"Beginning in the second half of 2022, we proactively prioritized capital accumulation over balance sheet growth in light of the ongoing macroeconomic uncertainty, while at the same time continuing to provide best-in-class service to our clients. As a result, our peer-leading capital ratios have created significant optionality for our organization to pursue organic and strategic growth opportunities that can enhance long-term franchise value.

"As the interest rate outlook has become more favorable, we are seeing incrementally better demand for new credit and have taken steps to bolster our loan production, as such, our loan pipeline has increased and we continue to build momentum heading into the fourth quarter. We are well-positioned to accelerate new originations in the coming quarters and we expect to stabilize the loan portfolio as we move into 2025. Looking ahead, we are focused on leveraging our collaborative platform to support our commercial banking teams and their business development activities by strategically adding bankers to prudently grow new loan and deposit relationships. I would like to thank our dedicated employees for their exceptional efforts and to all stakeholders for their ongoing support. Together, we are well-prepared to continue building on our successes and capitalize on future opportunities."

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INCOME STATEMENT HIGHLIGHTS

Net Interest Income and Net Interest Margin

Net interest income totaled $130.9 million in the third quarter of 2024, a decrease of $5.5 million, or 4.0%, from the second quarter of 2024. The decrease in net interest income was primarily attributable to lower average loan balances and a higher cost of funds as borrowers continued deploying excess cash reserves to pay down and pay off higher-yielding commercial loan balances.

The net interest margin for the third quarter of 2024 decreased 10 basis points to 3.16%, from 3.26% in the prior quarter. The decrease was primarily due to a higher cost of funds.

Net interest income for the third quarter of 2024 decreased $18.7 million, or 12.5%, compared to the third quarter of 2023. The decrease was attributable to lower average interest-earning asset balances and a higher cost of funds, partially offset by lower average interest-bearing liabilities balances and higher yields on average interest-earning assets, all the result of the prolonged higher interest rate environment in the past twelve months and the Company's strategy to prioritize capital accumulation.

Provision for Credit Losses

For the third quarter of 2024, the Company recorded a $486,000 provision expense, compared to $1.3 million for the second quarter of 2024, and $3.9 million for the third quarter of 2023. The decrease in provision for credit losses compared to the second quarter of 2024 was largely attributable to the decrease in loan balances and changes in the loan composition, partially offset by increases associated with economic forecasts.

Noninterest Income

Noninterest income for the third quarter of 2024 was $18.9 million, an increase of $645,000 from the second quarter of 2024. The increase was primarily due to a $748,000 increase in other income largely attributable to a $1.0 million decrease in Community Reinvestment Act ("CRA") investment loss.

Noninterest income for the third quarter of 2024 increased $316,000 compared to the third quarter of 2023. The increase was primarily due to a $756,000 increase in earnings on bank owned life insurance, partially offset by a $543,000 decrease in trust custodial account fees.

Noninterest Expense

Noninterest expense totaled $101.6 million for the third quarter of 2024, an increase of $4.1 million compared to the second quarter of 2024. The increase was primarily due to a $3.9 million increase in legal and professional services, driven by the prior quarter's $4.0 million insurance claim receivable that decreased the expense during the period.

Noninterest expense for the third quarter of 2024 decreased by $540,000 compared to the third quarter of 2023. The decrease was primarily due to an $809,000 decrease in other expense, a $775,000 decrease in marketing expense, and a $668,000 decrease in compensation and benefits, partially offset by a $1.7 million increase in deposit expense due to higher deposit administration service fees and a $737,000 increase in legal and professional services.

Income Tax

For the third quarter of 2024, income tax expense totaled $11.7 million, resulting in an effective tax rate of 24.5%, compared with income tax expense of $13.9 million and an effective tax rate of 24.9% for the second quarter of 2024, and income tax expense of $16.0 million and an effective tax rate of 25.8% for the third quarter of 2023.

BALANCE SHEET HIGHLIGHTS

Loans

Loans held for investment totaled $12.04 billion at September 30, 2024, a decrease of $454.9 million, or 3.6%, from June 30, 2024, and a decrease of $1.24 billion, or 9.3%, from September 30, 2023. The decrease from June 30, 2024 was primarily due to lower loan production and fundings, increased prepayments and maturities, as well as a decrease in credit line draws, reflecting borrowers' continued preferences to utilize excess cash reserves to reduce outstanding debt.

