Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains information and statements that are considered “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections and statements of our beliefs concerning future events, business plans, objectives, expected operating results and the assumptions upon which those statements are based. Forward-looking statements include without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and are typically identified with words such as “may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” or words or phrases of similar meaning. We caution that the forward-looking statements are based largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors, which are, in many instances, beyond our control. Actual results, performance or achievements could differ materially from those contemplated, expressed, or implied by the forward-looking statements.
The following factors, among others, could cause our financial performance to differ materially from that expressed in such forward-looking statements:
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•
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The strength of the U.S. economy in general and the strength of the local economies in which we conduct operations;
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•
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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 (the “Federal Reserve”);
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•
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Inflation/deflation, interest rate, market and monetary fluctuations;
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•
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The effect of acquisitions we may make, such as our recent acquisition of Grandpoint, 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;
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•
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The timely development of competitive new products and services and the acceptance of these products and services by new and existing customers;
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•
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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;
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•
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Technological and social media changes;
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•
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Changes in the level of our nonperforming assets and charge-offs;
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•
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The effect of changes in accounting policies and practices, as may be adopted from time-to-time by bank regulatory agencies, the SEC, the Public Company Accounting Oversight Board, the FASB or other accounting standards setters;
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•
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Possible OTTI of securities held by us;
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•
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The impact of current governmental efforts to restructure the U.S. financial regulatory system;
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•
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Changes in consumer spending, borrowing and savings habits;
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•
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The effects of our lack of a diversified loan portfolio, including the risks of geographic and industry concentrations;
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•
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Ability to attract deposits and other sources of liquidity;
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•
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Changes in the financial performance and/or condition of our borrowers;
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•
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Changes in the competitive environment among financial and bank holding companies and other financial service providers;
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•
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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, which could impact business and economic conditions in the United States and abroad;
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•
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Unanticipated regulatory or judicial proceedings; and
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•
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Our ability to manage the risks involved in the foregoing.
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If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this Quarterly Report on Form 10-Q and other reports and registration statements filed by us with the SEC. Therefore, we caution you not to place undue reliance on our forward-looking information and statements. We will not update the forward-looking information and statements to reflect actual results or changes in the factors affecting the forward-looking information and statements. For information on the factors that could cause actual results to differ from the expectations stated in the forward-looking statements, see “Risk Factors” under Part I, Item 1A of our
2017
Annual Report.
Forward-looking information and statements should not be viewed as predictions, and should not be the primary basis upon which investors evaluate us. Any investor in our common stock should consider all risks and uncertainties disclosed in our filings with the SEC, all of which are accessible on the SEC’s website at http://www.sec.gov.
GENERAL
This discussion should be read in conjunction with our Management Discussion and Analysis of Financial Condition and Results of Operations included in our
2017
Annual Report, plus the unaudited consolidated financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. The results for the
three and nine
months ended
September 30, 2018
are not necessarily indicative of the results expected for the year ending
December 31, 2018
.
The Corporation is a California-based bank holding company incorporated in the state of Delaware and registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (“BHCA”). Our wholly owned subsidiary, Pacific Premier Bank, is a California state-chartered commercial bank. As a bank holding company, the Corporation is subject to regulation and supervision by the Federal Reserve. We are required to file with the Federal Reserve quarterly and annual reports and such additional information as the Federal Reserve may require pursuant to the BHCA. The Federal Reserve may conduct examinations of bank holding companies, such as the Corporation, and its subsidiaries. The Corporation is also a bank holding company within the meaning of the California Financial Code. As such, the Corporation and its subsidiaries are subject to examination by, and may be required to file reports with, the California Department of Business Oversight-Division of Financial Institutions (“DBO”).
A bank holding company, such as the Corporation, is required to serve as a source of financial strength to its subsidiary depository institutions and to commit resources to support such institutions in circumstances where it might not do so absent such a policy. The Federal Reserve, under the BHCA, has the authority to require a bank holding company to terminate any activity or to relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the Federal Reserve’s determination that such activity or control constitutes a serious risk to the financial soundness and stability of any bank subsidiary of the bank holding company.
As a California state-chartered commercial bank, which is a member of the Federal Reserve, the Bank is subject to supervision, periodic examination and regulation by the DBO and the Federal Reserve. The Bank’s deposits are insured by the FDIC through the Deposit Insurance Fund. In general, terms insurance coverage is up to $250,000 per depositor for all deposit accounts. As a result of this deposit insurance function, the FDIC also has certain supervisory authority and powers over the Bank. If, as a result of an examination of the Bank, the regulators should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of the Bank’s operations are unsatisfactory or that the Bank or our management is violating or has violated any law or regulation, various remedies are available to the regulators. Such remedies include the power to enjoin unsafe or unsound practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in capital, to restrict growth, to assess civil monetary penalties, to remove officers and directors and ultimately to request the FDIC to terminate the Bank’s deposit insurance. As a California-chartered commercial bank, the Bank is also subject to certain provisions of California law.
We provide banking services within our targeted markets in California to businesses, including the owners and employees of those businesses, professionals, real estate investors and non-profit organizations, as well as consumers in the communities we serve. Additionally, through our HOA Banking and Lending and Franchise Capital units we can provide customized cash management, electronic banking services and credit facilities to HOAs, HOA management companies and quick service restaurant ("QSR") franchise owners nationwide. Our corporate headquarters are located in Irvine, California. At
September 30, 2018
, the Bank operated 47 full-service depository branches located in California in the counties of Orange, Los Angeles, Riverside, San Bernardino, San Diego, San Luis Obispo and Santa Barbara, California as well as in the states of Arizona, Nevada and Washington.
Through our branches and our web site at www.ppbi.com, we offer a broad array of deposit products and services for both business and consumer customers, including checking, money market and savings accounts, cash management services, electronic banking and on-line bill payment. We also offer a variety of loan products, including commercial business loans, lines of credit, commercial real estate loans, SBA loans, residential home loans and home equity loans. The Bank funds its lending and investment activities with retail and commercial deposits obtained through its branches, advances from the FHLB, lines of credit and wholesale and brokered certificates of deposits.
Our principal source of income is the net spread between interest earned on loans and investments and the interest costs associated with deposits and borrowings used to finance the loan and investment portfolios. Additionally, the Bank generates fee income from loan and investment sales and various products and services offered to both depository and loan customers.
CRITICAL ACCOUNTING POLICIES
Management has established various accounting policies that govern the application of U.S. GAAP in the preparation of our financial statements. Our significant accounting policies are described in the Notes to the Consolidated Financial Statements in our
2017
Annual Report. There have been no significant changes to our Critical Accounting Policies as described in our
2017
Annual Report.
Certain accounting policies require management to make estimates and assumptions, which have a material impact on the carrying value of certain assets and liabilities; management considers these to be critical accounting policies. The estimates and assumptions management uses are based on historical experience and other factors, which management believes to be reasonable under the circumstances. Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at balance sheet dates and our results of operations for future reporting periods.
We consider the ALLL to be a critical accounting policy that requires judicious estimates and assumptions in the preparation of our financial statements that is particularly susceptible to significant change. For further information, see “Allowance for Loan Losses” discussed in Note 7 to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q and Note 5 to the Consolidated Financial Statements in our
2017
Annual Report.
GRANDPOINT ACQUISITION
Effective July 1, 2018, the Company acquired Grandpoint and its wholly-owned bank subsidiary, Grandpoint Bank, a California-chartered bank headquartered in Los Angeles, California, pursuant to the terms of a definitive agreement entered into by the Corporation and Grandpoint on February 9, 2018. As a result of the Grandpoint acquisition, the Bank acquired and recorded at the acquisition date assets with a fair value of approximately
$3.1 billion
, including:
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•
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$2.4 billion
of gross loans;
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•
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$312 million
in goodwill;
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•
|
$148 million
of cash and cash equivalents;
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•
|
$97.2 million
of other types of assets;
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•
|
$9.1 million
in fixed assets; and
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•
|
$71.9 million
of a core deposit intangible.
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Also as a result of the Grandpoint acquisition, the Company recorded $629 million of equity in connection with the Corporation’s stock issued to Grandpoint shareholders as part of the acquisition consideration and assumed at acquisition date liabilities with a fair value of approximately
$2.8 billion
, including:
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•
|
$2.5 billion
in deposit transaction accounts; and
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•
|
$24.9 million
other liabilities.
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The fair values of the assets acquired and liabilities assumed were determined based on the requirements of FASB ASC Topic 820:
Fair Value Measurements and Disclosures
. Such fair values are preliminary estimates and are subject to adjustment for up to one year after the merger date or when additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier.
The integration and system conversion of Grandpoint was completed in October 2018.
PLAZA ACQUISITION
Effective November 1, 2017, the Company acquired Plaza, and its wholly-owned bank subsidiary, Plaza Bank, a California-chartered bank headquartered in Irvine, California, pursuant to the terms of a definitive agreement entered into by the Corporation and Plaza on August 8, 2017. As a result of the Plaza acquisition, the Bank acquired and recorded at the acquisition date assets with a fair value of approximately
$1.3 billion
, including:
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•
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$1.1 billion
of gross loans;
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•
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$123 million
in goodwill;
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•
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$150 million
of cash and cash equivalents;
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•
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$18.9 million
of other types of assets;
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•
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$7.2 million
in fixed assets; and
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•
|
$10.8 million
of a core deposit intangible.
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Also as a result of the Plaza acquisition, the Company recorded $251 million of equity in connection with the Corporation’s stock issued to Plaza shareholders as part of the acquisition consideration and assumed at acquisition date liabilities with a fair value of approximately
$1.1 billion
, including:
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•
|
$1.1 billion
in deposit transaction accounts; and
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|
•
|
$8.5 million
other liabilities.
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The fair values of the assets acquired and liabilities assumed were determined based on the requirements of FASB ASC Topic 820:
Fair Value Measurements and Disclosures
. Such fair values are preliminary estimates and are subject to adjustment for up to one year after the merger date or when additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier.
The integration and system conversion of Plaza was completed in May 2018.
HEOP ACQUISITION
Effective April 1, 2017, the Company acquired HEOP, and its wholly-owned bank subsidiary, Heritage Oaks Bank, a California-chartered bank headquartered in Paso Robles, California, pursuant to the terms of a definitive agreement entered into by the Corporation and HEOP on December 12, 2016. As a result of the HEOP acquisition, the Bank acquired and recorded at the acquisition date assets with a fair value of approximately
$2.0 billion
, including:
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•
|
$1.4 billion
of gross loans;
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•
|
$443 million
in investment securities;
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•
|
$270 million
in goodwill;
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|
•
|
$78.7 million
of cash and cash equivalents;
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•
|
$55.2 million
of other types of assets;
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•
|
$34.9 million
in fixed assets; and
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•
|
$28.1 million
of a core deposit intangible.
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Also as a result of the HEOP acquisition, the Company recorded $465 million of equity in connection with the Corporation’s stock issued to HEOP shareholders as part of the acquisition consideration and assumed at acquisition date liabilities with a fair value of approximately
$1.8 billion
, including:
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|
•
|
$1.7 billion
in deposit accounts; and
|
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|
•
|
$147 million in other liabilities.
|
The fair values of the assets acquired and liabilities assumed were determined based on the requirements of FASB ASC Topic 820:
Fair Value Measurements and Disclosures
. Such fair values are preliminary estimates and are subject to adjustment for up to one year after the merger date or when additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier. During the quarter ended June 30, 2018, the Company finalized its fair values with this acquisition.
The integration and system conversion of HEOP was completed in July 2017.
NON-U.S. GAAP MEASURES
For periods presented below, return on average tangible common equity is a non-U.S. GAAP financial measure derived from U.S. GAAP-based amounts. We calculate these figures by excluding core deposit intangible ("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-U.S. GAAP financial measures are supplemental and are not a substitute for an analysis based on U.S. 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.
