Pacific Premier Bancorp, Inc. (PPBI) is a regional banking powerhouse that has weathered the storms of the past few years and emerged as a resilient institution poised for continued growth. With a strong foothold in the Western United States, Pacific Premier has demonstrated its ability to adapt to shifting market conditions, diversify its revenue streams, and maintain a robust capital position.

Business Overview and History

Incorporated in 1997 and headquartered in Irvine, California, Pacific Premier Bancorp is the holding company for Pacific Premier Bank, a state-chartered commercial bank. The bank was founded in 1983 as a state-chartered thrift and later converted to a federally-chartered thrift in 1991 before transitioning to a California-chartered commercial bank and becoming a member of the Federal Reserve System in 2007. Today, Pacific Premier Bank operates 58 full-service depository branches across the Western United States, primarily in California, Washington, Oregon, Arizona, and Nevada.

As a bank holding company, Pacific Premier Bancorp is subject to regulation and supervision by the Federal Reserve and the Federal Reserve Bank of San Francisco. The company and its subsidiaries are also subject to supervision and examination by the California Department of Financial Protection and Innovation. Pacific Premier Bank's deposits are insured by the FDIC through the Deposit Insurance Fund, and the Bank is also a member of the Federal Home Loan Bank of San Francisco.

The company's diverse banking products and services cater to small- and middle-market businesses, corporations, professionals, entrepreneurs, real estate investors, non-profit organizations, and consumers. These offerings include various deposit accounts, digital banking, treasury management services, online bill payment, commercial business loans, lines of credit, SBA loans, commercial real estate loans, agribusiness loans, quick-service restaurant franchise lending, home equity lines of credit, and construction loans.

In addition to its traditional banking operations, Pacific Premier has also developed specialty banking products and services for Homeowners Associations (HOAs) and HOA management companies, as well as experienced owner-operator franchisees in the quick-service restaurant (QSR) industry. The bank's Commerce Escrow division provides a variety of real-property and non-real property escrow services, including the facilitation of Section 1031 of the Internal Revenue Code. Pacific Premier Trust, the bank's custodial services division, offers clients the ability to hold alternative assets in qualified self-directed IRA accounts, including investments in private equity, real estate, notes, cash, and other non-exchange traded assets.

In 2020, Pacific Premier completed the acquisition of Opus Bank, which expanded the company's business footprint and product offerings. This acquisition came with its own set of challenges, as the company worked to integrate Opus Bank's operations and clients into the Pacific Premier platform. The COVID-19 pandemic also presented unique challenges, as Pacific Premier had to navigate the economic uncertainty and assist its clients through the crisis.

Financial Performance and Ratios

Pacific Premier Bancorp has demonstrated solid financial performance, with a focus on maintaining a strong capital position and prudent risk management. For the most recent quarter (Q4 2024), the company reported revenue of $195,457,000, net income of $33,893,000, operating cash flow of $40,560,000, and free cash flow of $39,085,000.

The company's financial ratios paint a picture of a well-capitalized and efficiently run institution. As of the most recent quarter, Pacific Premier Bancorp reported a tangible common equity (TCE) ratio of 11.92%, a common equity tier 1 (CET1) capital ratio of 17.05%, and a total risk-based capital ratio of 20.28%. These ratios not only exceed regulatory minimums but also place the company among the top performers in the KBW Regional Banking Index.

In terms of profitability, the company's return on average assets (ROAA) stood at 0.75% in the fourth quarter of 2024, while its return on average tangible common equity (ROATCE) was 7.2%. The bank's net interest margin (NIM) for the same period was 3.02%, reflecting its ability to navigate the interest rate environment and maintain a favorable funding mix.

Quarterly Performance and Highlights

During the fourth quarter of 2024, Pacific Premier Bancorp reported net income of $33.9 million, or $0.35 per diluted share. This performance was driven by a solid net interest income of $124.5 million and a favorable shift in the bank's funding mix, which helped reduce the average cost of deposits to 1.79%.

The company's loan portfolio remained relatively flat during the quarter, as increases in commercial and industrial (C&I) and single-family residential loans offset declines in commercial real estate (CRE), multifamily, and construction loan balances. However, the bank's new loan origination activity accelerated, with $316 million in new loan commitments, the highest level since the third quarter of 2022.

Pacific Premier's asset quality metrics remained strong, with non-performing loans decreasing to $28 million, or 0.23% of total loans, and total delinquencies falling to just 0.02% of the loan portfolio. The bank's allowance for credit losses (ACL) stood at $178.2 million, or 1.48% of total loans, providing a solid cushion against potential credit deterioration.

