Pacific Premier Bancorp(PPBI) - 2024 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section provides the unaudited consolidated financial statements and management's discussion and analysis for the Company Item 1. Financial Statements This section presents the unaudited consolidated financial statements and detailed notes, highlighting Q1 2024's decreased assets and net income, and increased equity Consolidated Statements of Financial Condition (Unaudited) Total assets and liabilities slightly decreased by March 31, 2024, while stockholders' equity increased, driven by reduced FHLB advances and higher deposits | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :--------------------------------- | :------------------------------ | :------------------------------- | | Total assets | $18,813,181 | $19,026,645 | | Loans held for investment, net | $12,819,731 | $13,096,549 | | Total deposits | $15,187,828 | $14,995,626 | | FHLB advances and other borrowings | $200,000 | $600,000 | | Total stockholders' equity | $2,902,801 | $2,882,581 | Consolidated Statements of Income (Unaudited) Net income for Q1 2024 decreased year-over-year due to lower net interest income and higher credit loss provisions, despite increased noninterest income | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :----------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net interest income before provision for credit losses | $145,127 | $168,610 | | Provision for credit losses | $3,852 | $3,016 | | Total noninterest income | $25,774 | $21,186 | | Net income | $47,025 | $62,562 | | Diluted EPS | $0.49 | $0.66 | Consolidated Statements of Comprehensive Income (Unaudited) Comprehensive income for Q1 2024 decreased year-over-year, primarily due to lower net income, partially offset by unrealized gains on AFS securities | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :-------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net income | $47,025 | $62,562 | | Other comprehensive income, net of tax | $3,909 | $2,518 | | Comprehensive income, net of tax | $50,934 | $65,080 | Consolidated Statements of Stockholders' Equity (Unaudited) Stockholders' equity increased from Q4 2023 to Q1 2024, driven by net income and comprehensive income, partially offset by dividends | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :------------------------- | :---------------------------- | :------------------------------- | | Total stockholders' equity | $2,902,801 | $2,882,581 | | Net income | $47,025 | - | | Cash dividends declared | $(31,635) | - | Consolidated Statements of Cash Flows (Unaudited) Net cash from operating and investing activities decreased in Q1 2024 year-over-year, while cash used in financing decreased due to deposit changes and debt repayments | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net cash provided by operating activities | $56,946 | $75,171 | | Net cash provided by investing activities | $274,294 | $630,104 | | Net cash used in financing activities | $(238,895) | $(381,628) | | Net change in deposit accounts | $192,202 | $(144,591) | | Repayments of long-term borrowings | $(394,933) | $0 | Notes to Consolidated Financial Statements (Unaudited) These notes detail the basis of presentation, accounting policies, and specific financial instruments, covering investment securities, loans, credit losses, and other key financial areas Note 1 – Basis of Presentation The consolidated financial statements include the Company and its subsidiaries, reflecting normal adjustments and adhering to consolidation principles for controlled entities - The consolidated financial statements include Pacific Premier Bancorp, Inc. and its wholly-owned subsidiaries, including Pacific Premier Bank[22] - Unaudited statements reflect normal recurring adjustments and should be read in conjunction with the 2023 Form 10-K[23][24] - The Company consolidates voting entities where it has control or a controlling financial interest in a variable interest entity (VIE)[25] Note 2 – Recently Issued Accounting Pronouncements The Company adopted ASU 2023-02 with no material impact and is evaluating ASU 2023-09 and ASU 2023-07, effective after December 15, 2024 - ASU 2023-02 (Investments - Equity Method and Joint Ventures) adopted in 2024, allowing proportional amortization for tax credit structures; no material impact[27] - ASU 2023-09 (Income Taxes - Improvements to Income Tax Disclosures) effective for annual periods beginning after December 15, 2024; impact being evaluated[28] - ASU 2023-07 (Segment Reporting - Improvements to Reportable Segments) effective for annual