Pacific Premier Bancorp (PPBI) 29 Jan 242023 Q4 Earnings call transcript

Good morning, and welcome to the Pacific Premier Bancorp Fourth 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.

Thank you, Gary, and good morning, everyone. I appreciate you joining us today.

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

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

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

to statement. note our earnings I a relative statement harbor forward-looking that release comments. include that I to each encourage carefully you of safe and investor read the presentation

On walk fourth notable performance. of will I'll up our today's related Ron items call open a we'll surrounding review the CFO, the call, financial to of some through then results, our to few quarter our details also and the Nicolas, questions.

to extraordinary maintained all, Was quarter challenging Rapidly expectations proactive capital XXXX, Our dynamics and liquidity banking bank industry. regulatory the another close year it on interest the succession market. team credit an we management. rates, high-profile prudent risk rapid brought and and our to rising focus failures solid Which for heightened out and delivered Throughout

organization be built in our stakeholders well various us and to This have dynamic our extremely to and XXXX. operating We environments. adaptable served

for throughout our to relationships meet and quickly the example, and the teams. existing deepened of to responsiveness lines our engagement the to For our business led year, business strength clients' industry responded across reinforce challenges collaborating and opportunities development bankers to needs franchise. new This

created expanding provided repositioning franchise. reposition and the and securities interest enhanced securities produced reflective transaction the additional capital by During portfolio. leveraged XX net we proactively profile, margin we The immediate the strength points. optionality is future balance fourth basis quarter, our liquidity earnings results, have of our strong our our within the levels to of sheet This

observed few a many quarter. the to were trends similar highlight of what to as areas the in key we third like I'd

assessment onetime of FDIC effects per Although was per portfolio repositioning, our the operating excluding earnings loss share, special of and we reported our a the share $X.XX quarterly securities $X.XX. net

our from excluding businesses compared a FDIC to in We reduction noninterest quarter, special third fee-based assessment. as well as the saw lift some expense nice the

Our current even impact ratios, layering environment our tier the the remain capital among drive after loss strong which commitment peers on of sale. top in accumulation to continues our securities the capital in to the portfolio

XX.XX%, fourth In tangible TCE book ratio the $X.XX quarter, per $XX.XX. XX and share value to increased points basis our to increased our

with generated our was Our account and in total pricing our CETX healthy new existing to maintaining customers the clients bank in relationships discipline. ratio attract a ratio came at ability while XX.XX%. new XX.XX% capital and deepen openings deposit our risk-based growth to meaningful

redeployed account The ability security to the term while the portion We proceeds of advances. activity million of and opening cost from new the $XXX supported remix a with balance from deploy also sheet. favorable the cash liquidity reducing the by million of FHLB portfolio $XXX prepaying securities sale, treasuries into our U.S. broker opportunistically deposits coupled generated and higher

customer some of we surprisingly, at increase billion. total clients XX.X% included see during some of nonmaturity continue fourth pursue which the mix the the end related quarter, approximately fourth outflows totaled We outflows to business deposit Our nonbank $X.X to available deposits deposits. quarter did alternatives. Not payments. to and Ultimately, higher-yielding tax liquidity shift seasonal saw

well-controlled XXX relationships of nonmaturity and disciplined emphasis cost in deposits basis pricing constant Our on client a points. of deposit resulted cultivating high-quality

to estate cash due overall in from debt. commercial borrowers. the side deploy saw line down On quarter balance Prepayment portfolio reserves activity in growth excess commercial utilization business the pay balances increased the continue clients to third was similar loan asset slight sheet, real we of to to our as

return risk-adjusted Our relationships that high-quality requirements. generating remain focused our meet on bankers

and credit management As of always, we are monitoring. proactive portfolio terms in

our We with our on and managing market clients' values clients our performance financial to inform credits. have in liquidity to communication businesses collateral industries. their ongoing updates These approach trends relative individual and

Our year-end asset quality metrics solid. remain

As assets of X.XX% delinquencies assets. of loans were were total total and and nonperforming X.XX%

in credits. monitoring markets real all and identifying trends facets and are loan We estate organization. in managing is our potentially Overall, commercial across managed the proactively closely the well portfolio weaker

With I our few provide over will that, financial details the call results. to turn to on quarter more a Ron fourth

good and Steve, Thanks, morning.

