Pacific Premier Bancorp, Inc. : Announces Second Quarter 2017 Results (Unaudited)

Pacific Premier Bancorp, Inc. (NASDAQ: PPBI) (the “Company”), the holding company of Pacific Premier Bank (the “Bank”), reported net income for the second quarter of 2017 of $14.2 million, or $0.35 per diluted share, compared with net income of $9.5 million, or $0.34 per diluted share, for the first quarter of 2017 and net income of $10.4 million, or $0.37 per diluted share, for the second quarter of 2016. Net income for the second and first quarters of 2017 include $10.1 million and $4.9 million of merger-related expense, respectively, associated with the acquisition of Heritage Oaks Bancorp ("Heritage Oaks"). Net income for the second quarter of 2016 includes $497,000 of merger-related expense associated with the acquisition of Security Bank of California ("Security").

For the three months ended June 30, 2017, the Company’s return on average assets was 0.89% and return on average tangible common equity was 11.33%. For the three months ended March 31, 2017, the Company's return on average assets was 0.94% and the return on average tangible common equity was 11.03%. For the three months ended June 30, 2016, the Company's return on average assets was 1.16% and its return on average tangible common equity was 13.30%. Total assets as of June 30, 2017 were $6.4 billion compared with $4.2 billion at March 31, 2017 and $3.6 billion at June 30, 2016.

Steven R. Gardner, Chairman, President and Chief Executive Officer of the Company, commented on the results, “We executed well in the second quarter, generating strong business volumes while integrating the Heritage Oaks Bancorp acquisition. We had another strong quarter of loan production, generating $492 million in commitments. We continue to have well balanced loan production with contributions from our commercial, commercial real estate, SBA and franchise lending businesses, while also maintaining exceptional credit quality.

“The integration of the Heritage Oaks team has progressed very well throughout the second quarter and we completed the systems conversion last week. We are on track to capture all of the synergies that we had projected for this transaction. At the same time, we continue to strengthen and enhance our infrastructure and personnel as we anticipate eventually surpassing the $10 billion asset threshold. While making these investments in people and systems, we believe we will be able to achieve an operating efficiency ratio in the low 50% range, which we think is appropriate for a bank of our size, growth profile and commercial banking focus.

“Over the second half of the year, we will be focused on leveraging our unique sales culture, larger lending capacity, and broader product offerings to accelerate business development in the Central Coast of California. We also continue to actively explore additional M&A transactions that can provide strategic and economic benefits, and further enhance the value of our franchise,” said Mr. Gardner.

FINANCIAL HIGHLIGHTS

INCOME STATEMENT HIGHLIGHTS

Net Interest Income and Net Interest Margin

Net interest income totaled $63.3 million in the second quarter of 2017, an increase of $21.6 million, or 52%, from the first quarter of 2017. The increase in net interest income was primarily due to an increase in average interest-earning assets of $1.9 billion, primarily related to the acquisition of Heritage Oaks, which at acquisition added $1.4 billion of loans and $445 million of securities, before purchase accounting adjustments.

Net interest margin increased to 4.40% from 4.39% in the prior quarter, primarily due to higher loan yields which increased 10 basis points to 5.29% from 5.19% in the prior quarter, as a result of increased accretion income as well as the favorable repricing of our variable rate loan portfolio, resultant from the recent Fed rate increases. Additionally, our average cost of interest-bearing liabilities decreased 4 basis points to 0.61% from 0.65% in the prior quarter with the acquisition of Heritage Oaks. Partially offsetting these benefits was a 16 basis point decrease in the investment portfolio yield to 2.42% from 2.58% in the prior quarter. Included in the net interest margin for the second quarter of 2017 was $4.2 million of accretion income associated with acquired loans, representing 30 basis points of net interest margin, including $3.3 million associated with the Heritage Oaks portfolio, compared to $1.1 million of accretion income representing 12 basis points of net interest margin in the first quarter of 2017.

