Pacific Premier Bancorp, Inc. Announces Fourth Quarter 2022 Financial Results and a Quarterly Cash Dividend of $0.33 Per Share

Fourth Quarter 2022 Summary

• Net income of $73.7 million, or $0.77 per diluted share
• Return on average assets of 1.36%, return on average equity of 10.71%, and return on average tangible common equity⁽¹⁾ of 16.99%
• Pre-provision net revenue (“PPNR”) to average assets⁽¹⁾ of 1.89%, annualized, increased from 1.85% in the prior quarter
• Efficiency ratio⁽¹⁾ of 47.4%, compared with 48.3% in the prior quarter
• Net interest margin of 3.61%, and core net interest margin⁽¹⁾ of 3.38%
• Cost of deposits of 0.58%, and cost of core deposits⁽¹⁾ of 0.31%
• Loan-to-deposit ratio of 84.6%, compared with 84.0% in the prior quarter
• Nonperforming assets to total assets of 0.14%, and net charge-offs to average loans of 0.03%
• Total risk-based capital ratio of 15.53% and common equity tier 1 capital ratio of 12.99%
• Tangible book value per share⁽¹⁾ increased $0.70, or 3.7%, to $19.38 compared to the prior quarter

Pacific Premier Bancorp, Inc. (NASDAQ: PPBI) (the “Company” or “Pacific Premier”), the holding company of Pacific Premier Bank (the “Bank”), reported net income of $73.7 million, or $0.77 per diluted share, for the fourth quarter of 2022, compared with net income of $73.4 million, or $0.77 per diluted share, for the third quarter of 2022, and net income of $84.8 million, or $0.89 per diluted share, for the fourth quarter of 2021.

For the fourth quarter of 2022, the Company’s return on average assets (“ROAA”) was 1.36%, return on average equity (“ROAE”) was 10.71%, and return on average tangible common equity (“ROATCE”)⁽¹⁾ was 16.99%, compared to 1.35%, 10.57%, and 16.74%, respectively, for the third quarter of 2022 and 1.63%, 11.90%, and 18.66%, respectively, for the fourth quarter of 2021. Total assets as of December 31, 2022 were $21.69 billion, compared to $21.62 billion at September 30, 2022 and $21.09 billion at December 31, 2021.

Steven R. Gardner, Chairman, President, and Chief Executive Officer of the Company, commented, “Our fourth quarter results reflect the benefits of the actions we took over the past several quarters to proactively manage risk and position the balance sheet for higher interest rates. Despite a more challenging operating environment, we continued to deliver solid financial performance, including an increase in pre-provision net revenue⁽¹⁾ and higher returns compared to the prior quarter. Tangible book value per share⁽¹⁾ grew nearly 4% during the fourth quarter, and all of our capital ratios increased.

“We remain committed to our disciplined, consistent approach to new business development, which enabled us to add attractive full banking relationships with high quality commercial clients during the current quarter. With higher interest rates impacting demand for commercial real estate and multifamily loans, coupled with our conservative approach to new loan production, we saw a slight contraction in total loans during the fourth quarter. Our core commercial deposit base remained relatively stable, but the lower level of commercial real estate transactions continued to result in deposit outflows from our commercial escrow and exchange business. We replaced these outflows with additional time deposits of varying maturities, keeping our loan-to-deposit ratio in the mid-80% range.

“As we head into 2023, our strong liquidity and capital levels provide us with optionality as we navigate an uncertain economic environment. Starting in the fourth quarter of 2022, our teams began executing on new initiatives and marketing efforts to expand the products and services we are offering to existing clients and to enhance new client acquisitions, which we expect will drive growth in future periods. As always, we will be here when our clients need us most, and we will maintain our commitment to delivering value to our shareholders, clients, employees, and the communities we serve.”

INCOME STATEMENT HIGHLIGHTS

Net Interest Income and Net Interest Margin

Net interest income totaled $181.4 million in the fourth quarter of 2022, an increase of $284,000, or 0.2%, from the third quarter of 2022. The slight increase in net interest income was driven by higher yields on interest-earning assets, as well as a favorable interest impact from fair value hedges on fixed-rate loans, mostly offset by a higher cost of funds.