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Three Months Ended
|
|
Nine Months Ended
|
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|
September 30, 2018
|
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June 30, 2018
|
|
September 30, 2017
|
|
September 30, 2018
|
|
September 30, 2017
|
|
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|
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|
|
|
|
(dollars in thousands)
|
Net income
|
|
$
|
28,392
|
|
|
$
|
27,303
|
|
|
$
|
20,232
|
|
|
$
|
83,697
|
|
|
$
|
43,929
|
|
Plus CDI amortization expense
|
|
4,693
|
|
|
1,996
|
|
|
1,761
|
|
|
8,963
|
|
|
4,033
|
|
Less CDI amortization expense tax adjustment (1)
|
|
1,011
|
|
|
542
|
|
|
606
|
|
|
2,178
|
|
|
1,376
|
|
Net income for average tangible common equity
|
|
$
|
32,074
|
|
|
$
|
28,757
|
|
|
$
|
21,387
|
|
|
$
|
90,482
|
|
|
$
|
46,586
|
|
|
|
|
|
|
|
|
|
|
|
|
Average stockholders’ equity
|
|
$
|
1,908,398
|
|
|
$
|
1,279,932
|
|
|
$
|
976,081
|
|
|
$
|
1,483,711
|
|
|
$
|
799,760
|
|
Less average CDI
|
|
108,258
|
|
|
39,766
|
|
|
34,699
|
|
|
63,657
|
|
|
26,899
|
|
Less average goodwill
|
|
805,116
|
|
|
494,070
|
|
|
371,651
|
|
|
598,656
|
|
|
282,554
|
|
Average tangible common equity
|
|
$
|
995,024
|
|
|
$
|
746,096
|
|
|
$
|
569,731
|
|
|
$
|
821,398
|
|
|
$
|
490,307
|
|
Return on average tangible common equity (2)
|
|
12.89
|
%
|
|
15.42
|
%
|
|
15.02
|
%
|
|
14.69
|
%
|
|
12.67
|
%
|
______________________________
(1) CDI amortization expense adjusted by quarterly effective tax rate.
(2) Ratio is annualized.
RESULTS OF OPERATIONS
In the
third
quarter of
2018
, we reported net income of
$28.4 million
, or
$0.46
per diluted share. This compares with net income of
$27.3 million
, or
$0.58
per diluted share, for the
second
quarter of
2018
. The increase in net income in the third quarter compared to the second quarter was primarily driven by an increase in net interest income of
$31.5 million
and a decrease in income tax of
$2.4 million
. These increases were partially offset by an increase in noninterest expense of
$32.0 million
, including
$14.0 million
of merger-related expense, and provision for credit losses of
$220,000
, as well as a decrease in noninterest income of
$607,000
.
Net income of
$28.4 million
, or
$0.46
per diluted share, for the
third
quarter of
2018
compares to net income for the
third
quarter of
2017
of
$20.2 million
, or
$0.50
per diluted share. The increase in net income of
$8.2 million
during the third quarter of 2018 compared to the prior comparable quarter in 2017 was primarily due to the
$48.4 million
increase in net interest income resulting from average interest-earning asset growth of
$4.3 billion
and a decrease in income tax of
$2.8 million
when compared to the
third
quarter of
2017
. The increase in average interest-earning assets was primarily from the acquisition of Grandpoint in the third quarter of 2018 and Plaza in the fourth quarter of 2017, as well as organic loan growth since the end of the
third
quarter of 2017. These increases were partially offset by a
$42.5 million
increase in noninterest expense and a
$677,000
decrease in noninterest income. The increase in noninterest expense included increases in all major categories, including
$16.2 million
in compensation and benefits expense, and
$13.5 million
in merger-related expense. Prior period comparison was impacted by the acquisition of Grandpoint in the third quarter of 2018.
For the three months ended
September 30, 2018
, the Company’s return on average assets was
1.00%
and return on average tangible common equity was
12.89%
. For the three months ended
June 30, 2018
, the return on average assets was
1.35%
and the return on average tangible common equity was
15.42%
. For the three months ended
September 30, 2017
, the return on average assets was
1.26%
and the return on average tangible common equity was
15.02%
.
For the
nine
months ended
September 30, 2018
, the Company recorded net income of
$83.7 million
, or
$1.61
per diluted share. This compares with net income of
$43.9 million
or
$1.20
per diluted share for the
nine
months ended
September 30, 2017
. The increase in net income of
$39.8 million
was mostly due to the
$106 million
increase in net interest income resulting from earning asset growth, primarily from the acquisitions of Grandpoint and Plaza and organic loan growth. These increases were partially offset by growth in non-interest expense of
$63.9 million
, including increases in all major categories, including
$37.8 million
in compensation and benefits expenses. Prior period comparisons for the year-to-date results are impacted by the acquisitions of Grandpoint in the third quarter of 2018 and Plaza in the fourth quarter of 2017.
For the
nine
months ended
September 30, 2018
, the Company’s return on average assets was
1.21%
and return on average tangible common equity was
14.69%
, compared with a return on average assets of
1.04%
and a return on average tangible common equity of
12.67%
for the
nine
months ended
September 30, 2017
.
Net Interest Income
Our primary source of revenue is net interest income, which is the difference between the interest earned on loans, investment securities, and interest earning balances with financial institutions (“interest-earning assets”) and the interest paid on deposits and borrowings (“interest-bearing liabilities”). Net interest margin is net interest income expressed as a percentage of average interest earning assets. Net interest income is affected by changes in both interest rates and the volume of interest-earning assets and interest-bearing liabilities.
Net interest income totaled
$113 million
in the
third
quarter of
2018
, an increase of
$31.5 million
, or
39%
, from the
second
quarter of
2018
. The increase in net interest income reflected higher average interest-earning assets of
$2.8 billion
, primarily related to the acquisition of Grandpoint, which at acquisition added $2.4 billion of loans, and organic loan growth from new loan originations and commitments of $605 million.
Net interest margin for the
third
quarter was
4.38%
, compared with
4.41%
in the prior quarter. The decrease was primarily the result of the impact of lower loan yields with the acquisition of Grandpoint, which lowered the net interest margin 9 basis points, and lower loan-related fees. These decreases were partially offset by higher accretion income of $4.1 million in the third quarter of 2018 compared to $1.9 million in the second quarter of 2018, and the favorable impact of loan repricing as a result of the Federal Reserve Bank's interest rate hike in June. Our core net interest margin, which we calculate as net interest margin excluding the impact of accretion, certificates of deposit mark-to-market amortization, and one-time adjustments, decreased to 4.19%, compared to 4.29% in the prior quarter.
Net interest income for the
third
quarter of
2018
increased
$48.4 million
, or
75%
, compared to the
third
quarter of
2017
. The increase was primarily related to an increase in average interest-earning assets of
$4.3 billion
, which resulted primarily from our acquisitions of Grandpoint in the third quarter of 2018 and Plaza in the fourth quarter of 2017, as well as organic loan growth since the end of the
third
quarter of
2017
.
For the first
nine
months ended
2018
, net interest income increased
$106 million
, or
63%
, compared to the first
nine
months ended
2017
. The increase was related to an increase in average interest-earning assets of
$3.1 billion
, which resulted primarily from our acquisitions of Grandpoint in the third quarter of 2018 and Plaza in the fourth quarter of 2017, and organic loan growth since the end of the first
nine
months ended
2017
.
The following tables present for the periods indicated the average dollar amounts from selected balance sheet categories calculated from daily average balances and the total dollar amount, including adjustments to yields and costs, of:
|
|
•
|
Interest income earned from average interest-earning assets and the resultant yields; and
|
|
|
•
|
Interest expense incurred from average interest-bearing liabilities and resultant costs, expressed as rates.
|
The tables below also set forth our net interest income, net interest rate spread and net interest rate margin for the periods indicated. The net interest rate margin reflects the relative level of interest-earning assets to interest-bearing liabilities and equals our net interest rate spread divided by average interest-earning assets for the periods indicated.
|
|
|
|
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|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balance Sheet
|
|
Three Months Ended
|
|
September 30, 2018
|
|
June 30, 2018
|
|
September 30, 2017
|
|
Average
Balance
|
|
Interest
|
|
Average
Yield/Cost
|
|
Average
Balance
|
|
Interest
|
|
Average
Yield/Cost
|
|
Average
Balance
|
|
Interest
|
|
Average
Yield/Cost
|
Assets
|
(dollars in thousands)
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
339,064
|
|
|
$
|
694
|
|
|
0.81
|
%
|
|
$
|
146,279
|
|
|
$
|
277
|
|
|
0.76
|
%
|
|
$
|
167,745
|
|
|
$
|
265
|
|
|
0.63
|
%
|
Investment securities
|
1,198,362
|
|
|
8,911
|
|
|
2.97
|
|
|
980,334
|
|
|
6,797
|
|
|
2.77
|
|
|
765,537
|
|
|
4,981
|
|
|
2.60
|
|
Loans receivable, net
|
8,664,796
|
|
|
119,271
|
|
|
5.46
|
|
|
6,253,987
|
|
|
85,625
|
|
|
5.49
|
|
|
4,937,733
|
|
|
64,915
|
|
|
5.22
|
|
Total interest-earning assets
|
10,202,222
|
|
|
128,876
|
|
|
5.01
|
|
|
7,380,600
|
|
|
92,699
|
|
|
5.04
|
|
|
5,871,015
|
|
|
70,161
|
|
|
4.74
|
|
Noninterest-earning assets
|
1,185,882
|
|
|
|
|
|
|
726,922
|
|
|
|
|
|
|
573,373
|
|
|
|
|
|
Total assets
|
$
|
11,388,104
|
|
|
|
|
|
|
$
|
8,107,522
|
|
|
|
|
|
|
$
|
6,444,388