periods beginning after December 15, 2024; impact being evaluated[30] Note 3 – Significant Accounting Policies No significant changes to accounting policies from the 2023 Form 10-K were made, with financial statements relying on management's estimates and assumptions - No significant changes to accounting policies from the 2023 Form 10-K as of March 31, 2024[31] - Financial statements require management estimates and assumptions, which could differ from actual results[32] Note 4 – Investment Securities The investment securities portfolio comprises AFS and HTM securities, with AFS showing improved net unrealized losses and HTM having a slight ACL decrease | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :----------------------------------- | :---------------------------- | :------------------------------- | | Total AFS investment securities (fair value) | $1,154,021 | $1,140,071 | | Total HTM investment securities (amortized cost) | $1,720,481 | $1,729,541 | - Net unrealized loss on AFS investment securities (net of tax): $24.4 million (Mar 31, 2024) vs $25.8 million (Dec 31, 2023)[37] | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :----------------------------------- | :---------------------------- | :------------------------------- | | ACL for HTM investment securities (municipal bonds) | $115 | $126 | - No ACL for AFS investment securities at March 31, 2024, as unrealized losses were deemed due to general market conditions, not credit[47] | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Amortized cost of AFS investment securities sold | $0 | $304,182 | Note 5 – Loans Held for Investment The loan portfolio decreased to $13.01 billion at March 31, 2024, with increases in delinquent and nonaccrual loans primarily from large commercial relationships | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :----------------------------------- | :---------------------------- | :------------------------------- | | Loans held for investment, net | $12,819,731 | $13,096,549 | | Total unfunded loan commitments | $1,459,515 | $1,703,470 | - The Bank's largest aggregate outstanding balance of loans to one borrower was $319.3 million, secured by multifamily properties, as of March 31, 2024[63] | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :----------------------------------- | :---------------------------- | :------------------------------- | | Classified loans (Substandard, Doubtful, Loss) | $204,700 (1.57% of loans) | $142,000 (1.07% of loans) | - Delinquent loans (30 or more days past due) as a percentage of total loans held for investment increased to 0.09% at March 31, 2024, from 0.08% at December 31, 2023[266] | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :----------------- | :---------------------------- | :------------------------------- | | Nonaccrual loans | $63,806 | $24,817 | | Collateral dependent loans | $39,794 | $12,222 | | Modified loans to troubled borrowers (MLTB) | $12,161 | $12,595 | - The increase in nonaccrual loans at March 31, 2024, was primarily due to a single, diversified commercial banking relationship totaling $37.6 million and another lending relationship totaling $1.9 million[78][82] Note 6 – Allowance for Credit Losses The ACL for loans slightly decreased to $192.3 million at March 31, 2024, driven by net charge-offs and provisions, with the Company utilizing a CECL model | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :----------------------------------- | :---------------------------- | :------------------------------- | | ACL for loans held for investment | $192,340 | $192,471 | | ACL for off-balance sheet commitments | $16,839 | $19,264 | | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net charge-offs | $6,419 | $3,284 | | Provision for loan losses | $6,288 | $3,021 | | Metric | March 31, 2024 | December 31, 2023 | | :----------------------------------- | :------------- | :---------------- | | ACL to loans held for investment ratio | 1.48% | 1.45% | | ACL to nonperforming loans ratio | 301% | 776% | - The Company's ACL model uses a discounted cash flow approach for commercial real estate and commercial loans, and a historical loss rate model for retail loans, incorporating probability of default (PD), loss given default (LGD), exposure at default (EAD), and economic forecasts[94][95][96][97][98][100][101][102][103][104] Note 7 – Goodwill and Other Intangible Assets Goodwill remained stable at $901.3 million, while other intangible assets decreased to $40.4 million due to amortization, with no impairment identified | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :------------------------- | :---------------------------- | :------------------------------- | | Goodwill | $901,312 | $901,312 | | Net intangible assets | $40,449 | $43,285 | | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Amortization of intangible assets | $2,836 | $3,171 | - Estimated aggregate amortization expense for core deposit and customer relationship intangible assets for the next five years: $11.1 million (2024), $10.0 million (2025), $8.9 million (2026), $7.2 million (2027), and $4.0 million (2028)[116] Note 8 – Subordinated Debentures Subordinated debentures increased to $332.0 million at March 31, 2024, with a 5.30% weighted interest rate, qualifying as Tier 2 capital | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :------------------------- | :---------------------------- | :------------------------------- | | Total subordinated debentures | $332,001 | $331,842 | | Weighted interest rate | 5.30% | 5.31% | - Subordinated notes due 2024: $60.0 million principal, 5.75% interest[118] - Subordinated notes due 2029: $125.0 million principal, 4.875% fixed until May 15, 2024, then 3-month term SOFR +2.762%[118] - Subordinated notes due 2030: $150.0 million principal, 5.375% fixed until June 15, 2025, then 3-month term SOFR +5.17%[118] - Subordinated notes qualify as Tier 2 capital, subject to phase-out by 20% annually in the five years preceding maturity[122] Note 9 – Earnings Per Share Basic and diluted EPS for Q1 2024 decreased to $0.49 from $0.66 in Q1 2023, calculated using the two-class method | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Basic earnings per common share | $0.49 | $0.66 | | Diluted earnings per common share | $0.49 | $0.66 | | Net income allocated to common stockholders | $46,246k | $61,739k | | Weighted average diluted common shares | 94,477,355 | 94,182,522 | Note 10 – Fair Value of Financial Instruments Financial instruments are measured at fair value using a three-level hierarchy, with AFS securities and swaps as Level 2, and certain loans/OREO as Level 3 - Fair value hierarchy: Level 1 (unadjusted quoted prices in active markets), Level 2 (observable inputs other than Level 1), Level 3 (unobservable inputs)[128][129][130] - AFS investment securities and interest rate swaps are generally classified as Level 2[135][137][140] - Individually evaluated collateral dependent loans and OREO are measured at fair value on a nonrecurring basis using Level 3 inputs[145][147] | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :----------------------------------- | :---------------------------- | :------------------------------- | | Total estimated fair value of financial assets | $15,996,288 | $16,199,097 | | Total estimated fair value of financial liabilities | $15,747,163 | $15,945,592 | Note 11 – Derivative Instruments The Company uses derivative instruments, including fair value hedges (interest rate swaps) with a $1.35 billion notional amount, to manage market risks and assist customers - Interest rate swaps designated as fair value hedges had an aggregate notional amount of $1.35 billion at March 31, 2024, and December 31, 2023[156] | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :----------------------------------- | :---------------------------- | :------------------------------- | | Cumulative fair value hedging adjustment in hedged assets | $(32,324) | $(29,551) | | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :----------------------------------- | :---------------------------- | :------------------------------- | | Total derivative assets (fair value) | $6,496 | $5,644 | | Total derivative liabilities (fair value) | $12,019 | $10,715 | | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Gain (loss) on derivatives designated as hedging instruments | $10,016 | $(3,586) | Note 12 – Balance Sheet Offsetting Derivative financial instruments may be offset in the consolidated statements of financial condition under master netting arrangements, with variation margin payments treated as settlements | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :----------------------------------- | :---------------------------- | :------------------------------- | | Gross interest rate swap assets | $6,488 | $5,643 | | Net interest rate swap assets (after cash collateral) | $1,068 | $1,033 | | Gross interest rate swap liabilities | $12,019 | $10,705 | | Net interest rate swap liabilities (after cash collateral) | $12,019 | $10,705 | Note 13 – Variable Interest Entities The Company is involved with VIEs through securitization and affordable housing but does not consolidate them, with maximum