Pacific Premier Bancorp (PPBI) 20 Oct 222022 Q3 Earnings call transcript

Good day and welcome to the Pacific Premier Third Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Steve Gardner, Chairman and CEO. Please go ahead.

Great. Sarah. you, Thank everyone. Good morning, you joining appreciate today. us I

we As report earnings morning, of you're aware, earlier all released for our XXXX. this the quarter third

additional published presentation our We updated performance. information has financial also on and have disclosures an that investor

we If visit you download copy our so presentation. to to of website encourage the you Relations done have a not already, Investor

call will open a questions. up the to encourage Nicolas, terms that our that details a earnings related statement carefully. you to items harbor and of the the include the of to presentation of notable review I results financial comments. I read-through each our note In investor our forward-looking also relative release performance. on call to our Ron and safe statement some few will today, of I'll walk-through we CFO our then

the of number actions increasingly interest-rate ability the taken business in financial efforts several quarter. balance respect development well along ongoing quarters, designed third performance commercial sheet to to Over we to have talented during environment. These with served our and uncertain us our teams preserve solid the sensitivity, actions a banking with past deliver challenging of management an

both per increased Our net the pre-provision share earnings prior quarter. and from revenue

X.XX%. $X.XX income was return to $XX.X X share Our PPNR net third million per and increased the points basis our or quarter in on assets average

largely by margin capital over Increased interest strengthened the was further net Our driven ratios from quarter. quarter. regulatory the prior expansion prior profitability

in earning remains of interest cost, highlight our realizing core franchise. as the effectively deposit we our We while presentation which During points, our base, our the on managed yields third margin foundation increased investor net basis XX deposit quarter, higher our assets.

low business comprised that of core in of deposits XX our XX% quarter, focused resulted which of Our deposits points relatively deposits. non-interest reflects has model in cost than relationship our more basis remained the third at bearing

see will months, immune the for are we is cost going-forward as deposit rate we it increases likely some expectations further dynamics. acceleration over the not coming in Given to-market

the impacts, deposit commercial we potential which higher lower environment persist we business bit in pricing In during and time recent due taking addition deposits to maturities we mitigate steps work-through interest-rate loan-to-deposit economic We a in the cycle. that led quarter. our ratio deposit I'll of million impact relatively quarter, added refinance XX%, Though real-estate may at third held dynamic to on varying are activity has the as flat to sales commercial the later. our a $XXX comment the escrow and to exchange as of brokered fluctuations

While incorporating that the help rate increases time in overall we going-forward. our us our deposits believe in will mix funding locking our funding increase flexibility funding ahead near-term, of costs longer-term costs control more funding into this and additional will provide deposit

slight production implementation of of prior loan effect In our decided pronounced in asset demand to and end-of-the these pull-back decrease production, a utilization management. credit quarter, to our conditions a on investor-own along CRE our new multifamily with decreased volume of risk our on loans, from new loans in throughout in the tenure contributed terms The and decline we originations approach cycles. saw production as we This quality resulted pricing, the the and areas. underwriting our construction pricing Market total in overall had of various been our of the has in has throughout lower rates quarter. most disciplined loans strong methodically while lines and real-estate in related actions management's strategic remaining of credit

banking attractive growth. commercial drive focused developing future with new engaged businesses actively that clients Our organic are existing on teams and will relationships with are

are we continue from the the prior production the points commitment a our to from basis attractive, of average XXX yield prior loans be C&I our loan As banking was increased on relationships The new today up quarter. generating result, new as quarter.

Overall, solid, in million service borrowers their Asset seeing with quarter. $X.X remains a obligations. not net their of low quality or we're our levels charge-offs cash problem flows loans degradation ability the in and to totaling

We have the presentation. provided portfolio investor on additional details loan segments our in

of to ongoing few our administration going ratios loan-to-values to collateral the performance more With portfolio conservative portfolios This monitoring the to to with within Our to and active quality third process. the the our fundamental ability management and the loan coverage of a details Ron debt financial supporting each be financial loans remained of are over loan of our asset provide has throughout strong manage together standards segments. our underwriting the our borrowers Proactive call we our on turn of tenants credit of including our results. continue effectively quarter important will cycle. I'm expect and been to analysis that,

Thanks, good Steve and morning.

basis. For majority purposes, my comparison are on remarks the a linked-quarter of

financial quarter's the with start Let's highlights.

