Pacific Premier Bancorp, Inc. Announces Fourth Quarter 2015 Results (Unaudited)

IRVINE, Calif.--(BUSINESS WIRE)--Pacific Premier Bancorp, Inc. (NASDAQ: PPBI) (the “Company”), the holding company of Pacific Premier Bank (the “Bank”), reported net income for the fourth quarter of 2015 of $8.1 million, or $0.37 per diluted share. This compares with net income of $7.8 million, or $0.36 per diluted share, for the third quarter of 2015 and net income of $3.9 million, or $0.23 per diluted share, for the fourth quarter of 2014. Net income for the fourth quarter of 2015 includes $407,000 of merger related expenses associated with the acquisition of Security California Bancorp ("Security"). Excluding the non-tax deductible merger related and litigation expenses, adjusted net income for the fourth quarter of 2015 was $8.6 million, or $0.39 per diluted share.

For the three months ended December 31, 2015, the Company’s return on average assets was 1.18% and return on average tangible common equity was 14.09%, or 1.25% and 14.92% after adjusting for the merger related and litigation expenses, respectively. For the three months ended September 30, 2015, the return on average assets was 1.19% and the return on average tangible common equity was 14.25%. For the three months ended December 31, 2014, the return on average assets was 0.78% and the return on average tangible common equity was 9.56%.

For the twelve months ended December 31, 2015, the Company reported net income of $25.5 million or $1.19 per diluted share, which is a 24% increase over diluted earnings per share of $0.96 for 2014.

Steven R. Gardner, President and Chief Executive Officer of the Company, commented on the results, “We finished 2015 with a very strong quarter highlighted by record loan production, continued improvement in our deposit mix, and disciplined expense control. As a result, we were able to generate a 61% increase in earnings per share over the prior year quarter and a superior level of profitability.

“We originated $252 million of new loans in the fourth quarter, a 7% increase over the prior quarter and a 16% increase over the fourth quarter of last year. During the fourth quarter of 2015, our total loans outstanding increased at an annualized rate of 16%. The strong loan growth is being driven by solid loan demand throughout our core markets, our diversified business model that produces significant contributions from a variety of lending areas, and our consistent calling efforts to generate new business opportunities. The expansion of our customer base is also driving strong inflows of core deposits and an overall improvement in our funding mix.

“Given the strong growth in our core lending areas and the pending addition of Security California Bancorp’s commercial banking capabilities, we have decided to exit the warehouse lending business. In the past few years, increasing competition has eroded the returns in warehouse lending, and given the volatile nature of the business, our resources can be more profitability allocated to our core lines of business. We will wind down the warehouse lending business over the first quarter of 2016 and redeploy the funds into higher yielding loans and additional securities.

“We expect to deliver another strong year of earnings and balance sheet growth in 2016. We anticipate that our growth will continue to be driven by our C&I, franchise, construction, SBA and HOA banking groups. We are looking forward to adding the Security California Bancorp team and leveraging their commercial banking expertise to expand our roster of small- and middle-market business clients. We also remain well positioned to evaluate and execute on additional acquisition opportunities that can strengthen our commercial banking platform. Through strong organic growth and the continuation of our disciplined M&A strategy, we believe that we will continue to enhance the value of our franchise in the years ahead,” said Mr. Gardner.

FINANCIAL HIGHLIGHTS

INCOME STATEMENT HIGHLIGHTS

Net Interest Income and Net Interest Margin

Net interest income totaled $28.8 million in the fourth quarter of 2015, an increase of $2.1 million or 8.0% from the third quarter of 2015. The increase in net interest income reflected an increase in average interest-earning assets of $89.2 million, and an increase in the net interest margin of 19 basis points to 4.43%. The increase in average interest-earning assets during the fourth quarter of 2015 was primarily related to organic loan growth from new loan originations, with the average balance increasing $94 million. The increase in the net interest margin to 4.43% was the result of an increase in the yield on earning assets of 17 basis points. The fourth quarter was impacted by accelerated accretion of loan discounts from acquired loans due to higher levels of early loan payoffs, which contributed to the 18 basis point increase in loan yields. The total impact on interest income from accretion of discounts on acquired loans was $1.8 million during the fourth quarter of 2015, compared to $700,000 in the third quarter of 2015. Excluding the impact of earned discounts on acquired loans, the net interest margin for the fourth quarter and third quarter of 2015 were 4.14% and 4.13%, respectively.