exposure to loss at $47.6 million and $54.3 million respectively - The Company is not the primary beneficiary of the VIEs and does not consolidate its interests in them[170][173][175] | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :----------------------------------- | :---------------------------- | :------------------------------- | | Maximum exposure to loss from multifamily loan securitization | $47,563 | $47,994 | | Maximum exposure to loss from affordable housing partnerships | $54,338 | $57,016 | - Reserve for estimated losses with respect to the reimbursement obligation for multifamily loan securitization was $345,000 at both March 31, 2024, and December 31, 2023[174] Note 14 – Tax Equity Investments Tax equity investments, primarily in affordable housing, had a carrying value of $85.4 million at March 31, 2024, with $31.1 million in unfunded commitments | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :----------------------------------- | :---------------------------- | :------------------------------- | | Carrying value of tax equity investments | $85,485 | $88,805 | | Metric | March 31, 2024 (in thousands) | | :----------------------------------- | :---------------------------- | | Total unfunded commitments associated with tax equity investments | $31,147 | | Unfunded commitments due in 2024 | $10,085 | | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Tax credit and other tax benefits recognized | $4,217 | $3,776 | | Amortization of investments | $3,475 | $3,050 | Note 15 – Subsequent Events On April 22, 2024, the Board declared a cash dividend of $0.33 per share, payable May 13, 2024 - Quarterly cash dividend of $0.33 per share declared on April 22, 2024, payable May 13, 2024[182] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the Company's financial condition, operations, liquidity, and capital, including forward-looking statements, economic developments, and detailed analysis of key financial metrics Forward-Looking Statements Forward-looking statements are subject to various known and unknown risks and uncertainties, including economic conditions, interest rates, and regulatory changes - Forward-looking statements are based on expectations and subject to known and unknown risks and uncertainties[186] - Key factors that could cause actual results to differ include the strength of the U.S. economy, banking industry developments, interest rate policies, liquidity, acquisitions, regulatory changes, and cybersecurity threats[187] - Investors are cautioned not to place undue reliance on forward-looking statements and should consider all risks disclosed in SEC filings[188][189] General Pacific Premier Bancorp, Inc. operates Pacific Premier Bank in the Western U.S. through 58 branches, offering diverse banking products and services to businesses and non-profits - Pacific Premier Bancorp, Inc. is a bank holding company, and Pacific Premier Bank is a California state-chartered commercial bank[191] - The Company operates primarily in the Western U.S. with 59 (now 58 after April 2024 consolidation) full-service branches in California, Washington, Oregon, Arizona, and Nevada[194] - Offers a wide array of banking products and services tailored to small- and middle-market businesses, corporations, professionals, entrepreneurs, real estate investors, and non-profit organizations[196] - Specialty banking products and services include Homeowners' Associations (HOA) and quick-service restaurant (QSR) franchise lending, commercial escrow, and IRA custodial services[196] - The principal source of income is the net spread between interest earned on loans and investments and interest costs on deposits and borrowings, supplemented by fee income[198] Recent Developments FOMC's monetary tightening led to higher interest rates, impacting interest income and expenses, with the Company anticipating effects on loan growth, credit quality, and liquidity - The FOMC's monetary policy tightening due to persistent inflation has resulted in higher interest rates, impacting both interest income and expenses[199] - Anticipated impacts of economic conditions include: pressure on loan growth and interest income, potential decline in credit quality leading to higher past due/nonaccrual loans and increased provision for credit losses, possible increase in ACL, potential impairment charges on goodwill/intangibles/deferred tax assets, negative impact on AFS investment securities valuation and stockholders' equity, continued increase in deposit costs, and challenges in retaining/attracting deposits[199][200] - The Company is focused on serving