Pacific Premier Bancorp (PPBI) 24 Oct 232023 Q3 Earnings call transcript

Good day, everyone, and welcome to the Pacific Premier Bancorp Third Quarter 2023 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, sir.

everyone. morning, Good joining you I us appreciate today.

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

information published presentation financial We updated and additional results. also our disclosures have on an with investor

forward-looking include you and to relative that I'll you CFO, visit I carefully encourage and the our up third comments. download copy the related today's our earnings a read questions. our then already, and to quarter to that presentation presentation to to statement. of website release call have the results, of the not a also our Relations will walk related notable each If we On call, of statement you will so to our of through a surrounding we the safe few done harbor some open Investor Nicolas, review performance. materials. I encourage investor Ron details note items financial

strategic have prudent liquidity sheet Over growth disciplined, a to the management. balance past commitment terms very and moderating we XX maintaining been and accelerating and accumulation, in months, capital of risk cautionary

offense allows As defense opportunistically to indicated a have to that able a act and of teams have And our result, before, in flexibility a nimbleness both organizational simultaneously. quickly effective been level and challenging navigate playing as and I've we maintain environment. we us as highly been

on common X.XX% average Looking at equity of return our average results XX.X%. assets a quarter, for a generated of return the and we on tangible

$X.X million the and status that quarter. shared in release, million had a non-relationship nonaccrual credit this third national placed earnings morning's we in reversal charge-off on a interest accrual in we noted As $X.X resulted a

lines early onset we pricing rising XXXX, standards. through in rate business increases production loan of reminder, environment, the in tightening and underwriting the certain a our As intentionally curtailed interest at

the of to liability front proactive our liquidity were we the funding at sources as levels on the cycle. current enhance accessed rate opportunistically sheet wholesale the side end balance of Additionally, we

billion, balances Our $X.X additional to eased the in deposits at deposits. deposit XXXX and of noninterest-bearing of quarter cash $XX.X of consisting quarters the total approximately of totaled at the available billion X liquidity XX.X% million on as end considerably compared ended borrowing capacity. Pressures first the non-maturity third of quarter $XX

increased to each the approaching estate third our basis, considerably an ratios could and investor the we the and excess we quarter, quarter see balances increased quarter, utilizing than activity the levels believe client relationships $XXX new to attract increase of basis emphasis businesses in continue practices risk-based disciplined a capital in reduce clients, XX and debt. XX year-over-year XX.XX%, are high-quality the Our increased relationships as pricing our to reduce in coming slowed we in third resulted deepen although to million XX ratio nonbank overall to a the basis these strongest risk-based and with rank direct and and real such quarter slowed Notably, funds. on points the our mutual in were to some points. equity to XXX points Contraction total non-maturity in capital more of and client because reinforce high-yield deposits ratios cash loan quarter and reserves XX.XX% only accumulation, treasury bankers' existing able capital Reflecting portfolio capital tangible by the deposits basis we point our and broker modest franchise. Even cost market in common among third our CETX and be and and X.XX%, quarters. Prepayment clients our successes, seeing to purchases customers U.S. money inflection industry. continue total outstanding in to alternatives some respectively. On efforts we pursue CETX

to continue into a our focus the towards return will organization that on banking requirements. origination high-quality meet approach take risk-adjusted relationships maintaining activity, bringing loan thoughtful in our We

the and in a like long-term discussing philosophy, of resulted throughout that minute superior are our from a positive there's which to standards, variety cash flows. our which remain spend other credit we has and cycles. a to where flow. sources of performance on loans guarantors personal approach our real the on majority disciplined us performance. With require typically estate risk who based credit record have of We operating mind, significant well-established investors long-standing businesses loan commercial cycle, across and credit cash of to documented Given well We rather projected in extend generally amount portfolios. We I'd historically underwrite We that real a guarantees vast have uncertainty available liquidity estate committed assets. borrower to track management underwriting actual loans than of around has history in our served a ample

seasoned We is mainly have which low businesses, size. real with a estate relatively small loan in our customer granular operators, base, market and reflected average along of middle consisting