New origination activity during the third quarter of 2024 decreased compared to the second quarter of 2024, and increased compared to the third quarter of 2023. New loan commitments totaled $104.1 million, and new loan fundings totaled $39.4 million, compared with $150.7 million in loan commitments and $58.6 million in new loan fundings for the second quarter of 2024, and $67.8 million in loan commitments and $25.6 million in new loan fundings for the third quarter of 2023.

At September 30, 2024, the total loan-to-deposit ratio was 83.1%, compared to 85.4% and 82.9% at June 30, 2024 and September 30, 2023, respectively.

The following table presents the primary loan roll-forward activities for total gross loans, including both loans held for investment and loans held for sale, during the quarters indicated:

The following table presents the composition of the loans held for investment as of the dates indicated:

The end-of-period weighted average interest rate on loans, excluding fees and discounts and impact from interest rate swaps designated as fair value hedges, at September 30, 2024 was 4.82%, compared to 4.88% at June 30, 2024, and 4.76% at September 30, 2023. The quarter-over-quarter decrease was a result of lower new loan fundings, customers paying down and paying off higher-rate loans. The year-over-year increase reflects higher rates on new originations and the repricing of loans as a result of the increases in benchmark interest rates.

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

The weighted average interest rate on new loan commitments was 8.43% in the third quarter of 2024, compared to 8.58% in the second quarter of 2024, and 8.01% in the third quarter of 2023.

Allowance for Credit Losses

At September 30, 2024, our allowance for credit losses ("ACL") on loans held for investment was $181.2 million, a decrease of $2.6 million from June 30, 2024 and a decrease of $6.9 million from September 30, 2023. The decreases in the ACL from June 30, 2024 and September 30, 2023 primarily reflect loan charge-offs during the respective periods as well as changes in the size and composition of our loan portfolio.

During the third quarter of 2024, the Company incurred $2.3 million of net charge-offs, compared to $10.3 million during the second quarter of 2024, and $6.8 million during the third quarter of 2023.

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:

The ratio of ACL to loans held for investment at September 30, 2024 increased to 1.51%, compared to 1.47% at June 30, 2024, and 1.42% at September 30, 2023. The fair value net discount on loans acquired through acquisitions was $35.9 million, or 0.30% of total loans held for investment, as of September 30, 2024, compared to $38.6 million, or 0.31% of total loans held for investment, as of June 30, 2024, and $46.2 million, or 0.35% of total loans held for investment, as of September 30, 2023.

Asset Quality

Nonperforming assets totaled $39.1 million, or 0.22% of total assets, at September 30, 2024, compared with $52.1 million, or 0.28% of total assets, at June 30, 2024, and $25.9 million, or 0.13% of total assets, at September 30, 2023. Loan delinquencies were $9.9 million, or 0.08% of loans held for investment, at September 30, 2024, compared to $17.9 million, or 0.14% of loans held for investment, at June 30, 2024, and $10.9 million, or 0.08% of loans held for investment, at September 30, 2023.

Classified loans totaled $120.5 million, or 1.00% of loans held for investment, at September 30, 2024, compared with $183.8 million, or 1.47% of loans held for investment, at June 30, 2024, and $149.3 million, or 1.12% of loans held for investment, at September 30, 2023.

The following table presents the asset quality metrics of the loan portfolio as of the dates indicated.

Investment Securities

At September 30, 2024, AFS and held-to-maturity ("HTM") investment securities were $1.32 billion and $1.71 billion, respectively, compared to $1.32 billion and $1.71 billion, respectively, at June 30, 2024, and $1.91 billion and $1.74 billion, respectively, at September 30, 2023.

In total, investment securities were $3.03 billion at September 30, 2024, a decrease of $70,000 from June 30, 2024, and a decrease of $622.3 million from September 30, 2023. The decrease in the third quarter of 2024 compared to the prior quarter was primarily the result of $123.6 million in principal payments, amortization and accretion, and redemptions, partially offset by $113.3 million in purchases, primarily AFS U.S. Treasury securities, as well as an improvement of $10.2 million in AFS investment securities mark-to-market unrealized loss.

The decrease in investment securities from September 30, 2023 was the result of $1.52 billion in sales of AFS investment securities, primarily related to the investment securities portfolio repositioning during the fourth quarter of 2023, and $646.8 million in principal payments, amortization and accretion, and redemptions, partially offset by $1.27 billion in purchases of AFS and HTM investment securities and a decrease of $277.0 million in AFS securities mark-to-market unrealized loss.