customers, employee well-being, and executing strategic initiatives while monitoring the economic environment and industry conditions[201] Critical Accounting Policies Critical accounting policies, including ACL for loans and goodwill, require significant management judgment and estimates, which could materially impact financial statements - Critical accounting policies include the allowance for credit losses on loans and off-balance sheet commitments, as well as goodwill[202] - These policies require significant management judgment and estimates, which are subject to change and could materially impact financial statements[202] Non-GAAP Measures The Company uses several non-GAAP financial measures, such as adjusted ROAA, ROATCE, and efficiency ratio, to provide supplemental information on operational performance and comparability, excluding nonrecurring items | Metric | Q1 2024 | Q4 2023 | Q1 2023 | | :----------------------------------------- | :--------- | :--------- | :--------- | | Adjusted ROAA (annualized) | 1.00% | 0.99% | 1.15% | | Adjusted ROATCE (annualized) | 10.13% | 11.19% | 13.89% | | Adjusted diluted EPS | $0.49 | $0.51 | $0.66 | | Tangible book value per share | $20.33 | $20.22 | $19.61 | | Tangible common equity ratio | 10.97% | 10.72% | - | | Adjusted efficiency ratio (excl. FDIC special assessment) | 59.8% | 58.8% | 51.7% | | Adjusted pre-provision net revenue (annualized) | $275,164k | $263,880k | $353,776k | | Cost of non-maturity deposits | 1.06% | 1.02% | 0.54% | Results of Operations The Company reported net income of $47.0 million for Q1 2024, a significant increase from Q4 2023 but a decrease from Q1 2023, with net interest margin increasing to 3.39% Overview Net income for Q1 2024 was $47.0 million ($0.49 diluted EPS), increasing from Q4 2023 but decreasing from Q1 2023 due to varied income and expense factors | Metric | Q1 2024 | Q4 2023 | Q1 2023 | | :--------------- | :--------- | :---------- | :--------- | | Net income (loss) | $47,025k | $(135,376)k | $62,562k | | Diluted EPS | $0.49 | $(1.44) | $0.66 | | ROAA | 0.99% | (2.76)% | 1.15% | | ROAE | 6.50% | (19.01)% | 8.87% | | ROATCE | 10.05% | (28.01)% | 13.89% | Net Interest Income Net interest income slightly decreased to $145.1 million in Q1 2024 from Q4 2023, but net interest margin increased to 3.39%, while year-over-year income decreased significantly | Metric | Q1 2024 | Q4 2023 | Q1 2023 | | :----------------------------------- | :--------- | :--------- | :--------- | | Net interest income | $145,127k | $146,789k | $168,610k | | Net interest margin | 3.39% | 3.28% | 3.44% | | Cost of deposits | 1.59% | 1.56% | 0.94% | | Average interest-earning assets | $17,238,117k | $17,743,168k | $19,896,067k | | Average yield on interest-earning assets | 4.98% | 4.86% | 4.51% | | Average cost of interest-bearing liabilities | 2.52% | 2.46% | 1.72% | Provision for Credit Losses Provision for credit losses increased to $3.9 million in Q1 2024, driven by economic forecasts and specific reserves, partially offset by decreased loans | Metric | Q1 2024 (in thousands) | Q4 2023 (in thousands) | Q1 2023 (in thousands) | | :----------------------------------- | :--------------------- | :--------------------- | :--------------------- | | Total provision for credit losses | $3,852 | $1,696 | $3,016 | | Provision for loan losses | $6,288 | $8,275 | $3,021 | | Provision for unfunded commitments | $(2,425) | $(6,577) | $(189) | Noninterest Income Noninterest income was $25.8 million in Q1 2024, significantly increasing from Q4 2023 due to the absence of prior repositioning losses and a gain on debt extinguishment | Metric | Q1 2024 (in thousands) | Q4 2023 (in thousands) | Q1 2023 (in thousands) | | :----------------------------------- | :--------------------- | :--------------------- | :--------------------- | | Total noninterest income (loss) | $25,774 | $(234,194) | $21,186 | | Net (loss) gain from sales of investment securities | $0 | $(254,065) | $138 | | Other income (includes gain on debt extinguishment) | $5,959 | $1,562 | $1,261 | | Trust custodial account fees | $10,642 | $9,388 | $11,025 | Noninterest Expense Noninterest expense totaled $102.6 million for Q1 2024, slightly decreasing from Q4 2023 due to lower FDIC special assessment, but increasing year-over-year | Metric | Q1 2024 (in thousands) | Q4 2023 (in thousands) | Q1 2023 (in thousands) | | :------------------------- | :--------------------- | :--------------------- | :--------------------- | | Total noninterest expense | $102,633 | $102,770 | $101,352 | | FDIC insurance premiums | $2,629 | $4,267 | $2,425 | | Deposit expense | $12,665 | $11,152 | $8,436 | | Efficiency ratio | 60.2% | 60.1% | 51.7% | Income Taxes Income tax expense for Q1 2024 was $17.4 million with an effective tax rate of 27.0%, contrasting with a tax benefit in Q4 2023 due to a pre-tax loss | Metric | Q1 2024 (in thousands) | Q4 2023 (in thousands) | Q1 2023 (in thousands) | | :------------------------- | :--------------------- | :--------------------- | :--------------------- | | Income tax expense (benefit) | $17,391 | $(56,495) | $22,866 | | Effective income tax rate | 27.0% | 29.4% | 26.8% | | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :------------------------- | :---------------------------- | :------------------------------- | | Unrecognized tax benefits | $1,400 | $1,400 | | Accrued interest on unrecognized tax benefits | $231 | $200 | Financial Condition The Company's financial condition at March 31, 2024, shows decreased total assets and liabilities, driven by reduced loans and FHLB advances, while stockholders' equity increased Overview Total assets decreased to $18.81 billion at March 31, 2024, with liabilities also down, while stockholders' equity increased due to net income and comprehensive income | Metric | March 31, 2024 (in billions) | December 31, 2023 (in billions) | | :------------------------- | :--------------------------- | :------------------------------ | | Total assets | $18.81 | $19.03 | | Total liabilities | $15.91 | $16.14 | | Total stockholders' equity | $2.90 | $2.88 | | Metric | March 31, 2024 | December 31, 2023 | | :----------------------------------- | :------------- | :---------------- | | Book value per share | $30.09 | $30.07 | | Tangible book value per share | $20.33 | $20.22 | | Tangible common equity to tangible assets ratio | 10.97% | 10.72% | Loans Loans held for investment decreased by $276.9 million to $13.01 billion at March 31, 2024, with increased delinquent and nonperforming assets due to specific commercial relationships | Metric | March 31, 2024 (in billions) | December 31, 2023 (in billions) | | :----------------------------------- | :--------------------------- | :------------------------------ | | Loans held for investment | $13.01 | $13.29 | | Weighted average interest rate on loans | 4.91% | 4.87% | - Delinquent loans (30 or more days past due) as a percentage of total loans held for investment increased to 0.09% at March 31, 2024, from 0.08% at December 31, 2023[266] | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :----------------------------------- | :---------------------------- | :------------------------------- | | Nonperforming assets | $64,054 (0.34% of total assets) | $25,065 (0.13% of total assets) | | Nonperforming loans | $63,806 (0.49% of loans) | $24,817 (0.19% of loans) | | Classified loans (Substandard, Doubtful, Loss) | $200,580 (1.57% of loans) | $137,420 (1.07% of loans) | | Modified loans to troubled borrowers (MLTB) | $12,161 | $12,595 | Allowance for Credit Losses The ACL for loans held for investment was $192.3 million at March 31, 2024, with a 1.48% ratio to loans, determined by a CECL model and qualitative adjustments | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :----------------------------------- | :---------------------------- | :------------------------------- | | ACL for loans held for investment | $192,340 | $192,471 | | Metric | March 31, 2024 | December 31, 2023 | | :----------------------------------- | :------------- | :---------------- | | ACL to loans held for investment ratio | 1.48% | 1.45% | | ACL to nonperforming loans ratio | 301% | 776% | | Net charge-offs to average loans held for investment | 0.05% | 0.03% | - The CECL model incorporates reasonable and supportable economic forecasts from an independent third party, with PDs and LGDs forecasted over a two-year period and reverting to long-term averages over three years[283][284] - Qualitative adjustments are considered quarterly for higher-risk loan segments or where the quantitative model may not fully reflect adequate levels, based on management's judgment[286] Investment Securities The investment securities portfolio slightly increased to $2.87 billion at March 31, 2024, primarily investment grade and diversified, with AFS and HTM components | Metric | March 31, 2024 (in billions) | December 31, 2023 (in billions) | | :----------------------------------- | :--------------------------- | :------------------------------ | | Total investment securities | $2.87 | $2.87 | | AFS investment securities | $1.15 | $1.14 | | HTM investment securities | $1.72 | $1.73 | - The effective duration of the AFS