X% per on a of driven million linked-quarter a EPS quarter $X.XX million. increase increase to by a revenue increased $XXX.X Third basis, $X.X total share, to

as costs the was fee were lower, Although, slightly third non-interest $XXX.X quarter for income million. came expense well-controlled operating in at

million a by slightly net higher result, $XXX.X income primarily $X statement, increase our million, closer interest basis-point million look to XX pre-provision income a and asset a in assets revenue $XXX million ratio driven balances. to efficiency of average to yields increased improved increased XX.X%. our net at average loan As or $X.X our X.XX% Taking the and

$X.X quarter. added income to compared incrementally swap the million prior our Additionally,

basis the at to deposit our front, points in deposit deposits XX brokered and deposits came the of basis On cost points core costs quarter. increased excludes time for which total XX and

and margin X.XX%. core a were points driven decrease XX recently to to points the slowed quarter, reported points asset the core with a basis driven XX in primarily basis by our loan net fees business from trust X.XX% $X sale interest $XXX,XXX interest million interest by the market rates. gain while prior a SBA the decrease loans lower fees. by our X.XX% $XXX,XXX connection XX custodial increased decreased asset as net mostly trust has in Lower expanded higher Noninterest basis margin expanded of from in income As net yields result values, and to

expect Going-forward, income to million a was $XXX.X approximate expense $XX the noninterest one-time which any at to million the where an million $XXX client expense, to be million X,XXX $X.X of quarter. of our anticipate decreased $X.X $X.X sales. in came compromised. quarter excluding in million in employees. our increase for $XX our that primarily increase compensation to million, Noninterest for clients to offset loss items fourth overall and fourth security the included expense $XXX a $X.X These other we our in due million million million staffing in system by as We to concluded partially were benefits, investigation our be non-interest expense decrease range

for the largely million increased of quarter. provision to unchanged credit our Our slightly the quality compared was $XXX,XXX in loss prior $X.X quarter's credit and

meaningful deterioration have we a are monitoring seen not we credit in closely environment. macroeconomic While the quality,

production. and the our million the deposits business the provided $XXX XX.X% deposits. deposits Turning billion. payoffs basis, primarily also prior escrow billion in $XX.X slightly of environment, to decrease X% the driven third additional balance of grew June XXth loan average in loans billion, broker to The Period-end interest-rate banks business To slower decrease decline in $X loan deposits trust we in exchange the deposits as surprising September, business quarter, transaction by our sensitivity. sheet, lower risk from offset municipal $XXX driven quarter-end. to lower term billion. grew rate gross $XXX decrease of to and liquidity we deposit by in quarter XX.X% a $X.X XX% million were rates fundings and from to help slight grew saw the year-over-year million a in the and in $XXX a a commercial of escrow lower which given of early we flows, somewhat offsetting exchange escrow million interest-rate asset Notable declined which a Not from another volumes spot to enhanced and quarterly due and on $XXX deposits utilization saw $X.X added a million deposit line X% AXA

portfolio flat billion portfolio portfolio The quarter the remained securities second X/XX quarter while $XX compared $X.X flat unrealized of X.XX%. the and is our for mark-to-market remained at available-for-sale as at million. our yield billion, was loss Our also at $X with currently

of impact on nonperforming Our common with $XX.XX to tangible common the and solid industry averages. capital loss basis X, increasing increased driven XXth. equity the an the $XX from points quarter primarily tangible And finally this securities further well increase June from with strengthened X at X rates from asset our to second slightly portfolio, interest comprehensive we XXth. Along position $XX all as higher million was X.XX% equity compared book-value risk held-for-investment of XXth quarter. total and and capital quarter million our ratio loans remained below our ratio, Tier from at asset an X.XX%, and TCE decrease quality delinquency ended slightly risk-based The ratios but in higher June standpoint, of historical respectively, base June loans decreased Tier the loss share other X.XX% from at the quality a per $XX.XX of by AFS

will quarter through Our finished dollars loans of back it hand discount our With the which includes to at total ratio allowance that, and for loss our X.XX% at terms acquired absorption and in I flat credit-loss fair-value X.XX%. acquisitions was effectively coverage the Steve. on bank