Deposits

At September 30, 2024, total deposits were $14.48 billion, a decrease of $146.7 million, or 1.0%, from June 30, 2024, and a decrease of $1.53 billion, or 9.5%, from September 30, 2023. The decrease from the prior quarter was primarily driven by reductions of $184.2 million in brokered certificates of deposit, as well as $39.1 million in money market and savings, partially offset by an increase of $66.4 million in retail certificates of deposit and $23.0 million in noninterest-bearing checking.

The decrease from September 30, 2023 was attributable to decreases of $1.14 billion in noninterest-bearing checking, $927.2 million in brokered certificates of deposit, and $68.1 million in money market and savings, partially offset by an increase of $447.0 million in retail certificates of deposit and $164.9 million in interest-bearing checking.

At September 30, 2024, non-maturity deposits⁽¹⁾ totaled $12.21 billion, or 84.3% of total deposits, a decrease of $29.0 million, or 0.2%, from June 30, 2024, and a decrease of $1.05 billion, or 7.9%, from September 30, 2023.

The decrease from the third quarter of 2023 was attributable to clients utilizing their deposits to prepay or pay down loans, reduced funding needs, as well as redeploying funds into higher-yielding alternatives due to elevated benchmark interest rates.

At September 30, 2024, maturity deposits totaled $2.27 billion, a decrease of $117.8 million, or 4.9%, from June 30, 2024, and a decrease of $480.1 million, or 17.4%, from September 30, 2023. The decrease in the third quarter of 2024 compared to the prior quarter was primarily driven by the decrease of $184.2 million in brokered certificates of deposit, a direct result of the planned maturity and reduction of higher-costing brokered time deposits, partially offset by an increase of $66.4 million in retail certificates of deposit. The decrease from September 30, 2023 was primarily driven by decreases in brokered certificates of deposit, partially offset by increases of retail certificates of deposit.

The weighted average cost of total deposits for the third quarter of 2024 was 1.84%, compared to 1.73% for the second quarter of 2024, and 1.50% for the third quarter of 2023, both increases principally driven by higher pricing across deposit categories. The weighted average cost of non-maturity deposits⁽¹⁾ for the third quarter of 2024 was 1.27%, compared to 1.17% for the second quarter of 2024, and 0.89% for the third quarter of 2023.

At September 30, 2024, the end-of-period weighted average rate of total deposits was 1.80%, compared to 1.81% at June 30, 2024, and 1.52% at September 30, 2023. At September 30, 2024, the end-of-period weighted average rate of non-maturity deposits was 1.26%, compared to 1.25% at June 30, 2024, and 0.96% at September 30, 2023.

At September 30, 2024, the Company’s FDIC-insured deposits as a percentage of total deposits was 60%, and the insured and collateralized deposits comprised 66% of total deposits, relatively consistent with 61% and 67%, respectively, at June 30, 2024, and 62% and 66%, respectively, at September 30, 2023.

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The following table presents the composition of deposits as of the dates indicated.

Borrowings

At September 30, 2024, total borrowings amounted to $272.3 million, a decrease of $259.8 million from June 30, 2024, and a decrease of $859.4 million from September 30, 2023. Total borrowings at September 30, 2024 were comprised of $272.3 million of subordinated debt. The decrease in borrowings at September 30, 2024 as compared to June 30, 2024 was due to the early redemption of a $200.0 million FHLB term advance and the maturity of $60.0 million in subordinated debentures during the quarter. The decrease in borrowings at September 30, 2024 as compared to September 30, 2023 was due to a decrease of $800.0 million in FHLB term advances and the maturity of $60.0 million in subordinated debentures.

As of September 30, 2024, our unused borrowing capacity was $8.83 billion, which consists of available lines of credit with FHLB and other correspondent banks, as well as access through the Federal Reserve Bank's discount window, which was not utilized during the third quarter of 2024.

Capital Ratios

At September 30, 2024, our common stockholders' equity was $2.94 billion, or 16.44% of total assets, compared with $2.92 billion, or 15.95%, at June 30, 2024, and $2.86 billion, or 14.08%, at September 30, 2023. At September 30, 2024, the ratio of tangible common equity to tangible assets⁽¹⁾ increased 42 and 196 basis points to 11.83%, compared with 11.41% at June 30, 2024, and 9.87% at September 30, 2023, respectively. Tangible book value per share⁽¹⁾ increased $0.23 and $0.92 to $20.81, compared with $20.58 at June 30, 2024, and $19.89 at September 30, 2023, respectively.