Our are loan conservative, debt ratios are to while our values coverage strong.

fixed next Our adjustable quarters. de balance to of rate XX loan and with a minimis XX with loan is portfolio maturities loans hybrid structured over the

could are enables for Our impact performance our portfolio in financial proactive any monitoring change which them to managers detect trends portfolio. quickly borrower in that

to semiannually loan the and organization. across Overall, is lower Additionally, moderate and we CRE tested portfolio capital our move managed as well concentrations activity. new are origination stress accumulate continue

cycle. We expect perform it well to throughout the

asset to nonperforming total Our assets delinquency decreased third X.XX% solid, X.XX% assets. total of total loans quality quarter as and were of just were results

our status. national earlier, business X.X% national XX OPUS I'll loans was million turn to of XX. With line credit discontinued total totals call mentioned legacy of on to quarter September loans which details on more a third portfolio shared that, the shared financial a I is in through that Ron at balances $XXX we non-relationship a process, for results. review credit outstanding had or nonaccrual the placed few over provide As participation The

and good Steve, Thanks, morning.

a unless on basis linked-quarter today otherwise noted. are my comments For comparison purposes,

Let's quarter's start results. with the

share, and million our equity $X.XX and came efficiency $XXX.X average of at as income net net quarter. the common assets and a in quarter in Third return pre-provision XX% ratio revenue average an on resulting for was X.XX% tangible percentage expense million Total respectively. XX.XX% X.XX% average $XXX.X noninterest and totaled our $XX of were million, assets or per revenue of and

capital origination of significantly current in All strategy as sheet as regulatory to million, smaller as of TCE reflecting income the ratios and operating of result income the interest a cost decreased Net a our closer our funds at well higher activity balance new loan to increased a primarily look ratio Taking moderate to our $XXX.X grew statement. X.XX%. environment.

of well margin, interest higher in our the cost quarter. deposit was net as our funds as impacted On the funding both side, which X.XX% third mix the

compared X.XX%. controlled non-maturity Our asset yields On were total costs well of disciplined basis earlier. which that a of national of deposit X.XX%, cumulative impact beta reflects X included of on due months the the deposit deposit X to flat quarter, total pricing Steve actions rate shared the our the costs to and were second points XX% reversal referenced our credit throughout were cycle. Earning at accrued this interest

those prior million execute interest higher costs funding. of and by began would operating we Both exchange our hand million the compared prior quarter, reducing of XXXX. Noninterest the during trust from to similar early paid the fees mature on income level by set We income. said, anticipate higher were some in noninterest escrow wholesale funding cost reduced in driven compared ahead, lower cash in fees deposits $XXX income Looking Also, balance $X a interest a some margin environment. That to higher optimization intend by and from of levels to pressures rate of to $XXX with being to million brokered of strategy as October, account longer XX. of mitigate May advances net custodial the this decreased for of million $X.X pressure continued through cost $XX.X of we sheet down FHLB June we X.XX% quarter generated quarter. we and that million

related an X,XXX X,XXX For million a fourth quarter Noninterest credit be million total relative our outlook. our coverage of to $X.X increased losses quarter basis our as and million. benefit increased the commensurate our staffing with balance credit increased we point to to XXXX, commensurate From X.XX%, expect expect to $XX XX, the a of loan in ACL rates. Compensation of mostly fall, with in million remain due as to range in tightly $XXX.X of expected the sheet. $XX quarter managing to smaller range to to expense flat continue on expenses. to $XXX portfolio ratio of levels income increase noninterest as size slightly increased operating million. Provision million. of June $XXX million deposit expense with the and we expense We prior perspective, $XX.X remain the ended $X.X and higher headcount of expenses compared earnings $XXX,XXX our we relatively for focused economic fourth staffing And our from quarter to slightly X the our million to