I'll Thanks, Great. outlook. few comments our a with wrap-up Ron. about

we our priority material liquidity so With of to to to served that been and historically we'll This be market of be franchise continue economic to a foundational of has us clients react can the track-record high to creating critical in value. on risk of increasing place unpredictable likelihood a has approach the meet needs our and and slowdown, capital reserves, position well to levels a could dynamics. what maintaining management

owners. new managers relationships collaborating our exceptional while highly businesses high-quality their relationship on clients, with teams our providing and focused to developing well service Our and long-term are are

seek and We invest is we technology continue Bank. add expand and to throughout us the to that benefiting relationships new as and in people

favorable, expand is escrow we longer-term. environment and market-share have While grow add for the we good current over the not exchange believe clients, and to the opportunities business as

gain added a in of the business market have who believe personnel valuable we additional time We recently share will to helping and during be disruption. grow

our businesses this to the to seen accelerate periods, our commercial loans. have high-quality considerable efforts year. add both expect the business market our the what will mix of commercial the towards CRE and as increase Following The have operations to to continue heavily to leverage we and be that work shareholders, steadily be our deposits. more clients. uncertain low-cost investor-owned Ultimately, up trust open businesses and and and any expand the is would likely multifamily effectively bankers our to for and results contribution a development be loan than our of That have of dynamics rapidly attractive evolving talent will level of we fee we earlier lower we you see calls. in deliver Sarah, strength opportunities we limit concludes managing started income to continue weighted It and In remarks of area trust their risk production will in could leadership the and while our please done for escrow to answer call production base questions? prepared to optimize business, happy we environment. future the

from Raymond go question Thank first Please ahead. David Instructions] Our comes James. [Operator Feaster with you.

Hi, good, morning everybody.

David. morning, Good

morning. Good

you that's in, not flows within portfolio and seeing and maybe impacts on in could the that just burn that whether there deposit exclusive more talk you're seeing cash know Maybe look trending of about the is just flows the the touching exclusive just but that, in be you're overall migration escrow how surprising, you some how on some migration higher-yielding or existing flows at deploy then might outflows about you customers more just looking the escrow? And that book more it liquidity driving their assets? the deposit in there think that is are within especially as clients existing rate-sensitive be to within might the of thoughts

our tell all pressured a borrowers, But any that's although are by the impacts high At you questions being that point, I'd inflationary I from up, seeing of like. think burn we're we're there's individuals, continued investors wrapped not not what overall on businesses, that. the cash Sure. seeing. environment, supply-chain disruptions this still of David, lot Sure, and

that that's points basis this for just it's attractive. month in simply it and at our environment months not, people most six rate one time, likely even Fed XXX with us. X% get think be don't as returns seen in in I they're treasuries generally investors banked customers - qualify of somewhere the generally unprecedented and that can have by to I a of I know raised rate-sensitive, be why north on ever we've of period by nine funds some not is become where But, risk-free year-end

are So job. meeting the with We communication doing our great talking those of them dynamics, them I in areas. think are various a these working and of our directly clients then many increased teams to the with and certainly level and

And area opportunities attractive accelerated that are to the As there escrow is clients firms where nothing trust are impacted. as team at some seeing market-leading specialty or our allowed and is negatively we've seems see some trust, said, And business escrow we've in any far very and we little time and been add side do preliminary businesses flows, and some very some HLA as of because areas technology has the the opportunities business. the the nice HLA, in disruption the well really smaller of that a the to exchange. that same being the and attractive grow business our clearly in but gain we market-share seen offer and development the there bank us exchange mix results. that to from then I material other functioned we And really business change, lastly -

type throughout see how So the same an time, the is we'll some I good in months. environment pretty things the At unprecedented organization, here coming think develop see this we that opportunities.