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking
|
$
|
532,246
|
|
|
$
|
480
|
|
|
0.36
|
|
|
$
|
349,721
|
|
|
$
|
117
|
|
|
0.13
|
|
|
$
|
318,412
|
|
|
$
|
103
|
|
|
0.13
|
|
Money market
|
3,143,556
|
|
|
6,391
|
|
|
0.81
|
|
|
2,185,310
|
|
|
3,943
|
|
|
0.72
|
|
|
1,802,834
|
|
|
1,767
|
|
|
0.39
|
|
Savings
|
264,453
|
|
|
97
|
|
|
0.15
|
|
|
219,035
|
|
|
83
|
|
|
0.15
|
|
|
211,404
|
|
|
68
|
|
|
0.13
|
|
Retail certificates of deposit
|
1,059,416
|
|
|
3,417
|
|
|
1.28
|
|
|
784,902
|
|
|
2,290
|
|
|
1.17
|
|
|
571,669
|
|
|
1,052
|
|
|
0.73
|
|
Wholesale/brokered certificates of deposit
|
316,524
|
|
|
1,557
|
|
|
1.95
|
|
|
349,585
|
|
|
1,323
|
|
|
1.52
|
|
|
243,001
|
|
|
567
|
|
|
0.93
|
|
Total interest-bearing deposits
|
5,316,195
|
|
|
11,942
|
|
|
0.89
|
|
|
3,888,553
|
|
|
7,756
|
|
|
0.80
|
|
|
3,147,320
|
|
|
3,557
|
|
|
0.45
|
|
FHLB advances and other borrowings
|
473,197
|
|
|
2,494
|
|
|
2.09
|
|
|
455,488
|
|
|
2,125
|
|
|
1.87
|
|
|
319,373
|
|
|
1,162
|
|
|
1.44
|
|
Subordinated debentures
|
110,203
|
|
|
1,727
|
|
|
6.27
|
|
|
105,218
|
|
|
1,647
|
|
|
6.26
|
|
|
79,833
|
|
|
1,151
|
|
|
5.77
|
|
Total borrowings
|
583,400
|
|
|
4,221
|
|
|
2.87
|
|
|
560,706
|
|
|
3,772
|
|
|
2.70
|
|
|
399,206
|
|
|
2,313
|
|
|
2.30
|
|
Total interest-bearing liabilities
|
5,899,595
|
|
|
16,163
|
|
|
1.09
|
|
|
4,449,259
|
|
|
11,528
|
|
|
1.04
|
|
|
3,546,526
|
|
|
5,870
|
|
|
0.66
|
|
Noninterest-bearing deposits
|
3,473,056
|
|
|
|
|
|
|
2,310,714
|
|
|
|
|
|
|
1,860,177
|
|
|
|
|
|
Other liabilities
|
107,055
|
|
|
|
|
|
|
67,617
|
|
|
|
|
|
|
61,604
|
|
|
|
|
|
Total liabilities
|
9,479,706
|
|
|
|
|
|
|
6,827,590
|
|
|
|
|
|
|
5,468,307
|
|
|
|
|
|
Stockholders’ equity
|
1,908,398
|
|
|
|
|
|
|
1,279,932
|
|
|
|
|
|
|
976,081
|
|
|
|
|
|
Total liabilities and equity
|
$
|
11,388,104
|
|
|
|
|
|
|
$
|
8,107,522
|
|
|
|
|
|
|
$
|
6,444,388
|
|
|
|
|
|
Net interest income
|
|
|
$
|
112,713
|
|
|
|
|
|
|
$
|
81,171
|
|
|
|
|
|
|
$
|
64,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
|
|
4.38
|
%
|
|
|
|
|
|
4.41
|
%
|
|
|
|
|
|
4.34
|
%
|
Cost of deposits
|
|
|
|
|
0.54
|
|
|
|
|
|
|
0.50
|
|
|
|
|
|
|
0.28
|
|
Ratio of interest-earning assets to interest-bearing liabilities
|
|
|
|
|
172.93
|
|
|
|
|
|
|
165.88
|
|
|
|
|
|
|
165.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balance Sheet
|
|
Nine Months Ended
|
|
September 30,
|
|
2018
|
|
2017
|
|
Average
Balance
|
|
Interest
|
|
Average
Yield/Cost
|
|
Average
Balance
|
|
Interest
|
|
Average
Yield/Cost
|
Assets
|
(dollars in thousands)
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
218,156
|
|
|
$
|
1,285
|
|
|
0.79
|
%
|
|
$
|
129,537
|
|
|
$
|
509
|
|
|
0.53
|
%
|
Investment securities
|
1,035,464
|
|
|
22,048
|
|
|
2.84
|
|
|
682,819
|
|
|
12,907
|
|
|
2.52
|
|
Loans receivable, net
|
7,061,139
|
|
|
289,069
|
|
|
5.47
|
|
|
4,362,259
|
|
|
170,905
|
|
|
5.24
|
|
Total interest-earning assets
|
8,314,759
|
|
|
312,402
|
|
|
5.02
|
|
|
5,174,615
|
|
|
184,321
|
|
|
4.76
|
|
Noninterest-earning assets
|
877,794
|
|
|
|
|
|
|
455,310
|
|
|
|
|
|
Total assets
|
$
|
9,192,553
|
|
|
|
|
|
|
$
|
5,629,925
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking
|
$
|
410,700
|
|
|
$
|
711
|
|
|
0.23
|
|
|
$
|
281,491
|
|
|
$
|
246
|
|
|
0.12
|
|
Money market
|
2,509,753
|
|
|
13,493
|
|
|
0.72
|
|
|
1,574,292
|
|
|
4,321
|
|
|
0.37
|
|
Savings
|
235,975
|
|
|
259
|
|
|
0.15
|
|
|
178,309
|
|
|
174
|
|
|
0.13
|
|
Retail certificates of deposit
|
853,803
|
|
|
7,096
|
|
|
1.11
|
|
|
504,806
|
|
|
2,648
|
|
|
0.70
|
|
Wholesale/brokered certificates of deposit
|
347,663
|
|
|
4,053
|
|
|
1.56
|
|
|
219,123
|
|
|
1,385
|
|
|
0.85
|
|
Total interest-bearing deposits
|
4,357,894
|
|
|
25,612
|
|
|
0.79
|
|
|
2,758,021
|
|
|
8,774
|
|
|
0.43
|
|
FHLB advances and other borrowings
|
478,814
|
|
|
6,642
|
|
|
1.85
|
|
|
323,426
|
|
|
2,940
|
|
|
1.22
|
|
Subordinated debentures
|
106,877
|
|
|
4,983
|
|
|
6.22
|
|
|
76,366
|
|
|
3,275
|
|
|
5.72
|
|
Total borrowings
|
585,691
|
|
|
11,625
|
|
|
2.65
|
|
|
399,792
|
|
|
6,215
|
|
|
2.08
|
|
Total interest-bearing liabilities
|
4,943,585
|
|
|
37,237
|
|
|
1.01
|
|
|
3,157,813
|
|
|
14,989
|
|
|
0.63
|
|
Noninterest-bearing deposits
|
2,686,654
|
|
|
|
|
|
|
1,626,047
|
|
|
|
|
|
Other liabilities
|
78,603
|
|
|
|
|
|
|
46,305
|
|
|
|
|
|
Total liabilities
|
7,708,842
|
|
|
|
|
|
|
4,830,165
|
|
|
|
|
|
Stockholders' equity
|
1,483,711
|
|
|
|
|
|
|
799,760
|
|
|
|
|
|
Total liabilities and equity
|
$
|
9,192,553
|
|
|
|
|
|
|
$
|
5,629,925
|
|
|
|
|
|
Net interest income
|
|
|
$
|
275,165
|
|
|
|
|
|
|
$
|
169,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
|
|
4.42
|
%
|
|
|
|
|
|
4.38
|
%
|
Cost of deposits
|
|
|
|
|
0.49
|
|
|
|
|
|
|
0.27
|
|
Ratio of interest-earning assets to interest-bearing liabilities
|
|
|
|
|
168.19
|
|
|
|
|
|
|
163.87
|
|
Changes in our net interest income are a function of changes in volumes, days in a period and rates of interest-earning assets and interest-bearing liabilities. The following table presents the impact the volume, days in a period and rate changes have had on our net interest income for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, we have provided information on changes to our net interest income with respect to:
|
|
•
|
Changes in volume (changes in volume multiplied by prior rate);
|
|
|
•
|
Changes in days in a period (changes in days in a period multiplied by daily interest);
|
|
|
•
|
Changes in interest rates (changes in interest rates multiplied by prior volume) (includes the recognition of deferred fees/costs and discounts/premiums; and
|
|
|
•
|
The net change or the combined impact of volume, days in a period and rate changes allocated proportionately to changes in volume, days in a period and changes in interest rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018
Compared to
Three Months Ended June 30, 2018
Increase (decrease) due to
|
|
Volume
|
|
Days
|
|
Rate
|
|
Net
|
|
(dollars in thousands)
|
Interest-earning assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
390
|
|
|
$
|
8
|
|
|
$
|
19
|
|
|
$
|
417
|
|
Investment securities
|
1,344
|
|
|
—
|
|
|
770
|
|
|
2,114
|
|
Loans receivable, net
|
32,818
|
|
|
1,296
|
|
|
(468
|
)
|
|
33,646
|
|
Total interest-earning assets
|
34,552
|
|
|
1,304
|
|
|
321
|
|
|
36,177
|
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
Interest checking
|
82
|
|
|
5
|
|
|
276
|
|
|
363
|
|
Money market
|
1,851
|
|
|
69
|
|
|
528
|
|
|
2,448
|
|
Savings
|
13
|
|
|
1
|
|
|
—
|
|
|
14
|
|
Retail certificates of deposit
|
859
|
|
|
37
|
|
|
231
|
|
|
1,127
|
|
Wholesale/brokered certificates of deposit
|
(109
|
)
|
|
17
|
|
|
326
|
|
|
234
|
|
FHLB advances and other borrowings
|
84
|
|
|
27
|
|
|
258
|
|
|
369
|
|
Subordinated debentures
|
75
|
|
|
—
|
|
|
5
|
|
|
80
|
|
Total interest-bearing liabilities
|
2,855
|
|
|
156
|
|
|
1,624
|
|
|
4,635
|
|
Change in net interest income
|
$
|
31,697
|
|
|
$
|
1,148
|
|
|
$
|
(1,303
|
)
|
|
$
|
31,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018
Compared to
Three Months Ended September 30, 2017
Increase (decrease) due to
|
|
Volume
|
|
Rate
|
|
Net
|
|
(dollars in thousands)
|
Interest-earning assets
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
335
|
|
|
$
|
94
|
|
|
$
|
429
|
|
Investment securities
|
3,143
|
|
|
787
|
|
|
3,930
|
|
Loans receivable, net
|
51,229
|
|
|
3,127
|
|
|
54,356
|
|
Total interest-earning assets
|
54,707
|
|
|
4,008
|
|
|
58,715
|
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
Interest checking
|
104
|
|
|
273
|
|
|
377
|
|
Money market
|
1,891
|
|
|
2,733
|
|
|
4,624
|
|
Savings
|
18
|
|
|
11
|
|
|
29
|
|
Retail certificates of deposit
|
1,255
|
|
|
1,110
|
|
|
2,365
|
|
Wholesale/brokered certificates of deposit
|
214
|
|
|
776
|
|
|
990
|
|
FHLB advances and other borrowings
|
689
|
|
|
643
|
|
|
1,332
|
|
Subordinated debentures
|
469
|
|
|
107
|
|
|
576
|
|
Total interest-bearing liabilities
|
4,640
|
|
|
5,653
|
|
|
10,293
|
|
Change in net interest income
|
$
|
50,067
|
|
|
$
|
(1,645
|
)
|
|
$
|
48,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018
Compared to
Nine Months Ended September 30, 2017
Increase (decrease) due to
|
|
Volume
|
|
Rate
|
|
Net
|
|
(dollars in thousands)
|
Interest-earning assets
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
451
|
|
|
$
|
325
|
|
|
$
|
776
|
|
Investment securities
|
7,335
|
|
|
1,806
|
|
|
9,141
|
|
Loans receivable, net
|
110,318
|
|
|
7,846
|
|
|
118,164
|
|
Total interest-earning assets
|
118,104
|
|
|
9,977
|
|
|
128,081
|
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
Interest checking
|
155
|
|
|
310
|
|
|
465
|
|
Money market
|
3,549
|
|
|
5,623
|
|
|
9,172
|
|
Savings
|
57
|
|
|
28
|
|
|
85
|
|
Retail certificates of deposit
|
2,406
|
|
|
2,042
|
|
|
4,448
|
|
Wholesale/brokered certificates of deposit
|
1,099
|
|
|
1,569
|
|
|
2,668
|
|
FHLB advances and other borrowings
|
1,783
|
|
|
1,919
|
|
|
3,702
|
|
Subordinated debentures
|
1,271
|
|
|
437
|
|
|
1,708
|
|
Total interest-bearing liabilities
|
10,320
|
|
|
11,928
|
|
|
22,248
|
|
Change in net interest income
|
$
|
107,784
|
|
|
$
|
(1,951
|
)
|
|
$
|
105,833
|
|
Provision for Credit Losses
A provision for credit losses of
$2.0 million
was recorded for the
third
quarter of
2018
, compared with a provision for credit losses of
$1.8 million
for the quarter ended
June 30, 2018
. The
third
quarter of
2018
provision for credit losses includes a $335,000 provision for unfunded commitments compared to $400,000 in the
second
quarter of
2018
. The increase in our provision for credit losses was primarily due to higher loan growth, partially offset by a lower loss rate. Net charge-offs were
$87,000
in the
third
quarter of
2018
compared to
$108,000
in the
second
quarter of
2018
.