The net interest margin for the fourth quarter of 2022 was 3.61% and unchanged from the third quarter of 2022. The core net interest margin⁽⁶⁾ decreased 6 basis points to 3.38%, compared to 3.44% in the prior quarter, predominantly driven by lower loan-related fees as well as a higher cost of funds offsetting the impact of higher yields on interest-earning assets.

Net interest income for the fourth quarter of 2022 increased $10.7 million, or 6.3%, compared to the fourth quarter of 2021. The increase was primarily attributable to higher yields on average interest-earning assets, partially offset by a higher cost of funds.

Provision for Credit Losses

For the fourth quarter of 2022, the Company recorded a $2.8 million provision expense, compared to a $1.1 million provision expense for the third quarter of 2022, and a $14.6 million provision recapture for the fourth quarter of 2021. The provision for credit losses for the fourth quarter of 2022 was impacted by changes to the overall size, composition, asset quality trends, and unfunded commitments of the loan portfolio.

The provision recapture for loans in the fourth quarter of 2021 was reflective of favorable changes in the macroeconomic forecasts related to the COVID-19 pandemic relative to prior periods.

Noninterest Income

Noninterest income for the fourth quarter of 2022 was $20.5 million, an increase of $333,000 from the third quarter of 2022. During the fourth quarter of 2022, the Bank sold $3.6 million of Small Business Administration ("SBA") loans for a net gain of $151,000 and $6.4 million of other loans for no gain, compared with $9.6 million of SBA loans sold for a net gain of $434,000 and $15.0 million of other loans for a net gain of $23,000 in the third quarter of 2022.

Noninterest income for the fourth quarter of 2022 decreased $6.8 million, compared to the fourth quarter of 2021. The decrease was primarily due to a $3.6 million decrease in net gain from sales of investment securities, a $1.9 million decrease in trust custodial account fees resulting primarily from a decrease in the market value of assets under custody, a $1.2 million decrease in net gain from loan sales, and a $939,000 decrease in escrow and exchange fees attributable to lower transaction volumes, partially offset by an $851,000 increase in other income.

Noninterest Expense

Noninterest expense totaled $99.2 million for the fourth quarter of 2022, a decrease of $1.7 million compared to the third quarter of 2022, primarily due to a $2.0 million decrease in compensation and benefits.

Noninterest expense increased by $1.9 million compared to the fourth quarter of 2021 primarily due to a $2.9 million increase in deposit expense and a $1.1 million increase in data processing, partially offset by a $1.7 million decrease in compensation and benefits.

Income Tax

For the fourth quarter of 2022, our income tax expense totaled $26.2 million, resulting in an effective tax rate of 26.2%, compared to income tax expense of $26.0 million and an effective tax rate of 26.1% for the third quarter of 2022, and income tax expense of $30.6 million and an effective tax rate of 26.5% for the fourth quarter of 2021.

For full year 2022, our income tax expense totaled $100.6 million, resulting in an effective tax rate of 26.2%.

BALANCE SHEET HIGHLIGHTS

Loans

Loans held for investment totaled $14.7 billion at December 31, 2022, a decrease of $232.5 million, or 1.6%, from September 30, 2022, and an increase of $380.4 million, or 2.7%, from December 31, 2021. The decrease from September 30, 2022 was driven primarily by lower loan fundings, partially offset by lower loan prepayments and maturities. The increase from December 31, 2021 was due to loan fundings, partially offset by loan amortization, prepayments, and maturities.

During the fourth quarter of 2022, loan commitments totaled $239.8 million, and new loan fundings totaled $149.1 million, compared with $789.2 million in loan commitments and $450.7 million in new loan fundings for the third quarter of 2022, and $1.48 billion in loan commitments and $1.07 billion in new loan fundings for the fourth quarter of 2021.

At December 31, 2022, the total loan-to-deposit ratio was 84.6%, compared with 84.0% and 83.6%, at September 30, 2022 and December 31, 2021, 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 total end of period weighted average interest rate on loans, excluding fees and discounts, at December 31, 2022 was 4.61%, compared with 4.34% at September 30, 2022 and 3.95% at December 31, 2021. The quarter-over-quarter and year-over-year increases reflect higher rates on new loan originations and the repricing of floating rate loans as a result of the Federal Reserve Bank's interest rate increases since March 2022.