- it's and of the effective. And of curious And term? to paydowns huge. helpful. real using talking table the And balances looking? going help how and offset couple think these how curious continue Just seen to pipelines it, ago yields, quarters that that. having for loans back decline originations production, up a slower slow expect loans. it estate can some started forward? How rates think appetite near That's you balances growth in remarks talking the to about we see you looking - the been mean we've origination of But loan at some slower about was strategically would you Okay. an mentioned you also were I'm higher you maybe actually Or about about of prepared and less I could payoffs just grow? these

we're around production to portfolio been how And that that latter that And to the would I client the governor. prepayments banking always true fourth think paydowns expect we going core the bring it a and relationships. flat, hold less given low-cost quarter, regulator deposits, grow or need can here little always quickly the the - there fact, like. trend fact Yes, whether for to it's the growth that is us, been part been That's the has we in them slowed. has it's loan in have, continue in just that always

certainly, the and Now and acquisition into amount institutions the fiscal increased. following Opus shelved the was of stimulus economy, with at all financial that liquidity monetary

quality operate But tell as manage seen such with credit into we strong teams, we not dynamic potential we in are we really as that loans, Things deployed - environment. the dynamics our shift, we've we static these and business the way about way that future the as the that and think we of And the so a risks. some multifamily.

real And down, loans. slowed said, so estate, some have as of commercial the multifamily construction we I

Historically, again. returns multifamily And I And - asset on decreased quarter. looked you the really good helps. a Coast in mean, in clearly and touching then defensive core at segment in a is always obviously, class. the a for declined for West That appetite risk-adjusted you competency I've the production, all. that's providing Okay. about just obviously, multifamily the talked

changing West days. you just lot seeing housing you're any trends dynamics But of the more in how about these curious the a within segment markets that Just curious, think broadly? obviously, And multifamily there's other Coast? that on

Sure.

the could workforce which think characterize multifamily I is of asset it, are It's part flows classes, on, least we multifamily Cash housing. just you segment what if it, remains most as remain The at you do the call concentrate levels of we've high. strong. that will, attractive occupancy end, for don't Class it that, ever We A-type properties. the one very high done. not

coverage, at stressing rates a look portfolio position. and are good the in the debt We to and higher on very we're impact

for from, gap, multifamily will, the exists that reasonable if Coast that it and online from significantly. been think benefits has although under-built affordable, fill this, housing And West there that a periods, are I will that housing. to come certainly future is just - projects able you in not

our perform of that, with expectation overall said, monitoring will and Ron So we're But the to our as that class all macroeconomic portfolios that is environment. asset continue closely well.

everybody. thanks right, All

Certainly.

Our Clark ahead. go Please Sandler. Piper next with question comes from Matthew

Hi, good morning.

have First for one, but it quarter? I the provide may just on near-term upcoming NIM did prepared comments, missed Ron, guide core you the for in your the

Go ahead, Ron.

not, Yes, Matt. we did

in with point deposit see mark right that - here around side, market, if the deposit you cost November and consistent expect, the obviously, side we asset this December, to the what of do We at said, hikes. air expect the question on what's the current third up that of asset really in will, whole We is time. Fed if the and quarter. betas in the where rate and the terms that But all in for baked move into

that that not aggressive I'd pretty what putting dynamics market But to Yes, either. just if out to on. going you dynamics just on, at immune wanted I compete seeing are we add look not and as some said, are there that number institutions pricing, a we're market that's we're of

that's on So don't it to. any guidance haven't intend we and provided why

variance We guidance and on what variables so was subject appropriate in that are. think I it. think it outputs differing provide didn't the is modeling to to many the

or around forecast budgeting internal at you're cycle, XX% just when to-date. your out of you're mean working kind deposit X% last And Okay. through looking then betas, I process cycle at your

so do around expecting like feel deposit should you a did any incrementally. You're can, betas? growth, but thoughts mean just situation, fluid be you kind funding you slower last need for it's additional I I match know very what cycle? there less of

level compare Sure, to have say, I what have you a back went of we is - time - tightening up that by of years no then take and idea. the look, XXX, And instituting get mean X.X December XXX step period took them mean, is it XXXX that quantitative all began over today. roughly the let's basis to was and Fed points And to and they're do I the XXXX. half doing this in at Fed level. that I that to