The
$2.0 million
provision for credit losses during the
third
quarter of
2018
decreased by
$68,000
from the
third
quarter of
2017
. The
third
quarter of
2018
included $335,000 of provision for unfunded commitments. The
third
quarter of
2017
did not include a provision for unfunded commitments. Net loan charge-offs were
$87,000
for the
third
quarter of
2018
, compared with net loan recoveries of
$39,000
from the
third
quarter of
2017
.
For the first
nine
months of
2018
, we recorded a
$6.0 million
provision for credit losses, a decrease from
$6.2 million
recorded for the first
nine
months of
2017
. The first
nine
months ended
2018
included $743,000 of provision for unfunded commitments. The first
nine
months ended
2017
included included a $216,000 reduction of provision for unfunded commitments. Net loan charge-offs amounted to
$882,000
for the first
nine
months of
2018
, an increase from
$608,000
for the first
nine
months of
2017
.
For purchased credit impaired loans, charge-offs are recorded when there is a decrease in the estimated cash flows of the credit from original cash flow estimates. Purchased credit impaired loans were recorded at their estimated fair value, which incorporated our estimated expected cash flows until the ultimate resolution of these credits. To the extent actual or projected cash flows are less than originally estimated, additional provisions for loan losses or charge-offs will be recognized into earnings or against the allowance, if applicable. To the extent actual or projected cash flows are more than originally estimated, the increase in cash flows is prospectively recognized in loan interest income. Due to the accounting rules associated with our purchased credit impaired loans, each quarter we are required to re-estimate cash flows, which could cause volatility in our reported net interest margin and provision for loan losses. During the three months ended September 30, 2018, June 30, 2018 and September 30, 2017, no additional allowance was recorded associated with certain purchased credit impaired loans. During the nine months ended September 30, 2018, an additional allowance of $143,000 was recorded. No additional allowance was recorded in the nine months ended September 30, 2017. See “Allowance for Loan Losses” discussed below in this Quarterly Report on Form 10-Q.
Noninterest Income
Noninterest income for the
third
quarter of
2018
was
$7.5 million
, a decrease of
$607,000
, or
7.4%
, from the
second
quarter of
2018
. The decrease from the
second
quarter of
2018
was related to a
$1.8 million
decrease in net gain from the sales of loans, as well as a net loss on CRA related equity investments of $600,000, partially offset by an increase in net gains on sales of investment securities of
$733,000
and higher bank-owned life insurance ("BOLI") earnings of
$653,000
. The increase in BOLI income was primarily the result of a death benefit received in the third quarter of 2018 of approximately $400,000.
During the
third
quarter of
2018
, the Bank sold $29.9 million of SBA loans for a gain of $2.0 million, compared with $31.9 million of SBA loans for a net gain of $2.9 million in the
second
quarter of
2018
. Additionally, the Bank sold $20.4 million of commercial real estate loans during the second quarter of
2018
for a gain of $927,000 and did not sell any commercial real estate loans during the third quarter of 2018.
Noninterest income for the
third
quarter of
2018
decreased
$677,000
, or
8.2%
, compared to the
third
quarter of
2017
. The decrease from the third quarter of 2017 was primarily related to a
$1.4 million
decrease in net gain from sales of loans.
For the first
nine
months of
2018
, noninterest income totaled
$23.4 million
, an increase from
$21.7 million
for the first
nine
months of
2017
. The increase was primarily related to higher debit card interchange fee
income and service charges on deposit accounts and lower other service fee income, totaling $2.0 million, as well as an
$844,000
increase in earnings from BOLI. The increase in BOLI income was primarily the result of a death benefit received in the third quarter of 2018 of approximately $400,000 and, to a lesser extent, additional BOLI acquired with the Grandpoint and Plaza acquisitions. These increases were partially offset by lower net gain from sales of investment securities of
$1.6 million
.
Noninterest Expense
Noninterest expense totaled
$82.1 million
for the
third
quarter of
2018
, an increase of
$32.0 million
, or
64%
, compared with the
second
quarter of
2018
. The increase was driven primarily by merger-related expense of
$14.0 million
in the
third
quarter of
2018
compared with
$943,000
in the
second
quarter of
2018
. Excluding merger-related expense, noninterest expense increased $19.0 million to $68.1 million, primarily attributable to increases in compensation and benefits of
$8.6 million
, core deposit intangible ("CDI") amortization of
$2.7 million
, premises and occupancy of
$2.2 million
, data processing of
$1.3 million
, loan expense of
$545,000
, FDIC insurance premiums of
$479,000
and office, telecommunications and postage expense of
$423,000
, are as a result of the addition of operations, personnel and branches retained from the acquisition of Grandpoint.
Noninterest expense grew by
$42.5 million
, or
107%
, compared to the
third
quarter of
2017
. The increase was primarily related to the additional costs from operations, personnel and branches retained from the acquisitions of Grandpoint and Plaza, combined with our continued investment in personnel to support our organic growth in loans and deposits. The
third
quarter of
2017
included merger-related expense of
$503,000
.
Noninterest expense totaled
$182 million
for the first
nine
months of
2018
, an increase of
$63.9 million
, or
54%
, compared with the first
nine
months of
2017
. The increase was primarily driven by increases of
$37.8 million
in compensation and benefits expenses,
$6.8 million
in premises and occupancy expense,
$4.9 million
in CDI amortization and
$3.8 million
in data processing. Prior period comparisons for the year-to-date results are impacted by the acquisitions of Grandpoint in the third quarter of 2018 and Plaza in the fourth quarter of 2017.
The Company’s efficiency ratio was
53.2%
for the
third
quarter of
2018
, compared to
53.0%
for the
second
quarter of
2018
and
52.1%
for the
third
quarter of
2017
. The Company's efficiency ratio was
52.9%
for the first
nine
months of
2018
, compared to
52.3%
for the first
nine
months of
2017
.
Income Taxes
For the three months ended
September 30, 2018
,
June 30, 2018
and
September 30, 2017
, income tax expense was
$7.8 million
,
$10.2 million
and
$10.6 million
, respectively, and the effective income tax rate was
21.5%
,
27.2%
and
34.4%
, respectively. The change in the effective rate for the third quarter as compared to the second quarter of 2018 was favorably impacted by the combination of the impact from one-time adjustments associated with the finalization of the 2017 federal and state tax returns and additional re-measurement of deferred tax amounts that existed at December 31, 2017 due to the reduction in the federal income tax rate associated with the enactment of the Tax Cuts and Jobs Act (“Tax Act”). The combination of these adjustments totaled approximately $2.3 million for the three months ended September 30, 2018, of which approximately $1.7 million related to the re-measurement of deferred tax items. In addition to the one-time adjustments recorded in the third quarter of 2018, the change in the effective tax rate for the third quarter of 2018 as compared to the third quarter of 2017 can also be attributed to the reduction in the federal income tax rate from 35% to 21% due to the enactment of the Tax Act.
U.S. GAAP requires the Company to measure the effects of the Tax Act in the period of its enactment, which was the fourth quarter of 2017. As a result, the Company performed an initial assessment and reasonably estimated the effects of the Tax Act on its deferred tax amounts to be approximately $5.6 million, which was recorded as a charge to income tax expense in the fourth quarter of 2017. However, SEC Staff Accounting Bulletin 118 (“SAB 118”) allows the Company to continue to reassess and refine its initial estimate of the impact the Tax Act on its deferred tax amounts for a period not to exceed one year as new information concerning those deferred
tax amounts that existed at December 31, 2017 becomes available to the Company. As a result, during the nine months ended September 30, 2018, the Company recorded an income tax benefit of approximately $1.6 million, of which approximately $1.4 million was recorded during the three months ended September 30, 2018. The Company is still completing its analysis of the impact of the Tax Act and will record any adjustments to the provisional amount as a component of income tax expense during the measurement period provided for under SAB 118.
The total amount of unrecognized tax benefits was $2.9 million and $2.9 million as of September 30, 2018 and December 31, 2017, respectively, primarily comprised of unrecognized tax benefits from an acquisition during 2017. There was no amount of tax benefits that, if recognized, would favorably impact the effective tax rate at September 30, 2018 and December 31, 2017. As of September 30, 2018, the Company does not believe the unrecognized tax benefits will change within the next twelve months.
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The Company had accrued for $208,000 and $104,000 of the interest at September 30, 2018 and December 31, 2017, respectively. No amounts for penalties were accrued.
The Company and its subsidiaries are subject to U.S. federal income tax, as well as state income and franchise taxes in multiple state jurisdictions. The statute of limitations for the assessment of taxes related to the consolidated federal income tax returns is closed for all tax years up to and including 2014. The expiration of the statute of limitations for the assessment of taxes related to the various state income and franchise tax returns varies by state.
The Company accounts for income taxes by recognizing deferred tax assets and liabilities based upon temporary differences between the amounts for financial reporting purposes and tax basis of its assets and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. In assessing the realization of deferred tax assets, management evaluates both positive and negative evidence, including the existence of any cumulative losses in the current year and the prior two years, the amount of taxes paid in available carry-back years, the forecasts of future income, applicable tax planning strategies, and assessments of current and future economic and business conditions. This analysis is updated quarterly and adjusted as necessary. Based on the analysis, the Company has a valuation allowance of $140,000 against a capital loss carryover deferred tax asset as of September 30, 2018, as the Company believes it may not generate sufficient capital gain before the capital loss carryover expires.
FINANCIAL CONDITION
At
September 30, 2018
, assets totaled
$11.5 billion
, an increase of
$3.5 billion
, or
43%
, from
December 31, 2017
. The increase was primarily due to the acquisition of Grandpoint in the third quarter of 2018, which added $2.4 billion in gross loans, $396 million of investment securities and
$312 million
of goodwill.
Loans
Loans held for investment totaled
$8.8 billion
at
September 30, 2018
, an increase of
$2.6 billion
, or
41%
, from
December 31, 2017
. The increase from
December 31, 2017
was primarily the result of the acquisition of Grandpoint, which added $2.4 billion of loans. Since December 31, 2017, real estate loans increased
$1.8 billion
, business loans increased
$760 million
and consumer loans increased
$21.8 million
. Loans held for sale, which primarily represent the guaranteed portion of SBA loans, which the Bank originates for sale, increased
$29.5 million
from
December 31, 2017
. The total end-of-period weighted average interest rate on loans at
September 30, 2018
was
5.08%
, compared to
4.95%
at
December 31, 2017
.
