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What Makes Pacific Premier Bancorp Inc (NASDAQ:PPBI) A Hard Investment?

As a small-cap bank stock with a market capitalisation of US$1.87B, Pacific Premier Bancorp Inc’s (NASDAQ:PPBI) risk and profitability are largely determined by the underlying economic growth of the US regions in which it operates. Since a bank profits from reinvesting its clients’ deposits in the form of loans, negative economic growth may lower deposit levels and demand for loan, adversely impacting its cash flow. After the GFC, a set of reforms called Basel III was imposed in order to strengthen regulation, supervision and risk management in the banking sector. Basel III target banking regulations to improve the sector’s ability to absorb shocks resulting from economic stress which may expose financial institutions like Pacific Premier Bancorp to vulnerabilities. Its financial position may weaken in an adverse macro event such as political instability which is why it is crucial to understand how well the bank manages its risks. Sufficient liquidity and low levels of leverage could place the bank in a safe place in case of unexpected macro headwinds. Today we will be measuring Pacific Premier Bancorp’s financial risk position by looking at three leverage and liquidity metrics. View our latest analysis for Pacific Premier Bancorp

NasdaqGS:PPBI Historical Debt May 9th 18
NasdaqGS:PPBI Historical Debt May 9th 18

Why Does PPBI’s Leverage Matter?

Banks with low leverage are exposed to lower risks around their ability to repay debt. A bank’s leverage can be thought of as the amount of assets it holds compared to its own shareholders’ funds. Though banks are required to have a certain level of buffer to meet its capital requirements, Pacific Premier Bancorp’s leverage level of 6x is very safe and substantially below the maximum limit of 20x. This means the bank exhibits very strong leverage management and is well-positioned to repay its debtors in the case of any adverse events since it has an appropriately high level of equity relative to the debt it has taken on to remain in business. If the bank needs to firm up its capital cushion, it has ample headroom to increase its debt level without deteriorating its financial position.

How Should We Measure PPBI’s Liquidity?

Handing Money Transparent
Handing Money Transparent

Since loans are relatively illiquid, we should know how much of Pacific Premier Bancorp’s total assets are comprised of these loans. Generally, they should make up less than 70% of total assets, but its current level of 76.81% means the bank has lent out 7% above the sensible upper limit. This indicates that revenue is dependent on this particular asset but also the bank is more likely to be exposed to default compared to its competitors with less loans.

What is PPBI’s Liquidity Discrepancy?

Banks operate by lending out its customers’ deposits as loans and charge a higher interest rate. Loans are generally fixed term which means they cannot be readily realized, conversely, on the liability side, customer deposits must be paid in very short notice and on-demand. This mismatch between illiquid loans and liquid deposits poses a risk for the bank if unusual events occur and requires it to immediately repay its depositors. Compared to the appropriate industry loan to deposit level of 90%, Pacific Premier Bancorp’s ratio of over 100.31% is higher, which places the bank in a relatively dangerous position given the negative liquidity discrepancy. Basically, for $1 of deposits with the bank, it lends out over $1 which is imprudent.

Next Steps:

Keep in mind that a stock investment requires research on more than just its operational side. There are three relevant aspects you should look at:

  1. Future Outlook: What are well-informed industry analysts predicting for PPBI’s future growth? Take a look at our free research report of analyst consensus for PPBI’s outlook.

  2. Valuation: What is PPBI worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether PPBI is currently mispriced by the market.

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.

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