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The Company implemented the current expected credit losses ("CECL") model on January 1, 2020 and elected to phase in the full effect of CECL on regulatory capital over the five-year transition period. In the first quarter of 2022, the Company began phasing into regulatory capital the cumulative adjustments at the end of the second year of the transition period at 25% per year. At September 30, 2024, the Company and Bank were in compliance with the capital conservation buffer requirement and exceeded the minimum Common Equity Tier 1, Tier 1, and total capital ratios, inclusive of the fully phased-in capital conservation buffer of 7.0%, 8.5%, and 10.5%, respectively, and the Bank qualified as "well capitalized" for purposes of the federal bank regulatory prompt corrective action regulations.

Dividend and Stock Repurchase Program

On October 22, 2024, the Company's Board of Directors declared a $0.33 per share dividend, payable on November 12, 2024 to stockholders of record as of November 4, 2024. In January 2021, the Company’s Board of Directors approved a stock repurchase program, which authorized the repurchase of up to 4,725,000 shares of its common stock. During the third quarter of 2024, the Company did not repurchase any shares of common stock.

Conference Call and Webcast

The Company will host a conference call at 9:00 a.m. PT / 12:00 p.m. ET on October 24, 2024 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. Participants should ask to be joined to the Pacific Premier Bancorp, Inc. call. Additionally, a telephone replay will be made available through October 31, 2024, at (877) 344-7529, replay code 5273136.

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 headquartered in the western region of the United States, with approximately $18 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. Pacific Premier Bank also offers 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 $18 billion of assets under custody and 32,000 client accounts comprised of self-directed investors, financial institutions, capital syndicators, and financial advisors. Additionally, Pacific Premier Bank provides nationwide customized banking solutions to Homeowners’ 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, liquidity, and the impact of acquisitions we have made or may make.

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. These risks and uncertainties include, but are not limited to, the following: the strength of the United States ("U.S.") economy in general and the strength of the local economies in which we conduct operations; adverse developments in the banking industry and the potential impact of such developments on customer confidence, liquidity, and regulatory responses to these developments; 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; interest rate, liquidity, economic, market, credit, operational, and inflation risks associated with our business, including the speed and predictability of changes in these risks; our ability to attract and retain deposits and access to other sources of liquidity, particularly in a rising or high interest rate environment, and the quality and composition of our deposits; business and economic conditions generally and in the financial services industry, nationally and within our current and future geographic markets, including the tight labor market, ineffective management of the U.S. Federal budget or debt, or turbulence or uncertainty in domestic or foreign financial markets; the effect of acquisitions we have made or may make, 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; possible impairment charges to goodwill, including any impairment that may result from increased volatility in our stock price; 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; compliance risks, including any increased costs of monitoring, testing, and maintaining compliance with complex laws and regulations; the effectiveness of our risk management framework and quantitative models; 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; possible credit-related impairments of securities held by us; changes in the level of our nonperforming assets and charge-offs; the impact of governmental efforts to restructure the U.S. financial regulatory system; the impact of recent or future changes in the FDIC insurance assessment rate or the rules and regulations related to the calculation of the FDIC insurance assessment amount, including any special assessments; changes in consumer spending, borrowing, and savings habits; the effects of concentrations in our loan portfolio, including commercial real estate and the risks of geographic and industry concentrations; the possibility that we may reduce or discontinue the payments of dividends on our common stock; the possibility that we may discontinue, reduce or otherwise limit the level of repurchases of our common stock we may make from time to time pursuant to our stock repurchase program; 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, including the war between Russia and Ukraine, Israel and Hamas, and overall tension in the Middle East, and trade tensions, all of which could impact business and economic conditions in the United States and abroad; public health crises and pandemics 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; climate change, including the enhanced regulatory, compliance, credit, and reputational risks and costs; natural disasters, earthquakes, fires, and severe weather; 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 2023 Annual Report on Form 10-K filed with the SEC and available at the SEC’s Internet site (https://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.

SELECTED FINANCIAL DATA

GAAP TO NON-GAAP RECONCILIATIONS

 

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Contacts

Pacific Premier Bancorp, Inc.
Steven R. Gardner
Chairman, Chief Executive Officer, and President
(949) 864-8000

Ronald J. Nicolas, Jr.
Senior Executive Vice President and Chief Financial Officer
(949) 864-8000

Matthew J. Lazzaro
Senior Vice President and Director of Investor Relations
(949) 243-1082