Net interest income for the second quarter of 2017 increased $25.8 million, or 69%, compared to the second quarter of 2016. The increase was primarily related to an increase in average interest-earning assets of $2.4 billion, which resulted primarily from our organic loan growth since the end of the second quarter of 2016 and our acquisition of Heritage Oaks during the second quarter of 2017.

Provision for Loan Losses

A provision for loan losses of $1.9 million was recorded for the second quarter of 2017, compared with a provision for loan losses of $2.5 million for the quarter ending March 31, 2017. Lower credit losses as evidenced by net loan recoveries of $76,000 contributed to the decrease in our provision for loan losses.

Noninterest Income

Noninterest income for the second quarter of 2017 was $8.8 million, an increase of $4.1 million, or 87%, from the first quarter of 2017. The increase from the first quarter of 2017 was primarily related to a $2.1 million increase in net gain from the sale of $213 million of investment securities, a $799,000 increase in deposit fees and a $1.1 million increase in other income all related to the Heritage Oaks acquisition. During the quarter, the Bank sold $29.6 million of Small Business Administration ("SBA") loans for a gain of $2.9 million, compared with $30.5 million of SBA loans sold and a gain of $2.6 million in the prior quarter.

Noninterest income for the second quarter of 2017 increased $4.3 million, or 97%, compared to the second quarter of 2016. The increase from the second quarter of 2016 was primarily related to a $1.6 million increase in net gain from the sale of investment securities, a $829,000 increase in deposit fees, a $763,000 increase in net gain from sales of loans and a $1.2 million increase in other income.

Noninterest Expense

Noninterest expense totaled $48.5 million for the second quarter of 2017, an increase of $18.7 million, or 63%, compared with the first quarter of 2017. The increase was primarily driven by the inclusion of Heritage Oaks operations and merger-related expenses of $10.1 million in the second quarter of 2017 compared with $4.9 million for the first quarter of 2017. Excluding the merger related expense our noninterest expense was $38.4 million. Going forward we expect our quarterly operating expense run rate to be in the range of $38-40 million.

In comparison to the second quarter of 2016, noninterest expense grew by $24.8 million, or 105%. The increase in expense was primarily related to higher merger-related expense of $9.6 million and the additional costs from the operations, personnel and branches retained from the acquisition of Heritage, combined with our continued investment in personnel to support our organic growth.

Income Tax

For the second quarter of 2017, our effective tax rate was 34.7%, compared with 32.7% for the first quarter of 2017 and 38.0% for the second quarter of 2016. The increase in the effective tax rate when compared to the first quarter of 2017 was primarily the result of lower tax deductible equity stock expense related to the adoption of ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Accounting, which went into effect for the Company on January 1, 2017. As a result of the adoption of ASU 2016-09, the Company began recognizing the tax effects of exercised or vested awards as discrete items in the reporting period in which they occur, resulting in a $461,000 tax benefit to the Company for the second quarter of 2017 compared with $1.1 million in the first quarter of 2017.

BALANCE SHEET HIGHLIGHTS

Loans

Loans held for investment totaled $4.9 billion at June 30, 2017, an increase of $1.5 billion, or 44%, from March 31, 2017, and an increase of $1.9 billion, or 66%, from June 30, 2016. The increases were impacted by the acquisition of Heritage Oaks, as well as organic loan growth. The total end of period weighted average interest rate on loans, excluding fees and discounts, at June 30, 2017 was 4.79%, compared to 4.87% at March 31, 2017 and 4.84% at June 30, 2016.

Loan activity during the second quarter of 2017 included new organic loan commitments of $492 million, compared with $455 million in the first quarter of 2017 and $299 million in the second quarter of 2016. At June 30, 2017, our ratio of loans held for investment to total deposits was 98.2%, compared with 102.7% and 99.6% at March 31, 2017 and June 30, 2016, respectively.