The following table sets forth the composition of our loan portfolio in dollar amounts, as a percentage of the portfolio and gives the weighted average interest rate by loan category at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
|
Amount
|
|
Percent
of Total
|
|
Weighted
Average
Interest Rate
|
|
Amount
|
|
Percent
of Total
|
|
Weighted
Average
Interest Rate
|
|
(dollars in thousands)
|
Business loans
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
$
|
1,359,841
|
|
|
15.5
|
%
|
|
5.70
|
%
|
|
$
|
1,086,659
|
|
|
17.5
|
%
|
|
5.18
|
%
|
Franchise
|
735,366
|
|
|
8.4
|
|
|
5.35
|
|
|
660,414
|
|
|
10.7
|
|
|
5.23
|
|
Commercial owner occupied (1)
|
1,675,528
|
|
|
19.1
|
|
|
4.95
|
|
|
1,289,213
|
|
|
20.8
|
|
|
5.01
|
|
SBA
|
193,487
|
|
|
2.2
|
|
|
6.94
|
|
|
185,514
|
|
|
3.0
|
|
|
6.30
|
|
Agribusiness
|
133,241
|
|
|
1.5
|
|
|
5.23
|
|
|
116,066
|
|
|
1.9
|
|
|
4.62
|
|
Total business loans
|
4,097,463
|
|
|
46.7
|
|
|
5.37
|
|
|
3,337,866
|
|
|
53.9
|
|
|
5.16
|
|
Real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
Commercial non-owner occupied
|
1,931,165
|
|
|
22.0
|
|
|
4.66
|
|
|
1,243,115
|
|
|
20.0
|
|
|
4.60
|
|
Multi-family
|
1,554,692
|
|
|
17.7
|
|
|
4.28
|
|
|
794,384
|
|
|
12.8
|
|
|
4.29
|
|
One-to-four family (2)
|
376,617
|
|
|
4.3
|
|
|
4.95
|
|
|
270,894
|
|
|
4.4
|
|
|
4.63
|
|
Construction
|
504,708
|
|
|
5.8
|
|
|
6.54
|
|
|
282,811
|
|
|
4.6
|
|
|
6.13
|
|
Farmland
|
138,479
|
|
|
1.6
|
|
|
4.67
|
|
|
145,393
|
|
|
2.3
|
|
|
4.52
|
|
Land
|
49,992
|
|
|
0.6
|
|
|
5.56
|
|
|
31,233
|
|
|
0.5
|
|
|
5.72
|
|
Total real estate loans
|
4,555,653
|
|
|
52.0
|
|
|
4.77
|
|
|
2,767,830
|
|
|
44.6
|
|
|
4.68
|
|
Consumer loans
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans
|
114,736
|
|
|
1.3
|
|
|
6.96
|
|
|
92,931
|
|
|
1.5
|
|
|
5.63
|
|
Gross loans held for investment (3)
|
8,767,852
|
|
|
100.0
|
%
|
|
5.08
|
%
|
|
6,198,627
|
|
|
100.0
|
%
|
|
4.95
|
%
|
Deferred loan origination costs/(fees) and premiums/(discounts), net
|
(8,648
|
)
|
|
|
|
|
|
|
|
(2,403
|
)
|
|
|
|
|
|
|
Loans held for investment
|
8,759,204
|
|
|
|
|
|
|
6,196,224
|
|
|
|
|
|
Allowance for loan losses
|
(33,306
|
)
|
|
|
|
|
|
|
|
(28,936
|
)
|
|
|
|
|
|
|
Loans held for investment, net
|
$
|
8,725,898
|
|
|
|
|
|
|
|
|
$
|
6,167,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale, at lower of cost or fair value
|
$
|
52,880
|
|
|
|
|
|
|
|
|
$
|
23,426
|
|
|
|
|
|
|
|
______________________________
(1) Secured by real estate.
(2) Includes second trust deeds.
(3) Total gross loans held for investment for
September 30, 2018
and
December 31, 2017
are net of the unaccreted fair value net purchase discounts of
$71.7 million
and
$29.1 million
, respectively.
Delinquent Loans.
When a borrower fails to make required payments on a loan and does not cure the delinquency within 30 days, we normally record a notice of default and, after providing the required notices to the borrower, commence foreclosure proceedings. If the loan is not reinstated within the time permitted by law, we may sell the property at a foreclosure sale. At these foreclosure sales, we generally acquire title to the property. Loans delinquent 30 or more days as a percentage of loans held for investment were
0.09%
at
September 30, 2018
, compared to
0.16%
at
December 31, 2017
.
The following table sets forth delinquencies in the Company’s loan portfolio at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 - 59 Days
|
|
60 - 89 Days
|
|
90 Days or More (1)
|
|
Total
|
|
# of
Loans
|
|
Principal
Balance
of Loans
|
|
# of
Loans
|
|
Principal
Balance
of Loans
|
|
# of
Loans
|
|
Principal
Balance
of Loans
|
|
# of
Loans
|
|
Principal
Balance
of Loans
|
|
(dollars in thousands)
|
At September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
3
|
|
|
$
|
334
|
|
|
6
|
|
|
$
|
636
|
|
|
2
|
|
|
$
|
105
|
|
|
11
|
|
|
$
|
1,075
|
|
Franchise
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
209
|
|
|
1
|
|
|
209
|
|
Commercial owner occupied
|
4
|
|
|
793
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
211
|
|
|
7
|
|
|
1,004
|
|
SBA
|
1
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
2,629
|
|
|
5
|
|
|
2,633
|
|
Real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial non-owner occupied
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1,290
|
|
|
1
|
|
|
1,290
|
|
Multi-family
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
589
|
|
|
1
|
|
|
589
|
|
One-to-four family
|
2
|
|
|
836
|
|
|
2
|
|
|
76
|
|
|
1
|
|
|
11
|
|
|
5
|
|
|
923
|
|
Land
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
4
|
|
|
1
|
|
|
4
|
|
Consumer loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans
|
3
|
|
|
10
|
|
|
1
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
18
|
|
Total
|
13
|
|
|
$
|
1,977
|
|
|
9
|
|
|
$
|
720
|
|
|
14
|
|
|
$
|
5,048
|
|
|
36
|
|
|
$
|
7,745
|
|
Delinquent loans to loans held for investment
|
|
|
|
0.02
|
%
|
|
|
|
|
0.01
|
%
|
|
|
|
|
0.06
|
%
|
|
|
|
0.09
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
3
|
|
|
$
|
84
|
|
|
4
|
|
|
$
|
570
|
|
|
4
|
|
|
$
|
235
|
|
|
11
|
|
|
$
|
889
|
|
Commercial owner occupied
|
1
|
|
|
3,474
|
|
|
1
|
|
|
486
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
3,960
|
|
SBA
|
2
|
|
|
177
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
1,940
|
|
|
7
|
|
|
2,117
|
|
Real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
3
|
|
|
1,781
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
1,781
|
|
One-to-four family
|
1
|
|
|
354
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
815
|
|
|
5
|
|
|
1,169
|
|
Land
|
1
|
|
|
83
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
9
|
|
|
2
|
|
|
92
|
|
Consumer loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
2
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
40
|
|
|
4
|
|
|
51
|
|
Total
|
13
|
|
|
$
|
5,964
|
|
|
5
|
|
|
$
|
1,056
|
|
|
16
|
|
|
$
|
3,039
|
|
|
34
|
|
|
$
|
10,059
|
|
Delinquent loans to loans held for investment
|
|
|
0.10
|
%
|
|
|
|
0.02
|
%
|
|
|
|
0.05
|
%
|
|
|
|
0.16
|
%
|
______________________________
(1) All loans that are delinquent 90 days or more are on nonaccrual status and reported as part of nonperforming loans.
Allowance for Loan Losses
. The ALLL represents an estimate of probable incurred losses inherent in our loan portfolio and is based on our continual review of credit quality of the loan portfolio. The allowance contains a specific reserve component for loans that are determined to be impaired and a general reserve component for loans without credit impairment. The general reserve is determined by applying a systematically derived loss factor to individual segments of the loan portfolio. The adequacy and appropriateness of the ALLL and the individual loss factors are reviewed each quarter by management.
The loss factor for each segment of our loan portfolio is generally based on our actual historical loss rate experience supplemented by industry data where we lack loss historical experience. The loss factor is adjusted by qualitative adjustment factors to arrive at a final loss factor for each loan portfolio segment. For additional information regarding the qualitative adjustments, please see “Allowances for Loan Losses” as discussed in our
2017
Annual Report. The qualitative factors allow management to assess current trends within our loan portfolio and the economic environment to incorporate their effect when calculating the ALLL. The final loss factors are applied to pass graded loans within our loan portfolio. Higher factors are applied to loans graded below pass, including classified and criticized assets.
No assurance can be given that we will not, in any particular period, sustain loan losses that exceed the amount reserved, or that subsequent evaluation of our loan portfolio, in light of the prevailing factors, including economic conditions, which may adversely affect our market area or other circumstances, will not require significant increases in the loan loss allowance. In addition, regulatory agencies, as an integral part of their examination process, periodically review our ALLL and may require us to recognize additional provisions to increase the allowance or take charge-offs in anticipation of future losses.
At
September 30, 2018
, our ALLL was
$33.3 million
, an increase of
$4.4 million
from
December 31, 2017
. The increase in the allowance for loan losses at
September 30, 2018
was primarily due to increased organic loan growth in areas of the portfolio with higher attributable loss factors and to lesser extent higher net charge-offs of
$882,000
. At
September 30, 2018
, given the composition of our loan portfolio, as well as the unamortized fair value discount of loans acquired, the ALLL was considered adequate to cover probable incurred losses inherent in the loan portfolio. Should any of the factors considered by management in evaluating the appropriate level of the ALLL change, the Company’s estimate of probable incurred loan losses could also change, which could affect the level of future provisions for loan losses.
The following table sets forth the Company’s ALLL and its corresponding percentage of the loan category balance and the percent of loan balance to total gross loans in each of the loan categories listed for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
Balance at End of Period Applicable to
|
|
Amount
|
|
Allowance as a % of Category Total
|
|
% of Loans in Category to
Total Loans
|
|
Amount
|
|
Allowance as a % of Category Total
|
|
% of Loans in Category to
Total Loans
|
|
|
(dollars in thousands)
|
Business loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
10,384
|
|
|
0.76
|
%
|
|
15.5
|
%
|
|
$
|
9,721
|
|
|
0.89
|
%
|
|
17.5
|
%
|
Franchise
|
|
6,332
|
|
|
0.86
|
|
|
8.4
|
|
|
5,797
|
|
|
0.88
|
|
|
10.7
|
|
Commercial owner occupied
|
|
1,213
|
|
|
0.07
|
|
|
19.1
|
|
|
767
|
|
|
0.06
|
|
|
20.8
|
|
SBA
|
|
2,827
|
|
|
1.46
|
|
|
2.2
|
|
|
2,890
|
|
|
1.56
|
|
|
3.0
|
|
Agribusiness
|
|
3,565
|
|
|
2.68
|
|
|
1.5
|
|
|
1,291
|
|
|
1.11
|
|
|
1.9
|
|
Real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial non-owner occupied
|
|
1,483
|
|
|
0.08
|
|
|
22.0
|
|
|
1,266
|
|
|
0.10
|
|
|
20.0
|
|
Multi-family
|
|
623
|
|
|
0.04
|
|
|
17.7
|
|
|
607
|
|
|
0.08
|
|
|
12.8
|
|
One-to-four family
|
|
719
|
|
|
0.19
|
|
|
4.3
|
|
|
803
|
|
|
0.30
|
|
|
4.4
|
|
Construction
|
|
4,820
|
|
|
0.96
|
|
|
5.8
|
|
|
4,569
|
|
|
1.62
|
|
|
4.6
|
|
Farmland
|
|
375
|
|
|
0.27
|
|
|
1.6
|
|
|
137
|
|
|
0.09
|
|
|
2.3
|
|
Land
|
|
868
|
|
|
1.74
|
|
|
0.6
|
|
|
993
|
|
|
3.18
|
|
|
0.5
|
|
Consumer loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans
|
|
97
|
|
|
0.08
|
|
|
1.3
|
|
|
95
|
|
|
0.10
|
|
|
1.5
|
|
Total
|
|
$
|
33,306
|
|
|
0.38
|
%
|
|
100.0
|
%
|
|
$
|
28,936
|
|
|
0.47
|
%
|
|
100.0
|
%
|
At
September 30, 2018
, the ratio of ALLL to loans held for investment was
0.38%
, a decrease from
0.47%
at
December 31, 2017
. The decrease was primarily due to the addition of Grandpoint loans acquired on July 1, 2018 and recorded at fair value, for which no additional material reserve was required. Our remaining unamortized fair value discount on the loans acquired totaled
$71.7 million
at
September 30, 2018
, compared to
$29.1 million
at
December 31, 2017
.
