Pacific Premier Bancorp, Inc. Announces Second Quarter 2013 Results (Unaudited)
Second Quarter 2013 Summary
- Total assets increase 32.8% from December 31, 2012 to $1.6 billion
- Successfully closed acquisition of San Diego Trust Bank
- Net loss of $0.02 per diluted share includes $5.0 million of merger-related expense
- Adjusted earnings of $0.19 per diluted share, before non-recurring merger-related expense
- Total loans increase 12% from end of first quarter 2013
- Total loan production increases to $124 million during the second quarter of 2013
- Non-interest bearing deposits increase $28.5 million from end of first quarter of 2013 to 26% of the overall deposit base
- Non-Performing Assets to Total Assets of 0.21%
- Net interest margin of 4.01% reflects excess liquidity following acquisitions
IRVINE, Calif.--(BUSINESS WIRE)-- Pacific Premier Bancorp, Inc. (NAS: PPBI) (the "Company"), the holding company of Pacific Premier Bank (the "Bank"), reported adjusted earnings for the second quarter of 2013 of $3.0 million, or $0.19 per share on a diluted basis, before non-recurring merger-related expenses, compared with adjusted earnings for the first quarter of 2013 of $3.1 million, or $0.20 per share on a diluted basis, before non-recurring merger-related expenses. For the three months ended June 30, 2013, the Company's adjusted return on average assets was 0.86% and adjusted return on average equity was 7.59%, compared with an adjusted return on average assets of 1.05% and an adjusted return on average equity of 8.78% for the three months ended March 31, 2013.
Taking into account the one-time merger-related expenses incurred in the second quarter in connection with the acquisition of San Diego Trust Bank ("San Diego Trust") and in the first quarter in connection with the acquisition of First Associations Bank ("First Associations") of $5.0 million and $1.7 million, respectively, the Company recorded a net loss of $249,000, or $0.02 per share on a diluted basis, for the second quarter of 2013, compared to net income of $2.0 million, or $0.13 per share on a diluted basis, for the first quarter of 2013.
Steven R. Gardner, President and Chief Executive Officer of the Company, commented on the results, "We saw a significant improvement in business development activity in the second quarter, as our loan production increased by 64% to $147 million. Our loan production was broadly diversified, with strong growth coming in owner-occupied commercial real estate, C&I and investor owned commercial real estate loans. The growth in these areas helped to offset a decline we saw in warehouse lending due to the impact of higher mortgage rates.
"We are beginning to gain traction in the businesses where we have recently added additional talent, including SBA, HOA and construction lending, which complements our strong C&I and CRE platforms and improves our ability to generate quality assets. Our loan pipeline continues to be very healthy at $205 million as of July 22, 2013, which should result in strong loan growth in the second half of the year. Additionally, the former customers of San Diego Trust Bank have been very receptive to the acquisition thus far and we anticipate that our expanded product offerings will allow us to gain substantive market share throughout the San Diego market."
"We have completed the integration and conversion of First Associations Bank's former customer accounts and anticipate the conversion of San Diego Trust Bank systems to occur early in the fourth quarter. We are excited about the prospects for our franchise as these two acquisitions create a strong platform for profitable growth in the future and have markedly improved our deposit base which positions us well for a rising interest rate environment. We have realized a significant amount of excess liquidity by adding the attractive deposit bases of these two institutions, which has had the immediate effect of compressing our net interest margin. As we redeploy this liquidity into higher yielding assets and allow higher cost time deposits to runoff, we expect to see a steady improvement in our net interest margin and a higher level of profitability in the future," said Mr. Gardner.
Net Interest Income and Net Interest Margin
Net interest income totaled $13.6 million in the second quarter of 2013, up $690,000 or 5.3%, compared to the first quarter of 2013. The increase in net interest income reflected higher average interest-earning assets of $228.2 million, partially offset by a decrease in net interest margin. The increase in average interest-earning assets during the second quarter of 2013 was primarily from a $163.0 million increase in securities, a $35.9 million increase in loans, and a $29.3 million increase in cash and cash equivalents.
The net interest margin for the second quarter of 2013 was 4.01%, compared with 4.62% in the first quarter of 2013. The decrease in net interest margin is primarily attributable to a decrease in yield on average interest-earning assets of 69 basis points, primarily from a higher mix of lower yielding investment securities, which were acquired in our acquisition of First Associations that closed in the first quarter of 2013 and a decrease in our loan portfolio yield. The loan portfolio yield for the second quarter was 5.69%, 16 basis points lower than the first quarter and reflected lower rates on loan originations. Partially offsetting this decrease was lower deposit costs of 8 basis points resulting from an improved mix of lower cost deposits associated with the First Associations and San Diego Trust acquisitions.