Net interest income for the fourth quarter of 2015 increased $9.1 million or 45.9% compared to the fourth quarter of 2014. The increase was related to an increase in average interest-earning assets of $684.4 million, primarily related to our organic loan growth since the end of the fourth quarter of 2014 and our acquisition of Independence Bank during the first quarter of 2015. Our net interest margin increased 30 basis points from the prior year margin of 4.13%. Excluding the impact of earned discounts on acquired loans, the net interest margin increased by 10 basis points from the fourth quarter of 2014.

Provision for Loan Losses

A provision for loan losses was recorded for the current quarter in the amount of $1.7 million, as a result of growth in the loan portfolio from September 30, 2015 to December 31, 2015. Net loan charge-offs were $528,000 for the quarter.

Noninterest income

Noninterest income for the fourth quarter of 2015 was $4.2 million, a decrease of $161,000 or 3.7% from the third quarter of 2015. The decrease from the third quarter of 2015 was primarily the result of a one time legal settlement which occurred in the third quarter of 2015.

Compared to the fourth quarter of 2014, noninterest income for the fourth quarter of 2015 decreased $685,000 or 14.0%. The decrease was primarily related to a decrease in gain on the sale of investments of $1.0 million.

Noninterest Expense

Noninterest expense totaled $18.5 million for the fourth quarter of 2015, an increase of $1.2 million or 6.7%, compared with the third quarter of 2015. The increase was primarily related to an increase of $612,000 in compensation and benefits expense, and a $321,000 increase in legal, audit and professional expense. Approximately $400,000 of the increase in compensation and benefit expense was related to year end adjustments for incentive accruals, bonus payments, and severance. In addition, the fourth quarter included $407,000 in expense related to the pending merger with Security California Bancorp and $130,000 in litigation expense.

In comparison to the fourth quarter of 2014, noninterest expense grew by $2.1 million or 12.6%. The increase in expense was primarily related to the additional costs from the personnel and branches retained from the acquisition of Independence Bank ("IDPK"), combined with our continued investment in personnel to support our organic growth in loans and deposits. The fourth quarter of 2014 included approximately $860,000 in merger related expenses associated with the acquisition of IDPK and $650,000 in litigation related expenses.

Income Tax

For the fourth quarter of 2015, our effective tax rate was 37.1%, compared with 38% and 42.6% for the third quarter of 2015 and fourth quarter of 2014, respectively. The decrease in the effective tax rate from the fourth quarter of 2014 was the result of a lower level of non-deductible merger costs and greater low income tax credits.

BALANCE SHEET HIGHLIGHTS

Loans

Loans held for investment totaled $2.25 billion at December 31, 2015, an increase of $86.5 million or 4.0% from September 30, 2015, and an increase of $626 million or 38.4% from December 31, 2014. The increase from September 30, 2015 was due to growth in franchise loans, construction lending, commercial and industrial loans and commercial real estate. The $626 million increase in loans from December 31, 2014 included $333 million in loans acquired from Independence Bank. The total end of period weighted average interest rate on loans, excluding fees and discounts, at December 31, 2015 was 4.91%, compared to 4.90% at September 30, 2015 and 4.91% at December 31, 2014.

Loan activity during the fourth quarter of 2015 included organic loan originations of $252 million. Originations of loan commitments included construction loan originations of $82.4 million, commercial real estate loan originations of $64.3 million, franchise loan originations of $41.1 million, SBA loan originations of $22.1 million and commercial and industrial loan originations of $16.3 million. At December 31, 2015 our loan to deposit ratio was 103.1%, compared with 101.3% and 99.9% at September 30, 2015 and December 31, 2014, respectively.