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

the Let's begin with results. quarter's

or net a loss per the quarter, fourth For million share. $X.XX of we recorded $XXX.X

Our included the and due special after-tax $X.XX additional of nonrecurring million net assessment. X that expense FDIC $X.X billion a $XXX.X million security results of the the items, reported loss had noninterest impact AFS from sale to

Excluding our per average of diluted items, return share, and average or $XX.X tangible results equity a these on $X.XX net assets a yielded income of million operating of return which X.XX% X XX.X%. on were common

quarter. our Our earnings and pre-provision percentage X.XX% the investor XX.X% operating efficiency ratio at came our for Please details. of in reconciliation our to as presentation was refer adjusted in non-GAAP for more net average assets and release revenue a

reduction negatively by million look of mix sources. average Taking at securities of higher yielding toward a shift impacted a higher interest statement. funding assets Net favorable a wholesale closer the earning levels, as the asset earning lower was by and income of result income repositioning $XXX.X partially cost the offset

cost loan reflecting was down quarter. and basis cumulative cost XX points basis, our ended of X higher X.XX%. the at of beta discounts, were quarter XX%, for deposits to of spot increase X.XX% for interest were to of to and investment loan nonmaturity higher the throughout as with weighted reflecting only cost deposit securities well favorable cost well rate points X change paying increased on to led this X.XX% an while spot the basis yields. On deposit on illustrating the expansion the a than average our from funding. actions our our rate deposits, of points total basis basis fees mix quarter disciplined quarter And lower points pricing to wholesale of X.XX%, our XX deposit points X.XX%, net up of total XX.X% the increased basis of the the lines Notably, excluding margin point X.XX% funds XX draws actions X for to higher as basis portfolio average total due cycle. Overall, costs controlled Our credit

the the further broker quarter. lower net optimization items quarter, For expect combination through funding, we of balance of FHLB will levels. a namely, levels and in the from help wholesale We sheet reduction both partially higher-cost first lower first to interest pressures in these a advances we cash expect and margin year-end mitigate believe combination trend deposits

solid our noninterest $XX.X of million, income core excluding a businesses Our in at had came loss quarter, fee-based securities million. the sale $XXX.X

trends slightly as fee came in exchange income fundamental the quarter. $X.X trust at Our both up escrow million in and were million, prior over income favorable income at $X.X fee

balance track of benefit we staff realignment across with PPT's to the with certain to expect we lines of first ended our count reflecting the the staffing to of and continue benefit size Noninterest noninterest $XX to slightly expense quarter the tax range of our the Compensation expense income total X,XXX staffing levels From as as with $XX from business head benefits million September For sheet. in the overall million, XX of perspective, million. to increased $X.X quarter quarter. million, compared to during fees. XXXX, the X,XXX be of annual decreased the the a $XXX.X

our quarter tightly in $XXX higher expect with on managing We $XXX range million operating the payroll expenses the first expenses million of remain and anticipated quarter first we to focused taxes.

points loan Our million basis of coverage loan and X.XX%, to new our credit decreased quarter the ratio ACL with activity increased as commitment X provision losses our economic fourth quarter's level of for $X.X outlook. prior from the consistent composition,

the flat the Turning now total balance quarter. finished sheet. $XX the in quarter to billion with assets prior We loans to at

enabled wholesale cash funding securities and down the us noted, term in pay of cost FHLB brokered lower borrowings. CDs to As form and higher

million deposit tax-related categories as $XXX we clients fell of net $XXX million fourth draws into deposits million broker to investment of the offsetting of for continue a $X impact of mostly of reduction existing as in prepayments, Total million at maturities seasonal new held redeploying million. and a on decrease credit loans billion, $XX of prepaying alternatives deposits. and by the quarter loans driven $XX $XXX as $XXX higher-yielding increased million, outflows. ended lines billion, Total well $XXX Other by commitments sales quarter funds driven see