brokered now new billion ended which balance by We a and partially portfolio held activity. prepayments, less our prepayment CDs. by compared $XXX quarter contraction million, to decrease of and million finished standards. due as of the total to quarter to quarter prior $XX.X billion, Total deposits pricing maturities Turning the in commitments loan in at disciplined due a $XXX for million, slower driven at underwriting represented sales million, sheet. loan $XXX higher-cost $XX the we $XX $XXX of saw assets million linked offset decrease loans reflecting the investment quarter primarily to Total declined

cash the our interest We $XXX increased value the will quarter from our still pricing higher-yielding portfolio below AOCI investment to the and during led We alternatives. and this approximately on year, increased rates, anticipate million which pretax bolstered the to pressured and continue December and $X.X flow of and reinvestment of AFS the their million $XX of but our significantly balance non-maturity with over quarter upon yield surge fair in funding cash amortization points June maturities all XXXX. from capital sheet XX, dependent portfolio mark. deposit average deposit portfolio in to The a the redeploy to XXXX flows, portfolio be and X.XX%. Not ratios remainder $XXX.X XX, risk-based mix consistent basis surprising, ratios XXXX into our exercise deposit considerations. The has million, smaller given X reserves somewhat increasing our liquidity securities combination profitability remain balances some on investment decreased late to customers discipline, billion

X.XX% prior from Nonperforming tangible book quarter. value equity And standpoint, $XX.XX. to our XX basis increased tangible assets X solid In multiple addition, an across quality asset our from our measures. increase slight increased lastly, remains share increased the points points a ratio X.XX%, common basis to quality per and asset

total basis our delinquency at loans total ended points, Additionally, the classified decreased just quarter and to X X.XX%.

X.XX%. healthy credit a allowance Our our coverage $XXX.X ratio to losses for and remained million increased

value fair through acquisition I'll X.XX%. With on the turn includes which that, absorption, to discount loans call loss quarter total at Our the finished back the acquired Steve.

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

in As take liquidity, we growth, and to will approach head building thoughtful to respect continue a with year-end risk XXXX, into capital. management balance we sheet

and environment ramifications it evolving the the are to adjust the have may future to on rate the foreseeable economic expect for point, broader environment. At and We challenged as longer real industry. scenario prepared this and estate we investors for interest higher rate remain corresponding the for businesses interest the

result Our opportunistically fashion well business as our and in prudent a through in the a positioned place disruptions of is taking markets. strategic organization disciplined, our diversify to growth organic

the In open we conclusion, which strength, our in could create the our challenges on to quarter we focused happy be teams faces industry our our to call may shareholders. That intensify, position entering us. value answer opportunities remarks, any In our additional the that turn deliver long-term for business please questions. from are a of we up and and for addition, questions. for fourth strategy keenly anticipate prepared executing Operator, would remain concludes

Instructions]. [Operator

question first David Raymond comes with James. from Our Feaster

a Ron. I both could and balance -- Maybe environment. we into higher of environment seems for was this and higher you trajectory It longer margin like the your that touched up normal. just is it probably just for I'm a hoping commentary, following kind sheet on in new you, longer bit. curious dig the on Steve

management about But you do about liquidity how the of You the moves the guys you margin the how reduction performance of Steve, a more in then longer just and environment? think higher And bank's active have light balance very proactive just sheet. in economy for you've funding. been maybe broader to point, some that managing made, just trajectory wholesale do the think in the your the broadly,

the let Sure. economy. Ron, Ron then outlook Well, you I'll address -- and our the certainly for why happy perspective the on go and ahead don't my outlook. margin to David give I'm And

as so deposit still that loans we're depending primary on our higher as on deposit lower that managing course, books, of That's flows, David, originating of coming cost focus. are indicated, Thanks, are to, we going much Sure. And we've of at at Steven. deposits. yields. mix, as we're levels, the to course, be in albeit able the bringing but We're

