquidating AFS securities[209] Results of Operations Q2 2023 net income decreased sequentially and year-over-year, primarily due to net interest margin compression from rising funding costs, alongside minor changes in noninterest items Quarterly Performance Summary (in thousands, except per share data) | Metric | Q2 2023 | Q1 2023 | Q2 2022 | | :--- | :--- | :--- | :--- | | Net Income | $57,636 | $62,562 | $69,803 | | Diluted EPS | $0.60 | $0.66 | $0.73 | | Net Interest Income | $160,092 | $168,610 | $172,765 | | Net Interest Margin | 3.33% | 3.44% | 3.49% | | Provision for Credit Losses | $1,499 | $3,016 | $469 | - Net interest income decreased by $12.7 million, or 7.3%, compared to Q2 2022, primarily due to higher cost of funds, an increase in brokered CDs, and lower average loan balances[228] - Noninterest expense increased by $1.7 million compared to Q2 2022, driven by a $5.1 million increase in deposit expense (due to higher earnings credit rates) and higher FDIC insurance premiums, partially offset by a $4.1 million decrease in compensation and benefits[248] Financial Condition Total assets and deposits decreased at June 30, 2023, driven by lower loans and non-maturity deposit outflows, while nonperforming assets declined and tangible common equity improved - Loans held for investment decreased by $1.07 billion (7.3%) since year-end 2022, reflecting a disciplined approach to credit risk, pricing, and lower loan demand[264] - Nonperforming assets fell to $17.4 million (0.08% of total assets) at Q2 2023, down from $30.9 million (0.14% of total assets) at year-end 2022[277] - Deposits decreased by $812.5 million since year-end 2022, with non-maturity deposits falling by $1.39 billion while time deposits grew; uninsured and uncollateralized deposits represented 32% of total deposits[305][310] - Total borrowings decreased by $199.7 million to $1.13 billion, due to the maturity of $200.0 million in FHLB term advances[311] Capital Resources and Liquidity The company maintains strong liquidity and capital, with substantial available liquidity covering uninsured deposits, and all regulatory capital ratios significantly exceeding 'well capitalized' minimums - As of June 30, 2023, the company had unused borrowing capacity of $8.53 billion, including $4.75 billion from the FHLB and access to the FRB's discount window and Bank Term Funding Program[312][315] - The company declared a quarterly cash dividend of $0.33 per share on July 25, 2023, with no shares repurchased under the stock repurchase program during the first half of 2023[322][323] Regulatory Capital Ratios (Consolidated) | Ratio | June 30, 2023 | Minimum Required (with buffer) | | :--- | :--- | :--- | | Common equity tier 1 capital ratio | 14.34% | 7.00% | | Tier 1 capital ratio | 14.34% | 8.50% | | Total capital ratio | 17.24% | 10.50% | | Tier 1 leverage ratio | 10.90% | 4.00% | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, with models indicating an asset-sensitive position where Net Interest Income and Economic Value of Equity are projected to increase in rising rate scenarios Net Interest Income (NII) Sensitivity Analysis (at June 30, 2023) | Change in Rates (bps) | $ Change (12-mo) | % Change (12-mo) | | :--- | :--- | :--- | | +200 | $23,275 | 3.6% | | +100 | $12,887 | 2.0% | | Static | $0 | 0.0% | | -100 | $(24,200) | -3.8% | Economic Value of Equity (EVE) Sensitivity Analysis (at June 30, 2023) | Change in Rates (bps) | $ Change | % Change | | :--- | :--- | :--- | | +200 | $58,396 | 1.7% | | +100 | $57,790 | 1.7% | | Static | $0 | 0.0% | | -100 | $(117,568) | -3.5% | Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes in internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[340] - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, the company's internal controls[341] PART II - OTHER INFORMATION Legal Proceedings The company is involved in ordinary course legal proceedings, none expected to materially impact its financial condition or results of operations - Management believes that no legal proceedings occurring in the ordinary course of business will have a material adverse impact on the Company's results of operations or financial condition[344] Risk Factors No material changes to the company's risk factors have occurred since the 2022 Form 10-K and Q1 2023 Form 10-Q disclosures - No material changes to the risk factors previously described in the 2022 Form 10-K and Q1 2023 Form 10-Q have occurred[345] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase common stock during Q2 2023, with 4,245,056 shares remaining available under the authorized repurchase program as of June 30, 2023 - During the second quarter of 2023, the Company did not repurchase any shares of its common stock[346] - The maximum number of shares that may yet be purchased under the publicly announced plan is 4,245,056 as of June 30, 2023[348] Defaults Upon Senior Securities None reported Mine Safety Disclosures Not applicable Other Information No officer or director adopted or terminated Rule 10b5-1 trading plans or other non-Rule 10b5-1 trading arrangements during Q2 2023 - No officer or director adopted or terminated a Rule 10b5-1 trading plan during the quarter ended June 30, 2023[351] Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO, and XBRL data files