securities portfolio was 0.9 years at March 31, 2024, compared to 0.7 years at December 31, 2023[294] | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :----------------------------------- | :---------------------------- | :------------------------------- | | ACL for HTM investment securities | $115 | $126 | - No ACL for AFS investment securities at March 31, 2024[296] - 84.9% of the investment securities portfolio had a Moody's credit rating of Aaa-Aa3 at March 31, 2024[299] Deposits Total deposits increased by $192.2 million to $15.19 billion at March 31, 2024, with non-maturity deposits at 84.4% and uninsured deposits totaling $6.14 billion | Metric | March 31, 2024 (in billions) | December 31, 2023 (in billions) | | :----------------------------------- | :--------------------------- | :------------------------------ | | Total deposits | $15.19 | $15.00 | | Non-maturity deposits | $12.82 (84.4% of total deposits) | $12.70 (84.7% of total deposits) | | Noninterest-bearing checking | $4,997,636k (32.9% of total deposits) | $4,932,817k (32.9% of total deposits) | | Weighted average rate of deposits | 1.66% | 1.55% | | Uninsured deposits | $6,138,719k | $5,976,621k | | Insured and collateralized deposits as % of total deposits | 66% | 66% | | Loans held for investment to deposits ratio | 85.7% | 88.6% | Borrowings Total borrowings decreased by $399.8 million to $532.0 million at March 31, 2024, primarily due to a reduction in FHLB term advances | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :------------------------- | :---------------------------- | :------------------------------- | | Total borrowings | $532,001 | $931,842 | | FHLB advances | $200,000 | $600,000 | | Subordinated debentures | $332,001 | $331,842 | | Borrowings as a percent of total assets | 2.8% | 4.9% | | Weighted average rate of borrowings | 5.07% | 3.93% | Capital Resources and Liquidity The Company maintains robust capital and liquidity, exceeding regulatory minimums, with substantial liquid assets and unused borrowing capacity providing strong coverage Liquidity Management The Company's liquidity sources include deposits and FHLB advances, with $9.90 billion in readily available liquidity providing 190.9% coverage to uninsured deposits - Unused borrowing capacity was $8.53 billion at March 31, 2024, including FHLB, FRB discount window, and correspondent bank lines[315] - Combined readily available liquidity (cash, time deposits, short-term, unpledged AFS U.S. Treasury securities) totaled approximately $9.90 billion at March 31, 2024[315] - The coverage ratio of readily available liquidity to uninsured and uncollateralized deposits was 190.9% at March 31, 2024[315] - The liquidity ratio was 14.4% at March 31, 2024, exceeding the Company's minimum policy requirement of 10.0%[316] - Brokered deposits amounted to $572.1 million, representing 3.77% of total deposits and 3.04% of total assets at March 31, 2024[318] - The Bank paid $31.6 million in dividends to the Corporation during the three months ended March 31, 2024[319] - The Corporation maintains a $25.0 million line of credit with U.S. Bank, with no outstanding balance at March 31, 2024[320] Material Cash Requirement Material cash requirements include funding loan commitments, equity investments, and debt repayment, with total contractual obligations of $2.98 billion, $2.32 billion due within one year | Metric | Total (in thousands) | Less than 1 year (in thousands) | | :----------------------------------- | :------------------- | :------------------------------ | | Total contractual cash obligations | $2,980,982 | $2,318,813 | | Loan commitments to extend credit | $1,411,838 | $950,471 | | Affordable housing partnerships commitment | $31,147 | $14,924 | Regulatory Capital Compliance The Company and Bank exceed all regulatory capital minimums, including the capital conservation buffer, and are categorized as 'well capitalized,' with ratios strengthening in Q1 2024 - The Bank was categorized as 'well capitalized' as of the most recent formal notification from the Federal Reserve[329] - The Company and Bank are in compliance with the capital conservation buffer requirement and exceeded minimum Common Equity Tier 1, Tier 1, and Total Capital ratios, inclusive of the fully phased-in capital conservation buffer[330] | Metric | March 31, 2024 | December 31, 2023 | | :----------------------------------- | :------------- | :---------------- | | Pacific Premier Bancorp, Inc. Consolidated | | | | Tier 1 leverage ratio | 11.48% | 11.03% | | Common equity tier 1 capital ratio | 15.02% | 14.32% | | Tier 1 capital ratio | 15.02% | 14.32% | | Total capital ratio | 18.23% | 17.29% | | Pacific Premier Bank | | | | Tier 1 leverage ratio | 12.97% | 12.43% | | Common equity tier 1 capital ratio | 16.96% | 16.13% | | Tier 1 capital ratio | 16.96% | 16.13% | | Total capital ratio | 18.21% | 17.23% | - The Company elected to phase in the full effect of CECL on regulatory capital over a five-year transition period[331] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the Company's exposure to market risk, primarily interest rate risk, managed by the Asset Liability Committee to limit adverse effects on NII and EVE Asset/Liability Management and Market Risk Market risk, mainly interest rate risk from asset/liability repricing mismatches, is managed by the Asset Liability Committee to mitigate adverse impacts on NII and EVE - Market risk primarily arises from interest rate risk in lending, investments, and deposit taking activities[334] - The Asset Liability Committee is responsible for implementing the Bank's interest rate risk management policy to limit adverse effects on NII and EVE[334] Interest Rate Risk Management The Company manages interest rate risk through portfolio structuring and pricing, monitoring NII and EVE sensitivity, with low sensitivity to rising rates and expected NII increases | Metric | March 31, 2024 (in thousands) | | :----------------------------------- | :---------------------------- | | Projected NII change for +300 bps shift | $44,467 (7.3% increase) | | EVE change for +300 bps shift | $(413,729) (13.0% decrease) | - The Company's sensitivity to changes in interest rates is low for rising rates, aided by interest rate swaps for hedging purposes, with Earnings at Risk expected to increase as rates rise[339] - The Company has minimal direct market risk from foreign exchange and no exposure from commodities[340] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures Management, including CEO and CFO, concluded the Company's disclosure controls and procedures were effective as of March 31, 2024 - The Company's disclosure controls and procedures were effective as of March 31, 2024[341] Changes in Internal Controls over Financial Reporting No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2024 - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2024[342] PART II - OTHER INFORMATION This section provides other required information, including legal proceedings, risk factors, equity sales, defaults, and exhibits Item 1. Legal Proceedings The Company is involved in ordinary course legal proceedings, which management believes will not materially impact its operations or financial condition - Legal proceedings are in the ordinary course of business[345] - Management believes these proceedings will not have a material adverse impact on the Company's results of operations or financial condition[345] Item 1A. Risk Factors No material changes to the risk factors previously described in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes to risk factors as previously described in the 2023 Form 10-K[346] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds A stock repurchase program for up to 4,725,000 shares was authorized, but no shares were repurchased during Q1 2024 - Stock repurchase program authorized for up to 4,725,000 shares of common stock[347] - No shares of common stock were repurchased during the first quarter of 2024[347][349] - Maximum number of shares that may yet be purchased under the program is 4,245,056[349] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - No defaults upon senior securities[350] Item 4. Mine Safety Disclosures This item is not applicable to the Company's operations - Not applicable[351] Item 5. Other Information No officer or director adopted or terminated any Rule 10b5-1 trading plans or non-Rule 10b5-1 arrangements during Q1 2024 - No officer or director adopted or terminated any Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during the quarter ended March 31, 2024[352] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, certifications, and XBRL-related documents - Exhibits include corporate governance documents (Certificate of Incorporation, Bylaws), certifications (CEO, CFO), and XBRL Instance, Schema, Calculation, Definitions, Label, and Presentation Linkbase Documents[353] SIGNATURES The report was duly signed by Steven R. Gardner (Chairman, CEO, and President) and Ronald J. Nicolas, Jr. (SVP and CFO) on April 26, 2024 - The report was signed by Steven R. Gardner (Chairman, CEO, and President) and Ronald J. Nicolas, Jr. (Senior Executive Vice President and CFO) on April 26, 2024[358]