Asset Quality and Allowance for Loan Losses

Nonperforming assets totaled $5.1 million or 0.18 % of total assets at December 31, 2015, compared to $4.8 million or 0.18 % of total assets at September 30, 2015. During the fourth quarter of 2015, nonperforming loans decreased $126,000 to total $4.0 million and other real estate owned increased $450,000 to total $1.2 million.

At December 31, 2015, the allowance for loan losses was $17.3 million, an increase of $1.2 million from September 30, 2015. At December 31, 2015, our allowance for loan losses as a percent of nonaccrual loans was 436.3%, an increase from 394.3% at September 30, 2015 and a decrease from 844.88% at December 31, 2014. The increase in the allowance for loan losses at December 31, 2015 was attributable to the growth in the loan portfolio, as well as higher rates of growth in certain segments of the loan portfolio. At December 31, 2015, the ratio of allowance for loan losses to total gross loans was 0.77%, an increase from 0.74% at September 30, 2015 and 0.75% at December 31, 2014. Including the loan fair market value discounts recorded in connection with our acquisitions, the allowance for loan losses to total gross loans ratio was 0.88% at December 31, 2015, compared with 0.93% at September 30, 2015 and 0.87% at December 31, 2014.

Investment Securities

Investment securities available for sale totaled $280 million at December 31, 2015, a decrease of $10.1 million from September 30, 2015, and an increase of $78.6 million from December 31, 2014. The decrease in the fourth quarter was primarily the result of principal paydowns of $8.2 million. During the fourth quarter of 2015 $8.4 million in CRA eligible mortgage-backed securities were purchased and recorded as investments held to maturity.

Deposits

At December 31, 2015, non-maturity deposits totaled $1.67 billion, an increase of $39.7 million, or 2.4% from September 30, 2015 and $485 million or 40.8% from December 31, 2014. At December 31, 2015, deposits totaled $2.20 billion, up $55.9 million or 2.6% from September 30, 2015 and $564 million or 34.6% from December 31, 2014. During the fourth quarter of 2015, deposit increases included $30.8 million of noninterest bearing deposits, $4.5 million in money market/savings deposits, and $33.8 million in wholesale/brokered certificates of deposit, offset by a decrease of $17.6 million in retail certificates of deposit. The increase in deposits since the end of the fourth quarter of 2014 was due to organic growth and the acquisition of Independence Bank, which added $336 million in deposits.

The weighted average cost of deposits for the three month period ending December 31, 2015 was 0.31%, a decrease from 0.32% for the third quarter of 2015 and a decrease from 0.36% for the fourth quarter of 2014.

Borrowings

At December 31, 2015, total borrowings amounted to $266 million, an increase of $4.6 million or 1.8% from September 30, 2015 and an increase of $79.5 million or 42.5% from December 31, 2014. At December 31, 2015, total borrowings represented 9.5% of total assets, compared to 9.6% and 9.2%, as of September 30, 2015 and December 31, 2014, respectively.

Capital Ratios

At December 31, 2015, our ratio of tangible common equity to total assets was 8.82%, with a tangible book value of 11.17 per share and a book value per share of $13.86.

At December 31, 2015, the Bank exceeded all regulatory capital requirements with a ratio for tier 1 leverage capital of 11.41%, common equity tier 1 risk-based capital of 12.35%, tier 1 risk-based capital of 12.35% and total risk-based capital of 13.07%. 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 December 31, 2015, the Company had a ratio for tier 1 leverage capital of 9.52%, common equity tier 1 risk-based capital of 9.91%, tier 1 risk-based capital of 10.28% and total risk-based capital of 13.43%.

Conference Call and Webcast

The Company will host a conference call at 9:00 a.m. PT / 12:00 p.m. ET on January 20, 2016 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 January 27, 2016 at (877) 344-7529, conference ID 10079232.