deposits, with first total generating strong momentum the The successful XX% us pricing average Even mix basis strategies relationship our quarter. continued heading X the only quarter's model. for business at robust positive reflecting shift, X.XX%, X.XX%, our of into our deposits is as remain the points nonmaturity noninterest-bearing our year of a deposit of deposits ended the above evident client execution

a partially on yield $X.X increased The to securities portfolio million billion spot rate in X.XX%, portfolio We points reinvested the treasuries. the of short-term quarter average of on from securities portfolio $XXX and of the decreased $XXX U.S. from XX ended to million investment at benefit X.XX%. the our the purchase basis full our stand the as benefiting first year to quarter proceeds

pretax XX. surprising, on yield XXXX at and total million comprehensive combined the in the curve with rally late sold, to other securities improved Not the $XX accumulated given in AFS the December our loss portfolio

well-capitalized continue remain the to the total tier at ratios peers. risk-based relative than to capital capital CETX at in XX.XX%, With and higher rank required Tier Our XX.XX% we thresholds. X significantly capital our our ratios top and our

our and ratio book equity quality now addition, per tangible $X.XX stands $XX.XX. share at In a standpoint. to value from common And healthy XX.XX% our grew very an asset lastly, tangible

the Nonperforming points. all delinquency basis across compared to was assets just were and prior also remain X.XX% at solid. quarter at flat quality total X Asset measurables flat

X our points $XXX.X the million our losses Our coverage at basis total decreased for increasing to And X.XX%. finished to ratio classified quarter credit loans with X.XX%. allowance

acquired quarter at the fair X.XX%. the loans, basis point discount absorption, which value loss total Our on ended up X includes

over turn that, to I'll back the With call Steve.

purposefully believe liquidity growth Ron. with year-end. X about stabilization portfolio past at over by have I'll we the We the Thanks, the encouraged the comments few and loan outlook. priorities years management and well. actions have in capital were to We Great. conclude rates moderate our us taken positioned a

what anticipate lingering However, rate may we muted interest environment. a demand loan in be higher

are monitor stresses. portfolio see to closely and we continue should to ready respond will elevated we our We decisively loan

Capital remains pressure to XXXX, would were the aid Future ability growth in push down. a over cuts, they to costs funding balance term, near appear sheet on For materialize deposit if have rate priority. costs to accumulation our moderated.

securities create However, saw deploy capital shareholders. repositioning long-term opportunities the and we balance sheet to value regularly are optimize transaction, the you with evaluating as for to

of thanks to expertise remain, position to the the talented a they most in advantage of industry, and in to challenges some quickly remain entire arise. we and Although act Premier if when team, take Pacific strength opportunities the the of

well are In continue said, clients, our XXXX we fronts. we we employees amount of uncertainty and to positioned conclusion, shareholders, significant to optimistic organizational and leverage to continue as face to long-term a an the will discipline excellence our various value industry, That communities and serve. are in we deliver on believe for

Gary, remarks. open happy call prepared answer our please to We'd concludes That any for be up questions. questions. the

Our Feaster David Instructions] with is first [Operator question Raymond from James.

margin I start Maybe want to on outlook. just the

cuts compression to some near think potential seems especially guys be sheet. sounds balance like the have the It first first Curious it like coming term? but you rate incredibly I just expectation might how the in be active your margin curious more you margin in given trajectory about modest If managing the sounds trajectory? quarter. going Ron, You about like the maybe the coming forward, been how quarter there's hear considering comments, think that

you can Ron, or I'm some happy take to up thoughts. offer it

the course, manage lines Sure. David, we we've pretty will though, modeling as see, job first any to as uptick through I much that's here nice was done see yield managing sheet pretty how I continuation. ourselves I that out the by that highlight, anticipate the of deposit continue plays you costs good mean, and a internally at evidenced we saw we cuts. will itself a going in of variable and credit. not draws don't quarter. that rate -- balance the be rate move that, on we're fourth the here I driven quarter, to say here in we'll But first our quarter, here tell would We'll

are those So initial of Steve? thoughts kind my there.