The following table sets forth the activity within the Company’s ALLL in each of the loan categories listed for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
June 30,
|
|
September 30,
|
|
September 30,
|
|
2018
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(dollars in thousands)
|
Balance, beginning of period
|
$
|
31,747
|
|
|
$
|
30,502
|
|
|
$
|
25,055
|
|
|
$
|
28,936
|
|
|
$
|
21,296
|
|
Provision for loan losses
|
1,646
|
|
|
1,353
|
|
|
2,049
|
|
|
5,252
|
|
|
6,455
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
Business loans:
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
(100
|
)
|
|
(246
|
)
|
|
(32
|
)
|
|
(1,011
|
)
|
|
(894
|
)
|
SBA
|
(44
|
)
|
|
(27
|
)
|
|
—
|
|
|
(100
|
)
|
|
(8
|
)
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
Consumer loans
|
(85
|
)
|
|
—
|
|
|
—
|
|
|
(137
|
)
|
|
—
|
|
Total charge-offs
|
(229
|
)
|
|
(273
|
)
|
|
(32
|
)
|
|
(1,248
|
)
|
|
(902
|
)
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
Business loans:
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
120
|
|
|
138
|
|
|
15
|
|
|
283
|
|
|
70
|
|
Commercial owner occupied
|
8
|
|
|
16
|
|
|
12
|
|
|
32
|
|
|
94
|
|
SBA
|
8
|
|
|
9
|
|
|
42
|
|
|
43
|
|
|
125
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
—
|
|
|
1
|
|
|
2
|
|
|
1
|
|
|
4
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
Consumer loans
|
6
|
|
|
1
|
|
|
—
|
|
|
7
|
|
|
1
|
|
Total recoveries
|
142
|
|
|
165
|
|
|
71
|
|
|
366
|
|
|
294
|
|
Net loan (charge-offs) recoveries
|
(87
|
)
|
|
(108
|
)
|
|
39
|
|
|
(882
|
)
|
|
(608
|
)
|
Balance at end of period
|
$
|
33,306
|
|
|
$
|
31,747
|
|
|
$
|
27,143
|
|
|
$
|
33,306
|
|
|
$
|
27,143
|
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
Net charge-offs (recoveries) to average total loans, net
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
0.01
|
%
|
|
0.01
|
%
|
Allowance for loan losses to loans held for investment at end of period
|
0.38
|
%
|
|
0.51
|
%
|
|
0.54
|
%
|
|
0.38
|
%
|
|
0.54
|
%
|
Investment Securities
We primarily use our investment portfolio for liquidity purposes and to support our interest rate risk management strategies. Investments totaled
$1.1 billion
at
September 30, 2018
, an increase of
$296 million
from
December 31, 2017
. The increase in the
third
quarter of
2018
was primarily the result of $396 million of investment securities acquired from Grandpoint and $234 million in purchases, which was partially offset by $377 million in sales and $48.6 million in principal payments/amortization/redemptions.
The following tables set forth the amortized cost, unrealized gains and losses, and estimated fair value of our investment securities portfolio at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
|
Amortized
Cost
|
|
Unrealized
Gain
|
|
Unrealized
Loss
|
|
Estimated
Fair Value
|
|
|
(dollars in thousands)
|
Investment securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
|
$
|
59,659
|
|
|
$
|
13
|
|
|
$
|
(329
|
)
|
|
$
|
59,343
|
|
Agency
|
|
113,628
|
|
|
20
|
|
|
(877
|
)
|
|
112,771
|
|
Corporate
|
|
102,761
|
|
|
235
|
|
|
(1,402
|
)
|
|
101,594
|
|
Municipal bonds
|
|
234,910
|
|
|
584
|
|
|
(4,293
|
)
|
|
231,201
|
|
Collateralized mortgage obligation: residential
|
|
25,897
|
|
|
50
|
|
|
(741
|
)
|
|
25,206
|
|
Mortgage-backed securities: residential
|
|
541,660
|
|
|
33
|
|
|
(16,931
|
)
|
|
524,762
|
|
Total investment securities available-for-sale
|
|
1,078,515
|
|
|
935
|
|
|
(24,573
|
)
|
|
1,054,877
|
|
Investment securities held-to-maturity:
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: residential
|
|
45,287
|
|
|
22
|
|
|
(1,269
|
)
|
|
44,040
|
|
Other
|
|
1,098
|
|
|
—
|
|
|
—
|
|
|
1,098
|
|
Total securities held-to-maturity
|
|
46,385
|
|
|
22
|
|
|
(1,269
|
)
|
|
45,138
|
|
Total investment securities
|
|
$
|
1,124,900
|
|
|
$
|
957
|
|
|
$
|
(25,842
|
)
|
|
$
|
1,100,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
Amortized
Cost
|
|
Unrealized
Gain
|
|
Unrealized
Loss
|
|
Estimated
Fair Value
|
|
|
(dollars in thousands)
|
Investment securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
Agency
|
|
$
|
47,051
|
|
|
$
|
236
|
|
|
$
|
(78
|
)
|
|
$
|
47,209
|
|
Corporate
|
|
78,155
|
|
|
1,585
|
|
|
(194
|
)
|
|
79,546
|
|
Municipal bonds
|
|
228,929
|
|
|
3,942
|
|
|
(743
|
)
|
|
232,128
|
|
Collateralized mortgage obligation: residential
|
|
33,984
|
|
|
132
|
|
|
(335
|
)
|
|
33,781
|
|
Mortgage-backed securities: residential
|
|
398,664
|
|
|
266
|
|
|
(4,165
|
)
|
|
394,765
|
|
Total investment securities available-for-sale
|
|
786,783
|
|
|
6,161
|
|
|
(5,515
|
)
|
|
787,429
|
|
Investment securities held-to-maturity:
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: residential
|
|
17,153
|
|
|
—
|
|
|
(209
|
)
|
|
16,944
|
|
Other
|
|
1,138
|
|
|
—
|
|
|
—
|
|
|
1,138
|
|
Total investment securities held-to-maturity
|
|
18,291
|
|
|
—
|
|
|
(209
|
)
|
|
18,082
|
|
Total investment securities
|
|
$
|
805,074
|
|
|
$
|
6,161
|
|
|
$
|
(5,724
|
)
|
|
$
|
805,511
|
|
The following table sets forth the fair values and weighted average yields on our investment securities available-for-sale portfolio by contractual maturity at the date indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
|
One Year
or Less
|
|
More than One
to Five Years
|
|
More than Five Years
to Ten Years
|
|
More than
Ten Years
|
|
Total
|
|
|
Fair
Value
|
|
Weighted
Average
Yield
|
|
Fair
Value
|
|
Weighted
Average
Yield
|
|
Fair
Value
|
|
Weighted
Average
Yield
|
|
Fair
Value
|
|
Weighted
Average
Yield
|
|
Fair
Value
|
|
Weighted
Average
Yield
|
|
|
(dollars in thousands)
|
Investment securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
10,403
|
|
|
2.93
|
%
|
|
$
|
48,940
|
|
|
2.92
|
%
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
59,343
|
|
|
2.93
|
%
|
Agency
|
|
10,977
|
|
|
0.23
|
|
|
12,125
|
|
|
3.05
|
|
|
68,379
|
|
|
3.02
|
|
|
21,290
|
|
|
2.65
|
|
|
112,771
|
|
|
2.68
|
|
Corporate
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
101,594
|
|
|
4.58
|
|
|
—
|
|
|
—
|
|
|
101,594
|
|
|
4.58
|
|
Municipal bonds
|
|
3,013
|
|
|
2.07
|
|
|
31,334
|
|
|
2.01
|
|
|
69,156
|
|
|
2.07
|
|
|
127,698
|
|
|
2.66
|
|
|
231,201
|
|
|
2.39
|
|
Collateralized mortgage obligation
|
|
—
|
|
|
—
|
|
|
|
|
|
—
|
|
|
871
|
|
|
2.51
|
|
|
24,335
|
|
|
2.51
|
|
|
25,206
|
|
|
2.51
|
|
Mortgage-backed securities
|
|
—
|
|
|
—
|
|
|
1,727
|
|
|
0.98
|
|
|
137,770
|
|
|
2.55
|
|
|
385,265
|
|
|
2.42
|
|
|
524,762
|
|
|
2.45
|
|
Total securities available-for-sale
|
|
13,990
|
|
|
0.63
|
|
|
55,589
|
|
|
2.38
|
|
|
426,710
|
|
|
3.07
|
|
|
558,588
|
|
|
2.49
|
|
|
1,054,877
|
|
|
2.69
|
|
Investment securities held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
932
|
|
|
3.13
|
|
|
43,108
|
|
|
3.47
|
|
|
44,040
|
|
|
3.46
|
|
Other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,098
|
|
|
0.93
|
|
|
1,098
|
|
|
0.93
|
|
Total securities held-to-maturity
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
932
|
|
|
3.13
|
|
|
44,206
|
|
|
3.40
|
|
|
45,138
|
|
|
3.40
|
|
Total securities
|
|
$
|
13,990
|
|
|
0.63
|
%
|
|
$
|
55,589
|
|
|
2.38
|
%
|
|
$
|
427,642
|
|
|
3.07
|
%
|
|
$
|
602,794
|
|
|
2.55
|
%
|
|
$
|
1,100,015
|
|
|
2.72
|
%
|
Each quarter, we review individual securities classified as available-for-sale to determine whether a decline in fair value below the amortized cost basis is other-than-temporary. If it is probable that we will be unable to collect all amounts due according to the contractual terms of the debt security, an OTTI write-down is recorded against the security and a loss recognized.
In determining if a security has an OTTI loss, we consider the 1) length of time and the extent to which the fair value has been less then amortized cost; 2) financial condition and near term prospects of the issuer; 3) impact of changes in market interest rates; and 4) intent and ability of the Company to retain its investment for a period of time sufficient to allow any anticipated recovery in fair value and whether it is not more likely than not the Company would be required to sell the security. We estimate OTTI losses on a security primarily through:
|
|
•
|
An evaluation of the present value of estimated cash flows from the security using the current yield to accrete beneficial interest and including assumptions in the prepayment rate, default rate, delinquencies, loss severity and percentage of nonperforming assets;
|
|
|
•
|
An evaluation of the estimated payback period to recover principal;
|
|
|
•
|
An analysis of the credit support available in the underlying security to absorb losses; and
|
|
|
•
|
A review of the financial condition and near term prospects of the issuer.
|
We recorded no impairment credit losses on available-for-sale securities in our consolidated statements of income for the three months ended
September 30, 2018
,
December 31, 2017
and
September 30, 2017
or the nine months ended September 30, 2018 and 2017.
Nonperforming Assets
Nonperforming assets consist of loans on which we have ceased accruing interest (nonaccrual loans), restructured loans, OREO and other assets owned. It is our general policy to account for a loan as nonaccrual when the loan becomes 90 days delinquent or when collection of interest appears doubtful.
Nonperforming assets totaled
$7.8 million
, or
0.07%
of total assets at
September 30, 2018
, an increase from
$3.6 million
, or
0.04%
of total assets at
December 31, 2017
. At
September 30, 2018
, nonperforming loans totaled
$7.3 million
, or
0.08%
of loans held for investment, an increase from
$3.3 million
, or
0.05%
of loans held for investment at
December 31, 2017
. Other real estate owned increased slightly to
$356,000
at
September 30, 2018
compared to
$326,000
at
December 31, 2017
and other assets owned totaled
$129,000
at
September 30, 2018
.
