NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) releases research report entitled “Comment on Pacific Premier Bancorp, Inc.’s Acquisition of Heritage Oaks Bancorp”. The report makes the following key points:
- Pacific Premier Bancorp, Inc. (NASDAQ:PPBI) (“the Company”) announced the signing of a definitive agreement to acquire Paso Robles, California based Heritage Oaks Bancorp (NASDAQ:HEOP), (“Heritage Oaks”), the holding company and parent Heritage Oak Bank (financial strength rating: B). Based on financials as September 30, 2016, PPBI will have approximately $6.0 billion in total assets after the completion of the deal.
- The transaction is anticipated to close late first quarter to early second quarter of 2017 and has a value of $405.6 million. The consideration for the transaction is all-stock as HEOP common stockholders would exchange each share for 0.3471 shares of PPBI’s common stock. The transaction has a price to tangible book value (P/TBV) of 214% and a projected cost savings of 26% of HEOP noninterest expenses.
- KBRA expects that the transaction will result in a moderately improved financial condition for PPBI. The acquisition should lead to higher levels of profitability over time. PPBI will have access to a broader base of low-cost core deposits that will be redeployed into higher-yielding assets. Moreover, asset quality should remain strong at completion. The pro forma regulatory capital ratios of the combined entity are comfortably above the minimum requirements.
- The acquisition will allow the Company to expand geographically into the central coastal area of California, which presents attractive demographics. Management stated that the Company’s broader market presence will provide greater opportunities for future in-market acquisitions.
- KBRA acknowledges that there are risks related to the expansion into new markets and system integration given the size of the acquired institution. The aforementioned risks are partially mitigated by the retention of key personnel of the acquired institution, HEOP’s strong market shares in its footprint, and PPBI’s solid track record of successful acquisitions.
- On November 1, 2016, KBRA affirmed the senior unsecured debt rating of BBB+, subordinated debt rating of BBB and short-term rating of K2 for Pacific Premier Bancorp, Inc. KBRA also affirmed the A- deposit and senior unsecured debt ratings and the K2 short-term deposit and debt ratings for the lead subsidiary, Pacific Premier Bank. Additionally, a subordinated debt rating of BBB+ was assigned to the Bank. The outlook on all long-term ratings is stable.
- In the short-term, KBRA believes the acquisition of Heritage Oaks Bancorp will be neutral to the ratings of PPBI. The transaction may represent a mid-term or long-term net positive over time as it extends PPBI's operations into markets with attractive demographics and creates strong potential for further expansion.
The ratings are based on KBRA’s Global Bank and Bank Holding Company Rating Methodology published on February 19, 2016.
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