Asset Quality and Allowance for Loan Losses

At June 30, 2017, our allowance for loan losses was $25.1 million, an increase of $2.0 million from March 31, 2017. Loan loss provision for the quarter was $1.9 million while net recoveries were $76,000.

The ratio of allowance for loan losses to loans held for investment at June 30, 2017 was 0.52%, compared to 0.68% and 0.65% at March 31, 2017 and June 30, 2016, respectively. Under the guidance of ASC 820: Fair Value Measurements and Disclosures, the fair value discount on loans acquired through total bank acquisition was $25.5 million, or 0.53%, of total loans held for investment as of June 30, 2017.

Nonperforming assets totaled $767,000, or 0.01% of total assets, at June 30, 2017, a decrease from $973,000, or 0.02% of total assets, at March 31, 2017. During the second quarter of 2017, nonperforming loans decreased $118,000 to $395,000, and other real estate owned decreased to $372,000. Loan delinquencies increased to $3.0 million, or 0.06%, of loans held for investment compared to $477,000, or 0.01% of loans held for investment at March 31, 2017.

Investment Securities

Investment securities available for sale totaled $703 million at June 30, 2017, an increase of $268 million from March 31, 2017, and $458 million from June 30, 2016. The increase in the second quarter of 2017 was primarily the result of the acquisition of Heritage Oaks, which at acquisition added $445 million of securities, before purchase accounting adjustments, partially offset by approximately $213 million in sales of securities resulting in a gain of $2.1 million.

Deposits

At June 30, 2017, deposits totaled $4.9 billion, an increase of $1.6 billion, or 50%, from March 31, 2017 and $2.0 billion, or 69%, from June 30, 2016. At June 30, 2017, non-maturity deposits totaled $4.1 billion, 84% of total deposits, an increase of $1.4 billion, or 53%, from March 31, 2017 and an increase of $1.8 billion, or 79%, from June 30, 2016. During the second quarter of 2017, deposit increases included $732 million in money market/savings deposits, $577 million in noninterest-bearing deposits, $191 million in retail certificate deposits, $132 million in interest checking and $16 million in wholesale/brokered certificates of deposits, primarily as a result of the acquisition of Heritage Oaks.

The weighted average cost of deposits for the three month period ending June 30, 2017 was 0.25%, compared to 0.27% for the three month period ending March 31, 2017 and 0.28% for the three month period ending June 30, 2016.

Borrowings

At June 30, 2017, total borrowings amounted to $477 million, an increase of $96.3 million, or 25%, from March 31, 2017 and an increase of $287 million, or 152%, from June 30, 2016. Total borrowings for the quarter included $397 million of advances from the Federal Home Loan Bank of San Francisco and $80 million of subordinated debt. At June 30, 2017, total borrowings represented 7.4% of total assets, compared to 9.1% and 5.3%, as of March 31, 2017 and June 30, 2016, respectively.

Capital Ratios

At June 30, 2017, our ratio of tangible common equity to total assets was 9.18%, with book value per share of $23.96 and tangible book value of $13.83 per share, compared with a tangible book value of $12.88 at March 31, 2017 and tangible book value of $11.87 at June 30, 2016.

At June 30, 2017, the Bank exceeded all regulatory capital requirements with a ratio for tier 1 leverage capital of 10.54%, common equity tier 1 risk-based capital of 11.85%, tier 1 risk-based capital of 11.85% and total risk-based capital of 12.35%. These capital ratios exceeded the “well capitalized” standards defined by the federal banking regulators of 5.00% for tier 1 leverage capital, 6.5% for common equity tier 1 risk-based capital, 8.00% for tier 1 risk-based capital and 10.00% for total risk-based capital.

At June 30, 2017, the Company had a ratio for tier 1 leverage capital of 9.85%, common equity tier 1 risk-based capital of 10.71%, tier 1 risk-based capital of 11.09% and total risk-based capital of 12.70%.