The following table sets forth our composition of nonperforming assets at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
|
|
(dollars in thousands)
|
Nonperforming assets
|
|
|
|
|
Business loans:
|
|
|
|
|
Commercial and industrial
|
|
$
|
1,027
|
|
|
$
|
1,160
|
|
Franchise
|
|
209
|
|
|
—
|
|
Commercial owner occupied
|
|
—
|
|
|
97
|
|
SBA
|
|
2,748
|
|
|
1,201
|
|
Real estate:
|
|
|
|
|
|
|
Commercial non-owner occupied
|
|
1,290
|
|
|
—
|
|
Multi-family
|
|
589
|
|
|
—
|
|
One-to-four family
|
|
1,388
|
|
|
817
|
|
Land
|
|
4
|
|
|
9
|
|
Consumer loans:
|
|
|
|
|
Consumer loans
|
|
13
|
|
|
—
|
|
Total nonperforming loans
|
|
7,268
|
|
|
3,284
|
|
Other real estate owned
|
|
356
|
|
|
326
|
|
Other assets owned
|
|
129
|
|
|
—
|
|
Total nonperforming assets
|
|
$
|
7,753
|
|
|
$
|
3,610
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
33,306
|
|
|
$
|
28,936
|
|
Allowance for loan losses as a percent of total nonperforming loans
|
|
458
|
%
|
|
881
|
%
|
Nonperforming loans as a percent of loans held for investment
|
|
0.08
|
|
|
0.05
|
|
Nonperforming assets as a percent of total assets
|
|
0.07
|
|
|
0.04
|
|
Liabilities and Stockholders’ Equity
Total liabilities were
$9.6 billion
at
September 30, 2018
, compared to
$6.8 billion
at
December 31, 2017
. The increase of
$2.8 billion
, or
41.4%
, from
December 31, 2017
was primarily related to a
$2.4 billion
, or
40%
, increase in deposits from
December 31, 2017
and a
$331 million
, or
52%
, increase in total borrowings from
December 31, 2017
.
Deposits.
At
September 30, 2018
, deposits totaled
$8.5 billion
, an increase of
$2.4 billion
, or
40%
, from
December 31, 2017
. Non-maturity deposits totaled
$7.2 billion
, or
85%
of total deposits, an increase of
$2.2 billion
, or
44%
, from
December 31, 2017
, highlighted by increases of
$1.2 billion
in noninterest-bearing checking,
$853
million
increase in money market/savings deposits,
$331 million
in retail certificates of deposit,
$130 million
in interest checking, partially offset by
$105 million
decrease in wholesale/brokered certificates of deposit. The increase in deposits during 2018 was primarily due to the acquisition of Grandpoint in the third quarter of 2018, which contributed $2.5 billion of deposits at the time of acquisition, before purchase accounting adjustments.
The total end of period weighted average rate of deposits at
September 30, 2018
was
0.54%
, an increase from
0.33%
December 31, 2017
.
Our ratio of loans held for investment to deposits was
103.0%
and
101.8%
at
September 30, 2018
and
December 31, 2017
, respectively.
The following table sets forth the distribution of the Company’s deposit accounts at the dates indicated and the weighted average interest rates as of the last day of each period for each category of deposits presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
|
Balance
|
|
% of Total Deposits
|
|
Weighted Average Rate
|
|
Balance
|
|
% of Total Deposits
|
|
Weighted Average Rate
|
|
(dollars in thousands)
|
Noninterest-bearing checking
|
$
|
3,434,674
|
|
|
40.4
|
%
|
|
—
|
%
|
|
$
|
2,226,876
|
|
|
36.7
|
%
|
|
—
|
%
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking
|
495,483
|
|
|
5.8
|
|
|
0.36
|
|
|
365,193
|
|
|
6.0
|
|
|
0.13
|
|
Money market
|
2,998,877
|
|
|
35.3
|
|
|
0.75
|
|
|
2,181,571
|
|
|
35.8
|
|
|
0.48
|
|
Savings
|
262,667
|
|
|
3.1
|
|
|
0.14
|
|
|
227,436
|
|
|
3.7
|
|
|
0.13
|
|
Time deposit accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 1.00%
|
179,326
|
|
|
2.1
|
|
|
0.46
|
|
|
292,553
|
|
|
4.8
|
|
|
0.57
|
|
1.00 - 1.99
|
620,837
|
|
|
7.3
|
|
|
1.56
|
|
|
783,235
|
|
|
12.9
|
|
|
1.29
|
|
2.00 - 2.99
|
510,131
|
|
|
6.0
|
|
|
2.15
|
|
|
8,793
|
|
|
0.1
|
|
|
2.12
|
|
3.00 - 3.99
|
16
|
|
|
—
|
|
|
3.73
|
|
|
60
|
|
|
—
|
|
|
3.87
|
|
4.00 - 4.99
|
2
|
|
|
—
|
|
|
4.93
|
|
|
2
|
|
|
—
|
|
|
4.93
|
|
5.00 and greater
|
132
|
|
|
—
|
|
|
5.07
|
|
|
167
|
|
|
—
|
|
|
5.07
|
|
Total time deposit accounts
|
1,310,444
|
|
|
15.4
|
|
|
1.64
|
|
|
1,084,810
|
|
|
17.8
|
|
|
1.10
|
|
Total interest-bearing deposits
|
5,067,471
|
|
|
59.6
|
|
|
0.91
|
|
|
3,859,010
|
|
|
63.4
|
|
|
0.60
|
|
Total deposits
|
$
|
8,502,145
|
|
|
100.0
|
%
|
|
0.54
|
%
|
|
$
|
6,085,886
|
|
|
100.0
|
%
|
|
0.33
|
%
|
Borrowings.
At
September 30, 2018
, total borrowings amounted to
$972 million
, an increase of
$331 million
, or
52%
, from
December 31, 2017
. At
September 30, 2018
, total borrowings represented
8.5%
of total assets and had an end of period weighted average rate of
2.7%
, compared with
8.0%
of total assets at a weighted average rate of
2.2%
at
December 31, 2017
.
At
September 30, 2018
, total borrowings were comprised of the following:
|
|
•
|
FHLB advances of
$860 million
at
2.32%
;
|
|
|
•
|
Subordinated notes of $60 million at 5.75% due September 3, 2024. For additional information about the subordinated notes, see Note 8 to the Consolidated Financial Statements in this report;
|
|
|
•
|
HOA reverse repurchase agreements totaling
$2.3 million
at a weighted average rate of .01% and secured by government sponsored entity mortgage-backed securities with a par value of
$21.7 million
and a fair value of
$22.2 million
;
|
|
|
•
|
Subordinated debentures used to fund the issuance of trust preferred securities in 2004 of $10.3 million at
5.09%
due April 7, 2034. For additional information about the subordinated debentures and trust preferred securities, see Note 8 to the Consolidated Financial Statements in this report;
|
|
|
•
|
$5.2 million of floating rate junior subordinated debt securities to Heritage Oaks Capital Trust II. Interest is payable quarterly at three-month LIBOR plus
1.72%
per annum, for an effective rate of
4.06%
per annum as of
September 30, 2018
. At
September 30, 2018
, the carrying value of these debentures was
$4.0 million
, which reflects purchase accounting fair value adjustments of
$1.3 million
;
|
|
|
•
|
$3.1 million of floating rate junior subordinated debt associated with Mission Community Capital Trust I. The carrying value of Mission Community Capital Trust I was
$2.8 million
, which reflects purchase accounting fair value adjustments of
$311,000
. Interest is payable quarterly at three-month LIBOR plus
2.95%
per annum, for an effective rate of
5.29%
per annum as of
September 30, 2018
;
|
|
|
•
|
$5.2 million of floating rate junior subordinated debt associated Santa Lucia Bancorp (CA) Capital Trust. The carrying value of Santa Lucia Bancorp (CA) Capital Trust was
$3.8 million
, which reflects purchase accounting fair value adjustments
$1.3 million
. Interest is payable quarterly at three-month LIBOR plus
1.48%
per annum, for an effective rate of
3.82%
per annum as of
September 30, 2018
;
|
|
|
•
|
$25 million of subordinated notes at a fixed rate of 7.25% payable in arrears on a quarterly basis inherited as part of the Plaza 2017 acquisition; and
|
|
|
•
|
$5.2 million of floating rate junior subordinated debt securities associated with First Commerce Bancorp Statutory Trust I. Interest is payable quarterly at three-month LIBOR plus
2.95%
per annum, for an effective rate of
5.28%
per annum as of
September 30, 2018
. At
September 30, 2018
, the carrying value of these debentures was
$4.9 million
, which reflects purchase accounting fair value adjustments of
228,000
.
|
The following table sets forth certain information regarding the Company’s borrowed funds at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
|
Balance
|
|
Weighted
Average Rate
|
|
Balance
|
|
Weighted
Average Rate
|
|
(dollars in thousands)
|
FHLB advances
|
$
|
859,622
|
|
|
2.32
|
%
|
|
$
|
490,148
|
|
|
1.49
|
%
|
Reverse repurchase agreements
|
2,350
|
|
|
0.01
|
|
|
46,139
|
|
|
2.02
|
|
Subordinated debentures
|
110,244
|
|
|
5.39
|
|
|
105,123
|
|
|
5.60
|
|
Total borrowings
|
$
|
972,216
|
|
|
2.66
|
%
|
|
$
|
641,410
|
|
|
2.21
|
%
|
|
|
|
|
|
|
|
|
Weighted average cost of
borrowings during the quarter
|
2.87
|
%
|
|
|
|
|
2.35
|
%
|
|
|
|
Borrowings as a percent of total assets
|
8.5
|
|
|
|
|
|
8.0
|
|
|
|
|
Stockholders’ Equity.
Total stockholders’ equity was
$1.9 billion
as of
September 30, 2018
, an increase from
$1.2 billion
at
December 31, 2017
. The current year increase of
$674 million
in stockholders’ equity was primarily related to net income for the first
nine
months of
2018
of
$83.7 million
and an increase of
$601 million
, primarily as a result of the issuance of common stock in the Grandpoint acquisition, which was offset by a decrease in accumulated other comprehensive income of
$17.1 million
.
Our book value per share increased to
$30.68
at
September 30, 2018
from
$26.86
at
December 31, 2017
. At
September 30, 2018
, the Company’s tangible common equity to tangible assets ratio was
9.47%
, an increase from
9.42%
at
December 31, 2017
.
Tangible common equity to tangible assets (the “tangible common equity ratio”) is a non-U.S. GAAP financial measure derived from U.S. GAAP-based amounts. We calculate the tangible common equity ratio by deducting the balance of intangible assets from common stockholders’ equity and dividing by period end tangible assets, which also deducts intangible assets. We believe that this information is important to shareholders as tangible equity is a measure that is consistent with the calculation of capital for bank regulatory purposes, which excludes intangible assets from the calculation of risk-based ratios.
PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARIES
U.S. GAAP Reconciliation
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
2018
|
|
2017
|
|
(dollars in thousands)
|
Total stockholders’ equity
|
$
|
1,916,377
|
|
|
$
|
1,241,996
|
|
Less: Intangible assets
|
913,079
|
|
|
536,343
|
|
Tangible common equity
|
$
|
1,003,298
|
|
|
$
|
705,653
|
|
|
|
|
|
Total assets
|
$
|
11,503,881
|
|
|
$
|
8,024,501
|
|
Less: Intangible assets
|
913,079
|
|
|
536,343
|
|
Tangible assets
|
$
|
10,590,802
|
|
|
$
|
7,488,158
|
|
|
|
|
|
Tangible common equity ratio
|
9.47
|
%
|
|
9.42
|
%
|
CAPITAL RESOURCES AND LIQUIDITY
Our primary sources of funds are deposits, advances from the FHLB and other borrowings, principal and interest payments on loans, and income from investments. While maturities and scheduled amortization of loans are a predictable source of funds, deposit inflows and outflows as well as loan prepayments are greatly influenced by general interest rates, economic conditions, and competition.