Yes. don't that have much know I to I add.

I well. think that covered it relatively

the loans. inflection types do an increase see on a taken are touching marks standpoint conservative this some in if to think And you've time just -- now, so, And Great just pretty look, of for right? what kind Curious, point? dynamic the of more maybe and you of -- drivers what things. key confidence your and here the capital putting market you maybe loans? demand those improving Just of seeing work some what's start to terms in you're kind a giving of thoughts to from of on

I muted demand, we foreseeable we Sure. Well, pretty said, see David. as for the -- future,

from have business of a talking all better there. until to it's rates. that to, real think clients direction level estate of all or the about certainty remains whether there the investors, we we out we're That's from indications and have clarity that I small be caution

is the demand. expectation going credits maintain bank. We're discipline on our muted bringing into we're the quality the that and of So our to relationships

think I the fourth see materialize the first But the quarter, little draws certainly of just from as in mentioned. of bit. half up benefited saw we The production here picked you line in those trends We'll a that some how those Ron year.

for all. the about uptick fee last Nice line. to Perfect. some been benefits big you in that's focus one income for me. know hear some maybe And I modest and a

in thoughts? business. side? in you're in like front? investing you're I of been the just high-level kind tangible there where a Just Curious [indiscernible] whether then of And investment curious seeing And have technology. you on there know that tax seeing some guys trends any and and lot benefits on your trust the what that benefits thoughts you're sounds escrow the some It underlying seeing

to So there, lot That's David. right. all cover of there is subjects a

invested developed and I understand far bank from that areas. pleased every were very to they the with and in nice some And number the better that we team, their level for year And we and we incremental time. to the side great with have that the our speaking and as think, as were we're growth some every with team of the the capabilities as up results have and industry and their at a to We've have to First, really trust had in confidence operational the clients. that's team, to some that of in helping, they think wealth accounts new heavily relationships some business. that improvement in plays managers the different production last how pretty this in we in year put -- excellence and trust we and largest And get quarter. expect approaching finally here I able expect seen continue month in level

estate activity and business frankly slowed the the couple escrow years. commercial in over of down overall. really much transactions the On side, that last has of real lower Reflection markets

better more some relatively in broadly, I think movement that business until the activity to on we commercial get that we'd markets real some muted rates expect estate and clarity be as well.

and the And business, we in are technology then lastly, side, employees. from always investing technology, that's that's the

play that quarter improve We we away from and of last further have the teams bit that the I and we'll there resources continue to in able more second throughout that move the those disruptions and occurred the have some stabilization, areas. And certainly of be little first organization. aid year in to our a think we and technology as offense

with is KBW. question McGratty Chris next The from

on the just we're you environment, balance in also cuts. for And the benefit the on maybe higher the actions trough to smaller higher longer NII calling sheet futures forma on that's not but if versus took in how Maybe a when? kind we net the now maybe question more of stay for pro market do the for balance longer of reacts interest a maybe thoughts Ron, margin there, broader if given sheet. Great. income

the see reinvestment, big wholesale going some doing going Yes. mix. that and offer well XX to I as a wouldn't and I to we've securities deposit is the some Obviously, in repositioning, basis be here I'll but side on of The continue say here. to in just been course, some We going card, what I far looking echo the add we've nice a lift first go trough that as stated of points. up additional down favorable the that's some the on flows little and to the as bit, to pay the aspects cost do, to was quarter think, wild is earlier. Chris, got to did expansion deposit the going benefits.

see that see nice Again, of industry deposit costs. to across so I the a our we've despite challenges it. And to job the aspect fact really continue go managing continues challenges done -- wouldn't we've that point time, I think that in say area. front. as slayed at pressures But see far still that this that to we're on that or cautiously We conquered dragon in some we'll optimistic