Security California Bancorp Merger Announcement

On October 1, 2015 Pacific Premier Bancorp, Inc. announced that it had entered into a definitive agreement to acquire Security California Bancorp (OTCQB: SCAF) (“Security”), the holding company of Security Bank of California, a Riverside, California based state-chartered bank (“Security Bank”) with $733.6 million in total assets, $470.4 million in gross loans and $653.7 million in total deposits at August 31, 2015 (unaudited). Regulatory approvals from the Board of Governors of the Federal Reserve System and the California Department of Business Oversight were obtained in December 2015, for the acquisition. Security Bank has six branches located in Riverside County, San Bernardino County and Orange County and a loan production office located in Los Angeles County. This transaction will strengthen Pacific Premier Bank’s competitive position as one of the premier commercial banks headquartered in Southern California.

About Pacific Premier Bancorp, Inc.

Pacific Premier Bancorp, Inc. is the holding company for Pacific Premier Bank, one of the largest community banks headquartered in Southern California. Pacific Premier Bank is a business bank primarily focused on serving small and middle market business in the counties of Los Angeles, Orange, Riverside, San Bernardino and San Diego, California. Pacific Premier Bank offers a diverse range of lending products including commercial, commercial real estate, construction, residential warehouse and SBA loans, as well as specialty banking products for homeowners associations and franchise lending nationwide. Pacific Premier Bank serves its customers through its 16 full-service depository branches in Southern California located in the cities of Corona, Encinitas, Huntington Beach, Irvine, Los Alamitos, Newport Beach, Palm Desert, Palm Springs, Riverside, San Bernardino, San Diego, Seal Beach and Tustin.

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. 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 2014 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.

Notice to Security California Bancorp and Pacific Premier Shareholders

This press release does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. In connection with the proposed acquisition of Security California Bancorp by Pacific Premier, Pacific Premier filed a registration statement on Form S-4 with the Securities and Exchange Commission (“SEC”), which was previously declared effective by the SEC. The registration statement contains a joint proxy statement/prospectus. The definitive joint proxy statement/prospectus was filed with the SEC on December 17, 2015 and was distributed to the shareholders of Security California Bancorp and the Pacific Premier on December 24, 2015 in connection with the respective special meetings of the Security California Bancorp and the Pacific Premier shareholders and their respective votes concerning the acquisition. SHAREHOLDERS OF SECURITY CALIFORNIA BANCORP AND PACIFIC PREMIER ARE ENCOURAGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED ACQUISITION. Investors and security holders will be able to obtain the documents, including the joint proxy statement/prospectus free of charge at the SEC’s website, www.sec.gov. In addition, documents filed with the SEC by Pacific Premier will be available free of charge by (1) accessing Pacific Premier’s website at www.ppbi.com under the “Investor Relations” link and then under the heading “SEC Filings,” (2) writing to Pacific Premier at 17901 Von Karman Avenue, Suite 1200, Irvine, CA 92614, Attention: Investor Relations or (3) writing Security California Bancorp at 3403 Tenth Street, Suite 830, Riverside, CA 92501, Attention: Corporate Secretary.

The Pacific Premier directors, executive officers and certain other members of management and employees of Pacific Premier may be deemed to be participants in the solicitation of proxies from the Pacific Premier shareholders in respect of the proposed acquisition. Pacific Premier has also engaged D.F. King & Co., Inc. as its proxy solicitation firm. Information about the Pacific Premier directors and executive officers is included in the proxy statement for its 2015 annual meeting, which was filed with the SEC on April 27, 2015. The Security California Bancorp directors, executive officers and certain other members of management and employees of Security California Bancorp may also be deemed to be participants in the solicitation of proxies in favor of the acquisition from the shareholders of Security California Bancorp. Security California Bancorp has also engaged Georgeson as its proxy solicitation firm. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the joint proxy statement/prospectus regarding the proposed acquisition that was previously mailed to the Pacific Premier and Security California Bancorp shareholders. Free copies of this document may be obtained as described in the preceding paragraph.

SELECTED FINANCIAL DATA

GAAP RECONCILIATIONS