So move as the going decelerating, although effect anticipate, and that. into margin. And net a deposit start we to move I decelerate beta deposit anticipate do rise going that because to I of a on give do to to interest that's should basis, XXXX to quarterly -- also add the to is the we as higher forward, beta denominator pricing it's

little the repricing there So getting we asset still do some another level look bit of a side. of for stabilization. on move We're if is

that also So help. should

the focused how deposit that managing itself very on it So sheet lot tightly moving but there's very, parts a that see this. We'll and we're out, balance in cost respect. plays of to

as add, down that year. been laser-focused And end reducing think early certainly we through funding, we and expect move this us of in into took next I wholesale we to certainly higher-cost highlighted, the benefit which as we've year we XXXX. I'd starting Ron, on that

very economic the outlook, time, commercial from have the third strong, it's adjust dynamics be position interest informing think I real certainly take are the a rapid from to what as capital we so ensure unusual we expand uncertain as balance to through businesses certainly investors an strong, rate, at to XXXX in it this the levels, as as same franchise. as move and markets we the opportunities far low rise out. Employment quarter. and remains and be I some estimates these on to in indications, to of sheet continues of estate going plays And X.X%. But of unemployment believe our this have all on -- where environment approach handle all preliminary how to X% our that's managing grow that As are further to it's we highlighted, advantage rates, we liquidity, in and here going GDP

if that And inflection curious to Okay. we're closer your it portfolio. point maybe just on the maybe prepared you about I'm point, to remarks, an sounds could loan there. in like you talked elaborate

What's and you are growth risk-adjusted slowing X%? that? disappoint. and pipeline the is proactively your origination composition ago look And time you of how think your growth? about through talked with You some do demand over how just I'm like pricing curious just returns the trending good about from Where rates loan perspective? seeing

to right seeing demand third certainly quarter. pulling make would to the suspect muted us. opportunities or in some I could at I think prepayment subsequently point speaking, you're I that's appears right back. Generally in as far lenders inflection sense here strong as we're plus we is time an pretty that that we're loan not portfolio, or year least lot of say the now. lend rates the slowed last be, of And least contraction period are it seen at it over at the approaching the a approaching we've because

it's opportunities we -- and look cash makes side, where business at it's credits generally, I underwrite on expand opportunities, that then their have flows strong areas. predominantly to other business, as And as and very in sense. said, businesses muted think pretty the some and see I

we'll months so the we coming into dynamic out as move see XXXX. plays And and how this in

one for Okay. me. And last

Look, sheet. strong got you've capital. balance on Just touching an incredibly

how grow broader operating continuing You've environment. look, positioned economic of you're capital well shares any priorities don't for for about appetite this Or have a loan difficult growth, now preservation slowdown capital extremely Or capital your where at share still are we is given But at for is? for the I'm need value stock a the capital, bank and just and trading there point? book think tangible is repurchases ton to you this paramount? curious point. below a

preservation Generally certainly the the speaking, Board. is one considerations for capital primary of

way have stock in the We but regularly buyback, capital we levels at it time, continue and an that And that approved are not Board quarters. looking we'll and for level. at look something is active considering that coming to optimizing some approach the been period have the we certainly, we of our

Matthew next question comes with Sandler. Our Piper from Clark

restructure along the at of how given what's portfolio capital securities related to much this point? question, the that lines have capital Just your you appetite

talked before, it's at We've points. various about that something we've it Yes. that at, Matthew, looked

that to it. continue disruptions away And consider approach become attractive. the environment we it, April We in as more moves saw year I earlier March, May, think and the from, call that this may

to do assess very and strong opportunity we're how Because we capital as out, continue thinking So certainly point we'll levels you about have that today. it.

us points. October little the then benefit looks brokered us for margin. by mean average. of here timing give quarterly then this And And much consider to the sense with not on spot like the looks a about or NIM coming you trying in fully to rate a how of million bit And your then the Great. sense and CDs XQ. to XQ. could XQ? in runoff quarter? have in X when pretty to get NIM X, What the numbers that basis you the trying I'm you benefit it runoff is the in be that $XXX Can the up actually whether Okay. through could tight saw for run at the remind I a you deposits get your you I'm like FHLB, being it due

depending in $XXX the the flows, we or activity, potentially And off that roughly quarter. of of our end look well, quarter. to was $XXX towards those towards deposits upon all million about deposit this end have end quarter. the pay the deposits -- we'll the the levels, the down Most mainly off towards $XXX loan of we We that quarter, mature -- of September. paid those million broker million of pay the matured broker Most of cash

maybe the benefit quarter this And much of dollars. then that Ron, amount in Or how NII Okay. for hedging does the swaps. gain, the on