Great. maybe Steve, And you capital. for on

XXXX? to given the talked of arise actions in industry update how capital you about the for taken. year Do and You ranks at would us expect the opportunities level, of flexibility some on stress the maybe you on maybe rates your and XXXX you've

opportunities Sure. thought XXXX expect that Yes, would I well. I in say but as do rise we to

And here. how the just we'll year see so plays out

the going the I given it we're long and the of level estate opportunities the a benefits to going risks, are where put all organization markets do comfortable and work as is -- the strong and we we're the capital think all having term, intentions around going approach retain overall, be I we variety of to of economy or it's whether that. there, to given other think levels a But it to to that uncertainties of real uncertainty I mentioned, areas capital. it our out commercial in see environment, there's continue remains geopolitical how very develops where to just

The D.A. with Davidson. is next question Tenner from Gary

on that balance fourth And of rapidly seasonality a seasonality mix? I you of come chalk payment shift how of piece back the you noninterest-bearing could kind would in of wanted maybe sheet? tax sense to how parse to outflow. the about ask Can versus it of quarter up timing much ongoing the

are measurement far of and the going Yes. that on on. tax as Gary, the all from -- the a payments as It's specific hard it, movements to put

or we're to down loans. seeing clients off pay mentioned, pay continue Rob As

sides And we sheet impacts commerce so that of the state on impacts escrow. Certainly naturally. out, in of come some in saw both later of XXXX, the balance payments California, tax the

Our the sense of first half is see expect some that funds as the in And of though return begin to those that, that move we magnitude, year. the we typically, through don't year. to

How it environment. will to Again, about businesses yield with much think the has come uncertain. deal feeling the curve, it overall is how in part, are I back

how So -- things see we'll play we'll out just here.

XXXX. have opened some of one And fully get think we accounts that may those up number onboarded, is of benefits pick the we in as benefit there. just I new the implemented and we've

bigger back Appreciate times pre-pandemic, by on there, they or the as guess, at company side, management that Even the deposit XX%. operated that. wholesale the I funding thoughts you're today a were sheet, so picture, loan-deposit moves how often your above quarter only the the thinking on And and ratio. net the up few of with ago? you'll at the XXX% to fourth in reductions balance about you're relative years where longer-term slightly are

Yes.

see smaller us We loan-to-deposit deposit the over would I prudently. balance sides low pre-pandemic, to ratio we think sheet. by don't the mid-XX% could assets. think in increase there XXX% also to side think but and business. certainly to running prudent the it we be I of we'd total loans when quite about don't both range. the you that get growing that it Both Certainly, like at were in see a bit time

doesn't hedges, you kind added you you of added in is third maturity I look for And any can us quarter. quarter. in of what remind like could. schedule last the terms if fourth Ron, that. I here in just the of question swaps? those But the some one appreciate know me, It I the

longer. billion approximately another are in got if by just about will, And got And we've of hedges XXXX. out the early just book. then those a this tranche, you in swap And mature half Gary. of year. in the another XX% end We've bit totality Sure, little $X.X laddered then will the rest

[Operator Instructions] Andrew Terrell The with next question is from Stephens.

million just for those? now, right of got can like termed advances FHLB Ron, schedule you've remind look outstanding the us question, $XXX what's First maturity the you

Well, X/X tranche quarter. we've maturing got that this of

tranche another off. and So see think in we'll got next year. then I the that we've late year come And then

it. Got

balance that can the then some of to just us cash you termed the -- this to the on out you'd And to is us you would cash overall then balance of that that sheet. that where talk about and -- the see some talk like trying of how brokered. And about be? use you Okay. to position would more pay to guess, I'm FHLB it the of assume what uses the Can you down what potentially kind figure I just right against I pair kind set matures cash quarter cash then

Sure.

out the levels, coming into under that the the post we're and and more the heavily industry more obviously, our us today. the We're cash. $XXX rise million So normal of in I'd than million, much many in given pandemic rate $XXX range. want operating probably double rapid the say

the over back time flows. deposit And we XXXX. normal so coming could levels throughout I depending Loan could we us a little see move upon that see talked we've of about, down bit to growth, as remainder as those

any course, that macro challenges from come about Of standpoint. a notwithstanding other