Provision for Loan Losses
We recorded a $322,000 provision for loan losses during the second quarter of 2013, compared with $296,000 provision for loan losses for the first quarter of 2013. Stable credit quality metrics and the recent charge-off history within our loan portfolio were significant factors in estimating the adequacy of our allowance for loan losses. Net loan charge-offs amounted to $322,000 in the second quarter of 2013, up $26,000 from $296,000 experienced during the first quarter of 2013.
Noninterest income for the second quarter of 2013 amounted to $2.4 million, up $707,000 or 41.0%, compared to the first quarter of 2013. The increase was primarily attributable to the sale of $101.7 million in securities primarily acquired from First Associations for a gain of $1.1 million in the current quarter, as there were no sales of securities in the prior quarter, and other income of $106,000, partially offset by a decrease in gain on sale of loans of $501,000.
Noninterest expense totaled $15.9 million for the second quarter of 2013, up $4.7 million or 41.8%, compared to the first quarter of 2013. The increase primarily related to higher costs in the second quarter of 2013 when compared to the first quarter of 2013 associated with the following expense categories:
- One-time merger related expenses increased by $3.2 million;
- Compensation and benefits costs increased by $590,000, primarily due to the increase in employees for a full quarter from the First Associations acquisition and new hires in the lending and credit areas to increase our production of commercial and industrial ("C&I") loans, commercial real estate ("CRE") loans, Small Business Administration ("SBA") loans, homeowner association ("HOA") loans, and construction loans;
- Other real estate owned operations increased by $537,000.
These higher costs were partially offset by a decline of $346,000 in legal, audit and professional fees.
Operating results during the second quarter of 2013 included $955,000 of merger costs that were treated as non-deductible for tax purposes. These expenses were largely the cause for a negative effective tax rate of 57.6% for the second quarter of 2013, compared to an effective tax rate of 37.4% in the first quarter of 2013. The merger costs also primarily impacted the difference between the effective tax rate for the first half of 2013 at 42.4%, compared to 39.0% for the same comparable period of 2012.
Assets and Liabilities
At June 30, 2013, assets totaled $1.6 billion, up $151.8 million or 10.8% from March 31, 2013 and up $384.7 million or 32.8% from December 31, 2012. The increase in assets since year-end 2012 was primarily related to the acquisitions of First Associations, which added assets at the acquisition date of $394.1 million, partially offset by $78.5 million of First Associations deposits held by the Bank prior to the acquisition and San Diego Trust, which added assets at the acquisition date of $201.1 million. Partially offsetting these acquisition increases was a decrease of $82.3 million in deposits and to pay down of $67.4 million of Federal Home Loan Bank ("FHLB") borrowings. The increase in assets from March 31, 2013 was primarily related to the acquisition of San Diego Trust, which included at the acquisition date $124.8 million in securities, $42.4 million in loans, $14.1 million in cash, $6.4 million in goodwill, $5.8 million in bank owned life insurance and $7.6 million in other assets.
Investment securities available for sale totaled $313.0 million at June 30, 2013, up $11.9 million or 3.9% from March 31, 2013, and up $229.0 million or 272.4% from December 31, 2012. The increase in securities since year-end 2012 was primarily due to the First Associations acquisition in March, which added $222.4 million at the acquisition date and the San Diego Trust acquisition in June, which added $124.8 million at the acquisition date, partially offset by the sale of $101.7 million of securities in the second quarter of 2013, and $16.6 million in principal pay downs. The investment activity in the second quarter of 2013 included the acquisition of San Diego Trust and sales of securities described above, and principal payments of $10.8 million.
Net loans held for investment totaled $1.0 billion at June 30, 2013, an increase of $113.6 million or 12.2% from March 31, 2013 and an increase of $73.2 million or 7.5% from December 31, 2012. The increase in loans from December 31, 2012 was primarily related to an increase in business loan balances of $20.2 million and real estate loan balances of $49.7 million. The increase in loans from the end of the first quarter was primarily related to an increase in loan balances of commercial non-owner occupied of $39.8 million, multi-family of $33.7 million, commercial owner occupied of $35.2 million and C&I of $5.6 million.
During the second quarter of 2013, commitments on our warehouse repurchase facility credits increased $3.4 million to total $317.3 million with our end of period utilization rates for these loans dropping from 44.3% at March 31, 2013 to 42.7% at June 30, 2013. Our average daily outstanding balance for these warehouse facilities decreased $19.6 million to $125.7 million when comparing the second quarter with the first quarter of 2013.
Loan activity during the second quarter of 2013 included loan originations of $123.8 million, loans acquired from San Diego Trust of $43.0 million and loan purchases of $23.2 million, partially offset by an increase in undisbursed loan funds of $39.7 million, loan repayments of $33.4 million and loan sales of $2.2 million. At June 30, 2013, our loan to deposit ratio was 80.6%, up from 79.7% at March 31, 2013, but down from 109.0% at December 31, 2012.