Yes.

over interest swaps, late into entered quarter. XX high about going this in in the The the we is, million interest with the Matt. basis XX% that is We although that's $XX in that We've on XX today the that -- the of as saw be contributed maturity maturing, or of to quarter. only it book billion. about XX, under It a On quarter X/X that points. the got just move $X in lining was XX it's about good is generating XXXX, silver little the news we of that it's -- bulk

still going current -- to $XXX be position we're no level year, So pretty with as that's at entering pretty that. in pretty good the we'll the good be assuming SOFR, far as a million moves by Fed. And with a of impact still next

then what's there And relatively expenses, Okay. the rate flat on the down comp? guess in potential masking XQ. headcount just but X%, I remaining run savings in

and impact truing expense here we're We'll the plays in the terms Yes, attrition primary that's the itself how anticipating here for see then nonetheless, saw driver And we're out much, that still see comp. additional as not deposit there. is good earnings an credit of quarter. the increase up third fourth We going up pretty some full that's quarter. going may predominant. we but in to ratchet And the the But things in year. to be maybe that

one for me. And last then Okay.

we that you you portfolio. like surprise Steve, all don't type I'm little bought sure Opus know of SNC the -- on Just you you portfolio don't that because kept that business. a after

something you So unwind Or that guess not earlier? that like? why you is might there about I

this is it. adjustable No, -- it to fine up point, well been with and we has we rate had it. credit we were unwinding performed had been It to --

last we've overall and particular, in of portfolio the where the said, that comfortable As from stands X.X% declines with at portfolio, in just where it reduced we in year. loan the we're portfolio seen we've it the were, we over and given the contraction loan

McGratty Our KBW. comes from Chris with next question

there? you are Chris,

described, like you've more interested profitability? expenses we I'm do you Steve, on to if longer for able mean, be expenses what what protect done? in do as to the stay I you have beyond might you on this in higher to feel you do the environment,

I'd say, yes.

a frankly our think is, managed the always new. I nothing is environment historically, what the to I for we've board. But as well. evolved that expenses that as take us think across look at room it there's outlook expenses and is And

in on maybe, Okay. comments the just back And and margin. in I yields part looking quarter, I Slide know schedule. then I'm guess, coming looks the repricing XX, saw I to Ron, the at, happen. dip at the loan the get you book Fed how think was I that this we interest if might done, think at environment, repricing the of to the more in is NII about should reversal. I when trough back guess, guess trying the But

Yes.

move a the on we're permanent loans on new that's where that where the very the into the see the basis. deposit pauses and -- is probably up reversal, And should of see pretty we neighborhood of the -- of in part, little the on of of got second we've the incrementally book, loan of We'll say, yields, focused if frame. the the the portfolio more just accrual the moves done, of little a more already active side with the the some that quarter of bit that over lift how coming Fed and of as swaps. little talked noise, fourth about, the and And XX% on XX%, them not we bit course, but see between Fed we'll that on a -- it so could the of interest was it we've that that about probably SNC. one time trickle in interest some So a there. There third move months quarter, pick the on of deposit book all couple of managing all goes benefit If being most over the cost. repricing I -- see a somewhere -- still for we'll

on And the then if maybe could net interest income. I Okay.

deposit got unchanged we've trough moderating loan couple quarter kind thinking was we've feel you're how revenues? got I quarters, of with pretty the a of trough, the in decline, average. spot to about that like thinking is more rate something the You're about

here. in jump I'll

it's generally we're it. thinking think how about I

Let's see how could point. or sooner play whether that things be out, it beyond

market And the different play it's the on upon I of from think loan in at there's certainly and dynamics economy going flows dependent the just a and deposit both rates. lot side. on the and