So that in could period compare is months, increased six than implemented period had that don't X.XX the end and time. now began you, amount running in this It's that something June the up to know. closely, to And of September, months basis get that the monitoring have we moved year, widely well. time XXX during in as more quantitative we're that where closely at twice nine Fed I tell and expected environment, points the by tightening to rates of of managing

have know. I effects our clients they're relationships the to dynamics, deep. rapidly economy. and to that with market to It's think are difficult our of be we the the we're subject But again, going evolving

credit, you just that back? Can this And the give Okay. then on likelihood provisional a and of guys of the quarter. getting timing you sense us just took

large It's had a client we've the that time. of good with know. incident I period that a for don't On - client long

something the don't and do we did credit, lightly. ahead So we went

we'll It's see. kind these know things. hard So with to of

Okay. thanks. Fair enough,

from ahead. with comes Please question McGratty next KBW. go Our Chris

McGratty. on going, Andrew is this how it Leischner Hi, Chris for is

Andrew. Hi

retail you. And are I you're solid. it to just you're office any trends Hi, portfolios going look forward? provisioning about wondering concerned thinking there Your Thank the for if markets about? continue how is specific how going? and credit But was

look - Sure, And in I'd from information that's that so a disclosure portfolio. historically metrics and those DCR, have to we presentation fact segment, XXX product. a our the when minimal you additional investor that point and XX retail look, loan-to-value average at around where the provide by the if you some take slide office seasoned the you that do similar on at in average you we're the portfolio charge-offs, somewhat is and portfolios. a and XX% losses had We've months, weighted and

do evolves dynamics those how that keep mind. We'll impacting with just see the we'll the portfolio. So economy either segments we as the and one all, of in of

continue think we'll so, And to it. about

the to portfolio the And on improve, credit we that have also total think our on then the XXX at X.XX% I to we marks the reserve I'd and existing also up levels absorbing point ACL. to have discounts loss points. basis helping increase capacity today really

at would any if you. can potential helpful. deal your just you deal? talk opportunities you Yes, newer there And is probably And for Okay, then that seeing a markets M&A, about within looking expansion are any thank markets? you're bank Thanks. consider

our play looking markets, a West disciplined on additive look the And rate it played there out for volatility institution, have consolidation financial at would intensified I to know - the And and as think same for those frankly, have been going Sure, services, reasons these just equity the here lot of we remain in And time. and you I always the that but and have out. to complex. think deposit mean, over targets. that volatility there to challenge we're out always that time, solid is relationship-based in fundamental place good, our look. Coast not the high-quality the behind line continue principally, is are be And And that interest environment we'll that then finding we the continue. bases, finish a franchises to franchise. with very at - that in going on And adds in we cycles has acquirer, though, the this

it. way we're thinking So that's the about

can't looking be - before, be if this East look? disclosed said you Okay, to but willing I you have far And you'd how thank you. remember you'd

is about Coast franchise think from it we West franchise. the Generally, a

in headquartered division is Trust Our Denver the market.

in Washington. there. presence the I the Arizona So and state We've think got West, Nevada, Mountains along Oregon, Mountain Rocky the of in

in. complementary those we're geographic to markets is that that something So

great. the Okay, got Thanks all questions. for it

Certainly.

comes Gary ahead. question D.A. go from Tenner with Davidson. next Please Our

Hi morning. guys, good

Gary. morning, Good

C&I about ask to the quarter. in wanted I the trends

other of You overly higher about are getting more reduce lower becoming, in cautious But in last guess, C&I in - customers decline do or and down that offer talked to driving today variable the demand some about some terms C&I the broadly sense the the rates And moderation so their some in and in they're loans portfolios. better relates have and outstanding, the it balances your driving that utilization you to you environment? dollars raising C&I quarter as I that your that's some would do what cost of the balances? maybe on think rate or relative the excess deposits sequential is

different think the of bit every a those capital factors. they is their business combination think Look the the and and about world. that they way their little manage sheet I it's way balance a in

the that the challenges all factor. disruption the think are of supply ongoing around a playing I inflation, chain impacts labor, those from