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

The weighted average interest rate on new loan commitments increased to 6.34% in the fourth quarter of 2022, compared to 5.55% in the third quarter of 2022, and 3.55% in the fourth quarter of 2021.

Asset Quality and Allowance for Credit Losses

At December 31, 2022, our ACL on loans held for investment was $195.7 million, an increase of $102,000 from September 30, 2022, and a decrease of $2.1 million from December 31, 2021. During the fourth quarter of 2022, the Company incurred $3.8 million of net charge-offs, compared with $1.1 million of net charge-offs and $1.0 million of net recoveries during the third quarter of 2022 and the fourth quarter of 2021, respectively.

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 December 31, 2022 was 1.33%, compared to 1.31% at September 30, 2022 and 1.38% at December 31, 2021. The fair value net discount on loans acquired through bank acquisitions was $54.8 million, or 0.37% of total loans held for investment, as of December 31, 2022, compared to $59.0 million, or 0.39% of total loans held for investment, as of September 30, 2022, and $77.1 million, or 0.54% of total loans held for investment, as of December 31, 2021.

Nonperforming assets totaled $30.9 million, or 0.14% of total assets, at December 31, 2022, compared with $60.5 million, or 0.28% of total assets, at September 30, 2022 and $31.3 million, or 0.15% of total assets, at December 31, 2021. Loan delinquencies were $43.3 million, or 0.30% of loans held for investment, at December 31, 2022, compared to $41.3 million, or 0.28% of loans held for investment, at September 30, 2022, and $19.5 million, or 0.14% of loans held for investment, at December 31, 2021.

Classified loans totaled $149.3 million, or 1.02% of loans held for investment, at December 31, 2022, compared with $110.1 million, or 0.74% of loans held for investment, at September 30, 2022, and $121.8 million, or 0.85% of loans held for investment, at December 31, 2021.

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

Investment Securities

At December 31, 2022, available-for-sale ("AFS") and held-to-maturity ("HTM") investment securities were $2.60 billion and $1.39 billion, respectively, compared to $2.66 billion and $1.39 billion, respectively, at September 30, 2022, and $4.27 billion and $381.7 million, respectively, at December 31, 2021. In total, investment securities were $3.99 billion at December 31, 2022, a decrease of $57.5 million from $4.05 billion at September 30, 2022 and a decrease of $666.4 million from $4.66 billion at December 31, 2021. The decrease in the fourth quarter of 2022 compared to the prior quarter was primarily the result of principal payments, amortization, and redemptions of $85.1 million, partially offset by a mark-to-market fair value loss reduction of $20.6 million. The Company did not purchase or sell any securities during the fourth quarter of 2022.

The decrease in investment securities from December 31, 2021 was primarily the result of $934.7 million in sales, $426.2 million in principal payments, discounts from the AFS securities transferred from HTM, amortization, and redemptions, and a $299.0 million decrease in mark-to-market fair value adjustments as a result of higher interest rates, partially offset by $986.6 million in purchases.

Deposits

At December 31, 2022, deposits totaled $17.35 billion, a decrease of $394.0 million, or 2.2%, from September 30, 2022, and an increase of $236.8 million, or 1.38%, from December 31, 2021.

At December 31, 2022, core deposits⁽¹⁾ totaled $14.85 billion, or 85.6% of total deposits, a decrease of $1.03 billion, or 6.5%, from September 30, 2022, and a decrease of $1.20 billion, or 7.5%, from December 31, 2021. The linked-quarter decrease was partially driven by a $396.7 million decrease in the Bank's commercial escrow and exchange business, as well as declines in commercial and consumer deposit accounts.

At December 31, 2022, non-core deposits totaled $2.50 billion, an increase of $631.7 million, or 33.8%, from September 30, 2022, and an increase of $1.44 billion, or 135.3%, from December 31, 2021. The increase in the fourth quarter of 2022 compared to the prior quarter was primarily due to the addition of $417.7 million in brokered certificates of deposit and an increase of $214.0 million in retail certificates of deposit. The increase from December 31, 2021 was primarily driven by an increase in brokered certificates of deposit.