And Okay. securities XX/XX? do securities have spot on just what Got then it. was on the portfolio, at yield book you the the

X.XX%. Yes,

then one on more And the margin. question

a accrual in in was quarter. interest think the headwind there the third third quarter, that I an was

was that off that. equal, yields, just X, I points think, of basis if X recall, the loan else all to So I XQ falling positive

up lower-yielding the is type So renewal, of XXXX. coming question yields just expect year loans as the about throughout quarterly yield as a I what basis, reprice just And for kind going of come you loans fixed or loans into are just off? of would loan the on guess rate improvement annual adjustable-rate loan or kind

that of don't have a maturing we adjusting, obviously, and some publicly. there loans the off a lower-yielding estimate in parts from Certainly, new new the pieces we higher Certainly, yield of to than what what borrowers, is we've you But -- have There's of up up some faster to of around on a an we I what lot decisions the much attractive But production. of loans yielding of of is end lot how that that are Andrew, the putting their as mentioned, volume They're demand rate come like how basis. muted. Ron, today. the moving particular? there, pretty retaining do we're frankly, loans add moving stated there, out stuff is anything pretty paying are and loans. the about risk-adjusted

No, that that's was I to impact points quarter think the good, was just Steve. going X confirm we on nonaccrual. -- I that that last basis

didn't get item some So But lift alone. from what that we that's just you -- I with stated. agree

I like made Perfect. you reminding not progress Okay. exactly question. congratulate I but a a not I this a years Steve, bank notification to Premier. at But since sure of appreciate XX then. been the it. but there's know Last got LinkedIn lot looks me morning, in what Pacific XXXX on I'm

So congratulations.

it's you, team a Thank effort.

[Operator follow-up a D.A. Davidson. next Gary Instructions] is Tenner from question with The

your Just ACL you the a kind quick question waterfall. on credit. of slide have In deck where

that ACL the million economic I and You math other unfunded the if talked my your unfunded my is updates. If correct. again, right, $XX -- to for is -- commitments the related or broadcasts down, came math adding [indiscernible] about on allowance

the the levels. I'm bringing funded the unless unfunded piece just it the the of a ACL down kind So dynamics curious about commitment and of was function it maybe on of increasing there

Yes.

effectively a of draws, million the function We your with think, new again, will, $X commitment there or bucket, levels. come bucket. lower down, $XXX was Gary, at to it directly last of you $X shifted I if did that unfunded million The the end nailed funded with million and unfunded comment. the $XXX from million You saw, that it,

So those of elements ACL. the, that the of will, between shift X was you if the the kind

Okay.

might of swing just the just were those seasonal over of direction? back in temporarily that other some year-end, So see you kind

I mean possibility. that's yes, a side, the on funding

is with question Sandler. next The from Piper Adam Butler

quarter, but This why not this the Clark. is was if was origination on this I'm of Adam on, sure is there touched rates down? there in reason new step terms on a a for Matthew loans

existing and the had did clients, that various Some the of multifamily an We mix. on for it impact some was yield.

increased the And it see I on nice TCE was appreciate color Okay. capital that. quarter-over-quarter. to then

supporting organic outside shape and initiatives our expectations? excess your of loan you Do of capital terms to if outside deployment doesn't out any growth, that that? In have growth

No, that buyback to how we We pay changes healthy see dividend. everything, not exercised a right now, years over continue plan time. play haven't the for we although in obviously things place, couple of levels And higher uncertain We'll stock a out. a environment. owing have specific. of to capital. and But very it Like we really retain

here a significant the we to see transaction, able opportunities approach given but there large environment be term to we Given capital, the securities as of were future. benefit and over long levels shareholders our in repositioning that's where to measure, high such do will our the rather transaction for that going foreseeable the continue

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

you nice all a us today. afternoon. for thank Thanks Gary, Have and joining again,

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

disconnect. You now may