So in a lot think to X. moving of or pieces, it's but reasonable think quarter a I

Okay. think Thanks, Steve. one, should And rate, prospectively? last Ron, tax about the then, how we

hovering been where And right we've think finish -- that we'll I around XX%. It's that, here that's of pretty consistent year. the in

Instructions]. [Operator

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

discussion maybe I moment wanted X of that to loan for loan By interest point couple lower points about was basis revisit and accretion. X math, that basis loan from the a yield in ago, of my another discount yields. reversal contraction

to you quarter-over-quarter. this was more mean, the there portfolio. quarter. wondering, anticipated lift some bit of But a kind that gets shift just maybe flat have mix back -- I'm within I So I just would

function other a Or of that? drivers some issue? that of or a more there prevented it is just kind is timing So

see had some of you basis as as -- didn't this points, And your Gary, impacted or probably that's X have came or X We were a you lift that let's quarter loan would little higher think, anticipated. They that X And quarter. say. much in another why their terms I yield. basis into points bit X play point, sales to last

from still loan credit pricing comment a more a but moved Okay. Appreciate that. perspective amount. were call it, on from how bit think last, quarter, you bit of just yields origination lending from not comfortable perspective, the a Obviously, a on curious, days. last I that perspective. And made the XX to albeit Steve, a a you risk quite kind new I has your I'm a view of world was degree maybe smallest curious this the or changed dollar quarter, credit over what

don't -- is side. we're pricing the it's to out there. around demand think there It's not discipline maintain just again, And a hasn't of -- part going is lot of changed materially. our I it

the the and have it's going cap estate, because that some board made of owners inflation the really real that's of expenses real all comment rates have impacting estate investors, for I whether all investors, dynamics their outlook. business or that gets on impacts I investors an and rates think think to side real that So rethinking it business environment estate operators think on the and owners, expense across real reassessing I those from estate I back are both current businesses

And markets. tamping so in at down demand, that's our least on

And Great. ask moment on your clarify swaps the could a Ron, Okay. ago. if more, I X to comments just

that would So over fourth that the roughly XXXX? on impact X/X about of at have mature for the be the course a only looking the quarter of you'd XX% here or the benefit looking swaps gains you be at the

That's correct, Gary.

the Operator, is queue? there anyone else in

Yes, Chiaverini Wedbush Securities. with I have David

quality. credit So I about ask to wanted

talk to quarter mature. as or the of new So new that loans there. with Slide particularly or in come equity, we third you that a classified struggling you loans over putting loan. got for the would out have XX, additional up are are the past couple loan their that How about borrowers consider reached maturity you've the and loans, borrowers the handling reextending matter. quarters those environment saw many an how a for Can uptick for I was curious

I seen pressure from a standpoint? book -- to -- in any David, process We from just are that maturity haven't maturities. is our can of real impact Ron, flows, review a our on of, that comes analyzing regular that is cash mind standpoint. that anything think your maturity Classifieds no just uptick there part from

No. No. Steve. No,

that correct. point typical mean got see. I fluctuations classified, you've fluctuations a I you the on -- the we think to or see I the your it normal think that's just

yet. like So just anything or -- no, David, that we not seen heard

yes just several next loans have of general, on quarters. in the low the have we loan the maturity. And the -- mature relatively that that a over was we slide going to sorry, percentage portfolio I'm in I And deck add

Right.

another the that refinance the it's you're or to of and So very those maturities, ones ones a small seeing kind seeing not lender? granted, borrowers are struggle -- number, but that

us portfolio paying have frankly, cash -- seeing we're or accounts top it, We're very we -- them and off proactive down. out On having No. we're management. their paying of us of

before the out their how X, looking about them reaching at those to world. we're So what months X to we're plans clients are maturity, and talking

it's appreciate queue? concludes think that and else as I is you part well. Operator, from So of in there Well, all. portfolio you that that We today's proactive call. we us joining management today, the anyone thank benefit

and thank This attending concludes conference, our for today's presentation. you

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