The weighted average cost of deposits for the fourth quarter of 2022 was 0.58%, compared with 0.22% for the third quarter of 2022 and 0.04% for the fourth quarter of 2021. The increase in the weighted average cost of deposits for the fourth quarter of 2022 compared to the third quarter of 2022 was principally driven by higher pricing across all deposit categories, and higher average retail and brokered certificates of deposit. The weighted average cost of core deposits⁽²⁾ for the fourth quarter of 2022 was 0.31%, compared to 0.11% for the third quarter of 2022, and 0.03% for the fourth quarter of 2021.

At December 31, 2022, the end-of-period weighted average rate of total deposits was 0.79%, compared to 0.37% at September 30, 2022 and 0.04% at December 31, 2021. At December 31, 2022, the end-of-period weighted average rate of core deposits was 0.43%, compared to 0.20% at September 30, 2022 and 0.03% at December 31, 2021.

Borrowings

At December 31, 2022, total borrowings amounted to $1.33 billion, an increase of $400.2 million from September 30, 2022 and an increase of $442.6 million from December 31, 2021. Total borrowings at December 31, 2022 included $1.00 billion of Federal Home Loan Bank of San Francisco (“FHLB”) term advances and $331.2 million of subordinated debt. The increase in borrowings at December 31, 2022 as compared to September 30, 2022 was primarily due to an increase of $400.0 million in FHLB term advances to manage interest rate risk and liquidity. The increase in borrowings at December 31, 2022 as compared to December 31, 2021 was primarily due to an increase of $450.0 million in FHLB term advances for the same purpose.

Capital Ratios

At December 31, 2022, our common stockholder's equity was $2.80 billion, or 12.90% of total assets, compared with $2.74 billion, or 12.65% of total assets, at September 30, 2022, and $2.89 billion, or 13.68% of total assets, at December 31, 2021, with a book value per share of $29.45, compared with $28.79 at September 30, 2022 and $30.58 at December 31, 2021. At December 31, 2022, the ratio of tangible common equity to total assets⁽¹⁾ was 8.88%, compared with 8.59% at September 30, 2022 and 9.52% at December 31, 2021, and tangible book value per share⁽¹⁾ was $19.38, compared with $18.68 at September 30, 2022 and $20.29 at December 31, 2021. The increase in tangible book value per share at December 31, 2022 from the prior quarter was primarily driven by net income and other comprehensive income on our AFS securities portfolio during the quarter, partially offset by the dividends paid. The decrease in tangible book value per share at December 31, 2022 from December 31, 2021 was primarily driven by the other comprehensive loss from the impact of higher interest rates on our AFS securities portfolio and dividends paid, partially offset by net income in 2022.

The Company implemented the 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 December 31, 2022, 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.

The following table presents capital ratios and share data as of the dates indicated:

Dividend and Stock Repurchase Program

On January 24, 2023, the Company's Board of Directors declared a $0.33 per share dividend, payable on February 10, 2023 to stockholders of record on February 3, 2023. In January 2021, the Company’s Board of Directors approved a stock repurchase program, which authorized the repurchase up to 4,725,000 shares of its common stock. During the fourth quarter of 2022, 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 January 26, 2023 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 into the Pacific Premier Bancorp, Inc. call. Additionally, a telephone replay will be made available through February 2, 2023 at (877) 344-7529, access code 4933909.

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, 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 $22 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 over $17 billion of assets under custody and approximately 39,000 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, 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 economy in general and the strength of the local economies in which we conduct operations; 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; inflation/deflation, interest rate, market, and monetary fluctuations; our ability to attract and retain deposits and access to other sources of liquidity; 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; the effectiveness of our risk management framework and quantitative models; changes in the level of our nonperforming assets and charge-offs; the transition away from USD LIBOR and related uncertainty as well as the risk and costs related to our adoption of SOFR; 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, including ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments,” commonly referenced as the CECL model, which has changed how we estimate credit losses and may further increase the required level of our allowance for credit losses in future periods; possible credit-related impairments of securities held by us; 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; changes in consumer spending, borrowing, and savings habits; the effects of our lack of a diversified loan portfolio, including 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, which could impact business and economic conditions in the United States and abroad; public health crises and pandemics, including the COVID-19 pandemic, 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 2021 Annual Report on Form 10-K filed with the SEC and available at the SEC’s Internet site (http://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.