Conference Call and Webcast

The Company will host a conference call at 9:00 a.m. PT / 12:00 p.m. ET on July 25, 2017 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 and asking to be joined to the Pacific Premier Bancorp conference call. Additionally, a telephone replay will be made available through August 1, 2017 at (877) 344-7529, conference ID 10110048.

About Pacific Premier Bancorp, Inc.

Pacific Premier Bancorp, Inc. is the holding company for Pacific Premier Bank, one of the largest banks headquartered in Southern California with approximately $6.4 billion in assets. Pacific Premier Bank is a business bank primarily focused on serving small and middle market businesses in the counties of Orange, Los Angeles, Riverside, San Bernardino, San Diego, San Luis Obispo and Santa Barbara, California. Through its more than 25 depository branches, Pacific Premier Bank offers a diverse range of lending products including commercial, commercial real estate, construction, and SBA loans, as well as specialty banking products for homeowners associations and franchise lending nationwide.

FORWARD-LOOKING COMMENTS

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, statements regarding the Company's growth and the impact of acquisitions. 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, interest rate, market and monetary fluctuations; the timely development of competitive new products and services and the acceptance of these products and services by new and existing customers; the willingness of users to substitute competitors’ products and services for the Company’s products and services; the impact of changes in financial services policies, laws and regulations (including the Dodd-Frank Wall Street Reform and Consumer Protection Act) and of governmental efforts to restructure the U.S. financial regulatory system; technological changes; the effect of acquisitions that the Company may make, if any, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from its acquisitions; changes in the level of the Company’s nonperforming assets and charge-offs; any oversupply of inventory and deterioration in values of California real estate, both residential and commercial; the effect of changes in accounting policies and practices, as may be adopted from time-to-time by bank regulatory agencies, the Securities and Exchange Commission (“SEC”), the Public Company Accounting Oversight Board, the Financial Accounting Standards Board or other accounting standards setters; possible other-than-temporary impairment of securities held by us; changes in consumer spending, borrowing and savings habits; the effects of the Company’s lack of a diversified loan portfolio, including the risks of geographic and industry concentrations; ability to attract deposits and other sources of liquidity; 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; unanticipated regulatory or judicial proceedings; and the Company’s 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 2016 Annual Report on Form 10-K of Pacific Premier Bancorp, Inc. filed with the SEC and available at the SEC’s Internet site (http://www.sec.gov).

The Company specifically disclaims any obligation to update any factors or to publicly announce the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.

SELECTED FINANCIAL DATA

PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
GAAP RECONCILIATIONS

(dollars in thousands, except per share data)

For periods presented below, return on average tangible common equity is a non-GAAP financial measures derived from GAAP-based amounts. We calculate these figures by excluding CDI amortization expense and exclude the average CDI and average goodwill from the average stockholders' equity during the period. Management believes that the exclusion of such items from these financial measures provides useful information to an understanding of the operating results of our core business. However, these non-GAAP financial measures are supplemental and are not a substitute for an analysis based on GAAP measures. As other companies may use different calculations for these adjusted measures, this presentation may not be comparable to other similarly titled adjusted measures reported by other companies.

Tangible common equity to tangible assets (the "tangible common equity ratio") and tangible book value per share are non-GAAP financial measures derived from GAAP-based amounts. We calculate the tangible common equity ratio by excluding the balance of intangible assets from common stockholders' equity and dividing by tangible assets. We calculate tangible book value per share by dividing tangible common equity by common shares outstanding, as compared to book value per share, which we calculate by dividing common stockholders' equity by shares outstanding. We believe that this information is consistent with the treatment by bank regulatory agencies, which exclude intangible assets from the calculation of risk-based capital ratios. Accordingly, we believe that these non-GAAP financial measures provide information that is important to investors and that is useful in understanding our capital position and ratios. However, these non-GAAP financial measures are supplemental and are not a substitute for an analysis based on GAAP measures. As other companies may use different calculations for these measures, this presentation may not be comparable to other similarly titled measures reported by other companies.

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