Our primary sources of funds generated during the first
nine
months of
2018
were from:
|
|
•
|
Proceeds of
$395 million
from the sale or maturity of securities available-for-sale;
|
|
|
•
|
Proceeds of
$126 million
from the sale and principal payments on loans held for sale;
|
|
|
•
|
Cash acquired in acquisition, net of
$147 million
;
|
|
|
•
|
Principal payments on securities available-for-sale of
$103 million
; and
|
|
|
•
|
Net income of
$83.7 million
.
|
We used these funds to:
|
|
•
|
Originate loans of $440 million;
|
|
|
•
|
Purchase available-for-sale securities of
$390 million
; and
|
|
|
•
|
Originate loans held for sale of
$108 million
.
|
Our most liquid assets are unrestricted cash and short-term investments. The levels of these assets are dependent on our operating, lending and investing activities during any given period. Our liquidity position is continuously monitored and adjustments are made to the balance between sources and uses of funds as deemed appropriate. At
September 30, 2018
, cash and cash equivalents totaled
$263 million
, and the market value of our investment securities available-for-sale totaled
$1.1 billion
. If additional funds are needed, we have additional sources of liquidity that can be accessed, including FHLB advances, federal fund lines, the Federal Reserve’s lending programs and loan sales. As of
September 30, 2018
, the maximum amount we could borrow through the
FHLB was $3.7 billion, of which $2.5 billion was available for borrowing based on collateral pledged of $2.9 billion in real estate loans. At
September 30, 2018
, we had
$860 million
in FHLB borrowings against that available balance. At
September 30, 2018
, we also had unsecured lines of credit aggregating $221 million, which consisted of $168 million with other financial institutions from which to draw funds, $3.3 million with the FRB and one reverse repurchase line with a correspondent bank of $50 million. For the quarter ended
September 30, 2018
, our average liquidity ratio was
12.27%
, which is above the Company's policy of 10.0%. The Company regularly monitors liquidity and models liquidity stress scenarios to ensure that adequate liquidity is available and has contingency funding plans in place, which are reviewed and tested on a regular, recurring basis.
To the extent that
2018
deposit growth is not sufficient to satisfy our ongoing commitments to fund maturing and withdrawable deposits, repay maturing borrowings, fund existing and future loans, or make investments, we may access funds through our FHLB borrowing arrangement, unsecured lines of credit or other sources.
The Bank has a policy in place that permits the purchase of brokered funds, in an amount not to exceed 15% of total deposits or 12% of total assets, as a secondary source for funding. At
September 30, 2018
, we had
$343 million
in brokered time and money market deposits, which constituted
4.0%
of total deposits at that date.
The Corporation is a corporate entity separate and apart from the Bank that must provide for its own liquidity. The Corporation's primary sources of liquidity are dividends from the Bank. In addition, the Corporation maintains a line of credit with Wells Fargo, with availability of $25 million. There are statutory and regulatory provisions that limit the ability of the Bank to pay dividends to the Corporation. Management believes that such restrictions will not have a material impact on the ability of the Corporation to meet its ongoing cash obligations.
During the periods presented, the Corporation did not pay any dividends on its common stock. It has been the Corporation's current to retain earnings to provide funds for use in its business. Although the Corporation has never declared or paid dividends on its common stock, the Corporation's board periodically reviews whether to declare or pay cash dividends, taking into account, among other things, general business conditions, the Company's financial results, future prospects, capital requirements, legal and regulatory restrictions, and such other factors as the Corporation's board may deem relevant.
On October 26, 2018, the Company announced that its Board of Directors had approved a new stock repurchase program. Under the stock repurchase program, management is authorized to repurchase up to $100 million of the Company’s common stock. The stock repurchase program may be limited or terminated at any time without prior notice. The stock repurchase program is intended to replace and supersede the Company’s prior stock repurchase program, which was approved in June 2012 and authorized the repurchase of up to 1,000,000 shares of the Company’s common stock. An aggregate of 237,455 shares of the Company’s common stock were repurchased under that program. For the three months ended September 30, 2018, June 30, 2018 and September 30, 2017 and the nine months ended September 30, 2018 and 2017, no shares were repurchased. Also, please see Part II, Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds for additional information.
Contractual Obligations and Off-Balance Sheet Commitments
Contractual Obligations
.
The Company enters into contractual obligations in the normal course of business primarily as a source of funds for its asset growth and to meet required capital needs.
The following schedule summarizes maturities and payments due on our obligations and commitments, excluding accrued interest, as of the date indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
Less than 1 year
|
|
1 - 3 years
|
|
3 - 5 years
|
|
More than 5 years
|
|
Total
|
|
(dollars in thousands)
|
Contractual obligations
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advances
|
$
|
808,000
|
|
|
$
|
18,500
|
|
|
$
|
33,122
|
|
|
$
|
—
|
|
|
$
|
859,622
|
|
Other borrowings
|
2,350
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,350
|
|
Subordinated debentures
|
—
|
|
|
—
|
|
|
—
|
|
|
110,244
|
|
|
110,244
|
|
Certificates of deposit
|
835,028
|
|
|
390,405
|
|
|
16,999
|
|
|
68,012
|
|
|
1,310,444
|
|
Operating leases
|
3,023
|
|
|
16,904
|
|
|
8,082
|
|
|
3,547
|
|
|
31,556
|
|
Total contractual cash obligations
|
$
|
1,648,401
|
|
|
$
|
425,809
|
|
|
$
|
58,203
|
|
|
$
|
181,803
|
|
|
$
|
2,314,216
|
|
Off-Balance Sheet Commitments
.
We utilize off-balance sheet commitments in the normal course of business to meet the financing needs of our customers and to reduce our own exposure to fluctuations in interest rates. These financial instruments include commitments to originate real estate, business and other loans held for investment, undisbursed loan funds, lines and letters of credit, and commitments to purchase loans and investment securities for portfolio. The contract or notional amounts of those instruments reflect the extent of involvement we have in particular classes of financial instruments.
Commitments to originate loans held for investment are agreements to lend to a customer as long as there is no violation of any condition established in the commitment. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Undisbursed loan funds and unused lines of credit on home equity and commercial loans include committed funds not disbursed. Letters of credit are conditional commitments we issue to guarantee the performance of a customer to a third party. As of
September 30, 2018
, we had commitments to extend credit on existing lines and letters of credit of
$1.8 billion
, compared to
$1.2 billion
at
December 31, 2017
and
$1.0 billion
at
September 30, 2017
.
The following table summarizes our contractual commitments with off-balance sheet risk by expiration period at the date indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
Less than 1 year
|
|
1 - 3 years
|
|
3 - 5 years
|
|
More than 5 years
|
|
Total
|
|
(dollars in thousands)
|
Other commitments
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
$
|
716,144
|
|
|
$
|
286,009
|
|
|
$
|
20,868
|
|
|
$
|
64,587
|
|
|
$
|
1,087,608
|
|
Construction
|
175,147
|
|
|
154,037
|
|
|
8,335
|
|
|
110,989
|
|
|
448,508
|
|
Agribusiness and farmland
|
25,388
|
|
|
15,027
|
|
|
9,435
|
|
|
1,476
|
|
|
51,326
|
|
Home equity lines of credit
|
12,318
|
|
|
14,026
|
|
|
3,736
|
|
|
62,778
|
|
|
92,858
|
|
Standby letters of credit
|
38,272
|
|
|
714
|
|
|
—
|
|
|
155
|
|
|
39,141
|
|
Credit card lines
|
—
|
|
|
—
|
|
|
—
|
|
|
1,746
|
|
|
1,746
|
|
All other
|
42,211
|
|
|
9,933
|
|
|
14,789
|
|
|
30,072
|
|
|
97,005
|
|
Total other commitments
|
$
|
1,009,480
|
|
|
$
|
479,746
|
|
|
$
|
57,163
|
|
|
$
|
271,803
|
|
|
$
|
1,818,192
|
|
Regulatory Capital Compliance
The Company and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain capital in order to meet certain capital ratios to be considered adequately capitalized or well capitalized under the regulatory framework for prompt corrective action. As of the most recent formal notification from the Federal Reserve, the Company and the Bank was categorized as “well capitalized.” There are no conditions or events since that notification that management believes have changed the Bank’s categorization.
Final comprehensive regulatory capital rules for U.S. banking organizations pursuant to the capital framework of the Basel Committee on Banking Supervision, generally referred to as “Basel III”, became effective for the Company and the Bank on January 1, 2015, subject to phase-in periods for certain of their components and other provisions. The most significant of the provisions of the new capital rules, which apply to the Company and the Bank are as follows: the phase-out of trust preferred securities from Tier 1 capital, the higher risk-weighting of high volatility and past due real estate loans and the capital treatment of deferred tax assets and liabilities above certain thresholds.
Beginning January 1, 2016, Basel III implemented a requirement for all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively comprised of common equity tier 1 capital, and it applies to each of the three risk-based capital ratios but not to the leverage ratio. At
September 30, 2018
, the Company and Bank are in compliance with the capital conservation buffer requirement. The capital conservation buffer will increase by 0.625% each year starting in 2016 through 2019, at which point, the common equity tier 1, tier 1 and total capital ratio minimums inclusive of the capital conservation buffer will be 7.0%, 8.5% and 10.5%, respectively.
As defined in applicable regulations and set forth in the table below, the Company and the Bank continue to exceed the regulatory capital minimum requirements and the Bank continues to exceed the “well capitalized” standards at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
Minimum Required
For Capital Adequacy Purposes
|
|
Minimum Required Plus Capital Conservation Buffer
Phase-In
for 2018
|
|
Minimum Required Plus Capital Conservation Buffer
Fully
Phased-In
|
|
Minimum Required
For Well Capitalized Requirement
|
September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
Pacific Premier Bancorp, Inc. Consolidated
|
|
|
|
|
|
|
|
|
|
|
Tier 1 leverage ratio
|
|
10.15%
|
|
4.00%
|
|
4.00%
|
|
4.00%
|
|
N/A
|
Common equity tier 1 capital ratio
|
|
10.55%
|
|
4.50%
|
|
6.38%
|
|
7.00%
|
|
N/A
|
Tier 1 capital ratio
|
|
10.81%
|
|
6.00%
|
|
7.88%
|
|
8.50%
|
|
N/A
|
Total capital ratio
|
|
12.05%
|
|
8.00%
|
|
9.88%
|
|
10.50%
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
Pacific Premier Bank
|
|
|
|
|
|
|
|
|
|
|
Tier 1 leverage ratio
|
|
10.83%
|
|
4.00%
|
|
4.00%
|
|
4.00%
|
|
5.00%
|
Common equity tier 1 capital ratio
|
|
11.53%
|
|
4.50%
|
|
6.38%
|
|
7.00%
|
|
6.50%
|
Tier 1 capital ratio
|
|
11.53%
|
|
6.00%
|
|
7.88%
|
|
8.50%
|
|
8.00%
|
Total capital ratio
|
|
11.92%
|
|
8.00%
|
|
9.88%
|
|
10.50%
|
|
10.00%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
Minimum Required
For Capital Adequacy Purposes
|
|
Minimum Required Plus Capital Conservation Buffer
Phase-In
for 2017
|
|
Minimum Required Plus Capital Conservation Buffer
Fully
Phased-In
|
|
Minimum Required
For Well Capitalized Requirement
|
At December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Pacific Premier Bancorp, Inc. Consolidated
|
|
|
|
|
|
|
|
|
|
|
Tier 1 leverage ratio
|
|
10.61%
|
|
4.00%
|
|
4.00%
|
|
4.00%
|
|
N/A
|
Common equity tier 1 capital ratio
|
|
10.48%
|
|
4.50%
|
|
5.75%
|
|
7.00%
|
|
N/A
|
Tier 1 capital ratio
|
|
10.78%
|
|
6.00%
|
|
7.25%
|
|
8.50%
|
|
N/A
|
Total capital ratio
|
|
12.46%
|
|
8.00%
|
|
9.25%
|
|
10.50%
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
Pacific Premier Bank
|
|
|
|
|
|
|
|
|
|
|
Tier 1 leverage ratio
|
|
11.59%
|
|
4.00%
|
|
4.00%
|
|
4.00%
|
|
5.00%
|
Common equity tier 1 capital ratio
|
|
11.77%
|
|
4.50%
|
|
5.75%
|
|
7.00%
|
|
6.50%
|
Tier 1 capital ratio
|
|
11.77%
|
|
6.00%
|
|
7.25%
|
|
8.50%
|
|
8.00%
|
Total capital ratio
|
|
12.22%
|
|
8.00%
|
|
9.25%
|
|
10.50%
|
|
10.00%
|