in who down, some to thinking liquidity are business cost the sitting debt and seeing as of that pay that then Fed increase, this you rising concerns still cycle of and about economy rates a the ways given and go. that we think who And look rates that they're have the the long of clients are varied activity. about that decisions with the on making off. tighter at their are pay it of and some excess I plenty mentioned lags, to future there's others, tightening You And on act

again ongoing thing like different is opportunities The though in team. business we're businesses one and these areas. we the in is there's they And to plenty see our to and services that. grow. that's with think the reality where about is, going be with that to environments talk treasury that them, see management And and the think we right capital, grow opportunity, this, do expand of I side-by-side to opportunity providing

of side some that. I be you exchange it there's to - going always quarter, of have And said low it balances then an is to $X obviously, again there's you could as billion the half and Thanks, sense do activity. deposit maybe just is to just activity? what as or down moment the even in ago, a modest be it level very a and escrow relates think? business, ongoing aggressively Do floor for you too what Is of ultimate a level that transaction that appreciate given

sense tell some established of occurring contiguous I that, commerce in my don't in the that brought markets. grow too that time of low, base mean, known, our activity with been some and you. have market term, be folks as of on - is share I of seeing the the opportunity period sit market a various we're level same the California disruptions is to to just commercial they're real recently for and L.A., The escrow, great At is and expand estate to there. that that is can't client one investors long would longer the I Southern we've the that the has time, well it's going aggressively additional into Markets a and be dependent but with upon in markets. we're here with reputation take that already, think that coupled we there thing

today. to tell So where sit we from hard

then say you missed the lastly was what in but what say weighted September? it, me, around broker deposits on the the if did apologize you I did or just And I $XXX average added Great. rate million for of -

we No, didn't.

not. September. the No, no. beginning came in of That on we No, did

month one - on had those we deposits. effectively, impact those So broker

there, So the given we'll a step full quarter's have impact. up

guys, All it. right. Thanks appreciate

Certainly.

ahead. Sokora comes Zack next Our Stephens question go Inc. Please with from

morning. with actually Andrew is Stephens. Hi, Good this Terrell

Andrew. Hi

Hi Andrew.

sheet, given the you guidance, - of cadence expense wanted like to base XXXX, just ask, we for thanks or balance to I growth expense into managing I out about slower sounds maybe we what the thinking XXXX? as of level a think wanted so into Hi, little as ask but of just the move expense about how bit are kind

We've to people laser-focused that any been expenses same going to continue investing time, grow you not operator, it that managing on do business do the an We're also we're and tightly. stay without and and believed thinking always we've in about efficient technology. managing effectively. At

the case people been to and for be tightly. always will managing we'll technology, us has we'll so case And and invest the that but continue that in expenses be very it

at Do good rate this do to I deposit some XX% above Okay. kind you through think, efficiency the a the keep side, of ratio or quarter, pressures maybe other an standpoint, cost just of see improvement you cycle mean, maybe efficiency sub-XX% it you on from can you was manage the level? or to think that

we detailed I it areas a variables, other not insight forecasting have it's let a to on, such rates. forecast, But manage it a And an and makes those. number upon magnitude How well. on me, of him bit very is but extremely environment other although changes we in It us and I forecasts directly as to those very measure in out it's brings is the - Ron And challenging speed when variety more What know as paper the it thanks. it's and uncertain. running changes of can expenses into play efficiency where it control lands and think worth they this although then economy of a it adjust models we obviously. under difficult that, regularly. that written from assumptions the and level, gives and some makes especially are as in dependent

helpful kicks per month color. bond how much that's if one. Okay the or cash appreciate book flow us off? can I Ron, apologize I this quarter remind I you is per And missed

I million of it, to, a quarter. the bit. off call say little range gives varies would it $XX $XX million about It a in

taking for questions. my thanks well, Okay

Yes certainly.

would like turn Gardner This concludes to conference our I back to over Steve closing for question-and-answer any remarks. the session.

thank us have good and I Sarah, week. for you you you, joining thank today. hope good, Very a all

for presentation. you is Thank now today's conference concluded. attending The

now disconnect. may You