Liquidity

Pacific Premier Bancorp maintains a strong liquidity position, which is essential for managing its operations and meeting regulatory requirements. As of the latest reported period, the bank held $610.6 million in cash. Additionally, the Bank had secured borrowing capacity with the Federal Home Loan Bank (FHLB) allowing it to borrow up to $6.41 billion, of which $4.97 billion remained available for borrowing. This substantial borrowing capacity provides the bank with significant financial flexibility to meet its obligations and fund lending activities even during periods of market stress.

Loan Portfolio and Asset Quality

Pacific Premier Bancorp's loan portfolio is well-diversified across various commercial real estate, business, and consumer segments. As of September 30, 2024, the portfolio was segmented into four main categories:

1. Investor Loans Secured by Real Estate: Totaling $8.07 billion, or 67% of the total loan portfolio. This segment includes loans secured by various types of commercial real estate properties, with multifamily loans being the largest component at $5.39 billion (44.8% of total loans), followed by CRE non-owner-occupied loans at $2.20 billion (18.3% of total loans).

2. Business Loans Secured by Real Estate: Amounting to $2.35 billion, or 19.5% of the total loan portfolio. CRE owner-occupied loans were the largest component at $2.04 billion (16.9% of total loans).

3. Commercial Loans: Totaling $1.56 billion, or 13% of the total loan portfolio. Commercial and industrial (C&I) loans were the largest component at $1.32 billion (10.9% of total loans).

4. Retail Loans: Consisting of single-family residential mortgages and consumer loans, totaling $72.91 million, or 0.6% of the total loan portfolio.

The company's asset quality metrics remained stable, with nonperforming assets at 0.22% of total assets as of September 30, 2024, up from 0.13% as of December 31, 2023. The increase was primarily due to a single, diversified commercial banking relationship with CRE non-owner-occupied loans totaling $18 million, which were current as of September 30, 2024. The allowance for credit losses to loans held for investment ratio was 1.51% as of September 30, 2024, up from 1.45% as of December 31, 2023.

Navigating Challenges and Seizing Opportunities

Pacific Premier Bancorp has demonstrated its ability to navigate various challenges, including the interest rate environment, regulatory changes, and the ongoing economic landscape. The bank's prudent risk management practices, diversified business model, and focus on building deep customer relationships have been instrumental in its success.

As the banking industry continues to evolve, Pacific Premier is well-positioned to capitalize on emerging opportunities. The company's strong capital position, which includes a tangible common equity ratio of 11.92% and a total risk-based capital ratio of 20.28%, provides the flexibility to pursue strategic initiatives, such as targeted loan portfolio acquisitions, organic growth, and potential mergers and acquisitions.

Moreover, the bank's recent conversion from a California-chartered bank to a National Banking Association better aligns its West Coast business banking model with its complementary national lines of business, positioning it for continued growth and expansion.

Looking ahead, Pacific Premier Bancorp remains committed to its relationship-based approach, fostering deep connections with its customers and communities. The company's proven track record of navigating challenges, maintaining a robust capital position, and delivering solid financial performance positions it as a formidable player in the evolving banking landscape.

Future Outlook and Guidance

For the full year 2025, Pacific Premier Bancorp has provided the following guidance:

• Net interest income of $500 million to $525 million

• Noninterest income of $80 million to $85 million
• Noninterest expense of $405 million to $415 million

The company expects low to mid-single digit loan growth in 2025, planning to supplement organic loan growth with strategic loan purchases and participations. Pacific Premier anticipates two 125 basis point Federal Reserve rate cuts in 2025 (in March and September) and has stated they will take a "balanced approach" to funding loan growth while driving deposit pricing lower.

This guidance reflects the company's confidence in its ability to navigate the challenging interest rate environment and maintain profitability. The anticipated Fed rate cuts are expected to impact the company's net interest margin, but management's proactive approach to balance sheet management and focus on efficient operations should help mitigate these pressures.

Conclusion

Pacific Premier Bancorp has established itself as a regional banking powerhouse, weathering the storms of the past few years and emerging as a resilient institution poised for continued growth. With its strong foothold in the Western United States, diversified business model, and prudent risk management practices, the company is well-equipped to navigate the evolving banking landscape and capitalize on emerging opportunities.

The bank's robust loan portfolio, strong asset quality metrics, and solid liquidity position provide a stable foundation for future growth. As Pacific Premier Bancorp continues to execute on its strategic initiatives, including its focus on relationship banking and targeted expansion, investors can look forward to the company's ongoing contribution to the banking industry and the communities it serves.

While challenges remain, such as potential interest rate volatility and economic uncertainties, Pacific Premier's track record of adaptability and strong financial performance positions it well to overcome these obstacles and continue delivering value to its stakeholders in the years to come.