Deposits totaled $1.3 billion at June 30, 2013, up $128.5 million or 10.8% from March 31, 2013 and up $409.4 million or 45.3% from December 31, 2012. The increase over both prior periods was primarily related to our acquisition activity. In the first quarter of 2013, the First Associations acquisition added deposits of $356.8 million at a cost of 21 basis points at the closing of the acquisition, partially offset by $78.5 million of First Associations deposits held by the Bank prior to acquisition. In the second quarter of 2013, the San Diego Trust acquisition added deposits of $183.9 million at a cost of 23 basis points at closing of the acquisition. Excluding the deposit acquisition increases and $49.0 million of First Association's deposits held at December 31, 2012, we had an adjusted net decrease in deposits of $55.4 million in the second quarter of 2013 and $82.3 million in the first half of 2013. The net decrease in deposits for both the current quarter and the current year-to-date period primarily resulted from lowering our pricing on certificates of deposits, which resulted in a desired runoff upon maturity.
Within particular deposit categories during the second quarter of 2013, the Company had increases in interest-bearing transaction accounts of $112.1 million and noninterest-bearing accounts of $28.5 million, partially offset by a decrease in retail certificates of deposit of $13.0 million. These deposit changes have increased the mix of our transaction accounts to 74.3% at June 30, 2013, up from 60.1% at year-end 2012. The total end of period cost of deposits at both June 30, 2013 was 0.35%, down from 0.37% at March 31, 2013 and 0.51% at December 31, 2012.
The Company expects to see improvement in deposit costs as its higher cost certificates of deposit mature and either reprice lower or leave the Bank. At June 30, 2013, we had certificates of deposit maturing in the third quarter of $90.6 million at a weighted average rate of 0.89% and in the fourth quarter of $128.1 million at a weighted average rate of 0.85%.
At June 30, 2013, total borrowings amounted to $58.4 million, up $3.9 million or 7.1% from March 31, 2013, but down $67.4 million or 53.6% from December 31, 2012. The decrease since year-end 2012 was primarily related to the reduction of FHLB overnight advances previously taken out to fund loans, partially offset by $19.6 million in repurchase agreement debt. The increase from the prior quarter was wholly related to the repurchase agreement debt. Total borrowings at June 30, 2013 represented 3.7% of total assets and had an end of period weighted average cost of 2.13%, compared with 3.9% of total assets at a weighted average cost of 2.29% at March 31, 2013, and 10.7% of total assets at a weighted average cost of 1.19% at December 31, 2012.
At June 30, 2013, nonperforming assets totaled $3.2 million or 0.21% of total assets, down from $4.7 million or 0.33% of total assets at March 31, 2013. During the second quarter of 2013, nonperforming loans decreased $1.1 million to total $2.0 million and other real estate owned decreased $375,000 to total $1.2 million.
Our allowance for loan losses at June 30, 2013 was $8.0 million, unchanged from March 31, 2013. The allowance for loan losses as a percent of nonaccrual loans was 393.4% at June 30, 2013, up from 257.7% at March 31, 2013. At June 30, 2013, the ratio of allowance for loan losses to total gross loans was 0.75%, down from 0.85% at March 31, 2013.
At June 30, 2013, our ratio of tangible common equity to total assets was 9.36%, with a tangible book value of $8.62 per share and a book value per share of $10.15.
At June 30, 2013, the Bank exceeded all regulatory capital requirements with a ratio for tier 1 leverage capital of 10.97%, tier 1 risked-based capital of 13.34% and total risk-based capital of 14.07%. These capital ratios exceeded the "well capitalized" standards defined by the federal banking regulators of 5.00% for tier 1 leverage capital, 6.00% for tier 1 risked-based capital and 10.00%, for total risk-based capital. At March 31, 2013, the Company had a ratio for tier 1 leverage capital of 11.15%, tier 1 risked-based capital of 13.54% and total risk-based capital of 14.27%.
Conference Call and Webcast
The Company will host a conference call at 9:00 a.m. PT / 12:00 p.m. ET on July 23, 2013 to discuss its financial results. Analysts and investors may participate in the question-and-answer session. The conference call will be webcast live on the Investor Relations section of the Company's website www.ppbi.com and 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 (888) 549-7750, conference ID 4630165. Additionally a telephone replay will be made available through July 30, 2013 at (800) 406-7325, conference ID 4630165.
The Company owns all of the capital stock of the Bank. The Bank provides business and consumer banking products to customers through its 13 full-service depository branches in Southern California located in the cities of Encinitas, Huntington Beach, Irvine, Los Alamitos, Newport Beach, Palm Desert, Palm Springs, San Bernardino, San Diego and Seal Beach and one office in Dallas, Texas.
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. 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; oversupply of inventory and continued 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 2012 Annual Report on Form 10-K, as amended, 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.