Pacific Premier Bancorp (PPBI) 24 Jul 242024 Q2 Earnings call transcript

Good day, and welcome to the Pacific Premier Bancorp 2024 Second Quarter 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.

good. Very Nick. you, Thank everyone. morning, Good appreciate you today. joining us I

As report XXXX for all aware, earlier our earnings we released the morning. you are this second quarter of

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

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

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

our dynamics, results operating rates, During delivered pricing deposit environment the -- expectations. by we challenging competitive prolonged marked team second elevated interest and heightened and navigate and a regulatory quarter, consistent high loan as

results Pacific driving medium-sized commitment Premier's and of small- with our along the clients business expanding second reflect to bank. customers existing relationships to Our new ongoing and support quarter our

for to though share results points on to peers. the environment And relative continued increased quarter. cost at points earnings our compared a return second on per of a basis our low and now to rate impact interest higher prolonged funding X.XX%. basis Looking assets of generated costs of on equity which XX our remain of The deposits, X.X%. We return a basis $X.XX, the average XX tangible common

in has clients but payoffs to reflects dynamic balance the nature attract This liquidity million utilized the excess for of few $XXX was of high-quality offset to sides both to debt. quarters, we our past loan increased the franchise. reduce sheet businesses impacted the part the by as production higher Loan that

second through half as of to expect and Based deposit the the we move on client we levels year. stabilize loan communications,

increased points ratios second among XX.XX%, to basis per our XX and the strongest In increased TCE the rank value capital in industry. to share the $XX.XX. book Our ratio quarter, our tangible

came at capital robust risk-based total a XX.XX%. Our XX.XX% and in ratio CETX ratio our was

provide of are options, significant and including we These balance strategic optionality, capital future that number earnings could higher a sheet considering with us repositioning levels periods. in drive

our Our billion short-term of XX. unpledged total consisted billion liquidity billion position at $X.X $X.X double uninsured borrowing as well June of level of was as the of deposits cash approximately $X.X of capacity. unused This and treasuries

placed past accumulation strong As management and for over capital good liquidity aware, a you emphasis have on we proactive the are several quarters. reason.

positioned today's in are on especially and to We market. relative spreads new opportunities, risk-adjusted normalize strategic those well loans once growth currently organic pursue available

part seasonality As in was early to noted on tax quarter's the balances the deposit the anticipated payments due concentrated distributions. and around quarter in last decline call, of

Additionally, clients returns to loans, and a pay lesser are higher using deposits to seeking excess off liquidity. pay for down extent, and

the Pacific current in Community relationship new ring are and environment said, results. competitive. solid Association highly continue particular, at delivering Bank Trust, deposit bring to teams our and Our managers in That Premier gathering remains relationships

maintained in trust our and relationships our practices organization. cycle, our of rate disciplined have quality this client pricing Throughout the to their we due deposit

was XXX As for quarter. our nonmaturity average a cost proof on second point, deposits the basis points

peers. of As deposits. favorably XX, total which XX% comprised deposits compares of our noninterest-bearing June to

business base as commercial relationship-based also our length long-tenured on years. average our of relationships consumer banking reflected client in XX.X is the Our model and is

discipline. our of during Candidly, credit the loan in quarter. in C&I We portfolio CRE on meet multifamily spreads, with our loans, consistent and some competition Tepid of rates that structure, committed to loan to that with persists our disciplined and and providing utilization our footprint, conjunction pricing loans highest credit loans service originating terms risk, demand to risk-adjusted approach Across originating the our thresholds. managing clients staying lower to for are remain to our of not while focused are contributed tenor return competitors credit contracting our level approach

uncertainty markets. within that persists commercial certain real appreciate We estate

concentration has steadily with CRE to in well. an continuing within seeing are speaking, portfolio perform we broadly our portfolios. overall Importantly, decreased the degradation cash flows borrower not loan And our

$XX.X while declined quarter of nonperforming remains total basis Our asset million assets. at solid points X of ended to the Nonperforming XX quality assets, the from $XX.X basis as assets classified decreased loans assets million quarter. prior points X% to total

identify lines off We have have to management. workouts been prudent balance extensions. We very approach, credits and open of done their with we in credits. dynamics, status, and transparent communication all our our work which To process individual problem in risk inform liquidity regarding clients be for our historically few and sheet, or maintain our commitment our and quickly of credit move proactive market to we managing must financial successful

the progresses following cycle the and clarity economy borrowers November as more gain Should election. the demand strengthen through for credit

are add We new drive growth. and positioned organic loans to well

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

Thanks, good Steve, morning. and

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

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

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

reflecting as higher interest loan demand. as of to as $XXX.X from a Taking primarily lower of well tepid loan income prolonged the statement. the the environment rate look closer funds income balances impact at result and higher cost interest Net a decreased million,

impacting margin, shift On to the deposit second basis funding side, narrowed the XX quarter deposit net increase points X.XX%. to interest mix the the -- costs also which in deposit contributed

during the shift were of XX the reflecting points CDs Our interest-bearing deposit X.XX%, total average market money nonmaturity basis interest-bearing costs and deposit -- quarter. X.XX% to increased and retail to costs

we flat quarter. prior earnings during prepaid higher well On average utilization, as the saw lower the side, as line loans C&I with yielding loan the keeping the quarter, rate

current rate X quarter September, On quarter for deposits net from X.XX% interest costs. spot cost funding cut at modest our margin expectation was the pressure basis, Assuming of is third a our continuing in higher end. is total

we September have $XXX a million SOFR-based Lastly, in to of floating year-end. that are fixed set in to fashion mature beginning swaps latter through

quarter. similar see For swap the before we we saw a as income don't of quarter, expect second any assuming the Fed in September. third moves we Again, level

$XX.X million by million annual decreased seasonal of first debt quarter. trust quarter's due driven $X.X the quarter, prior first to in the lower of income fees the Noninterest recognized income extinguishment million million $X.X tax timing and $X.X of from the gain

of range million third to expect the quarter, million. to $XX we For total be in noninterest income our $XX the

legal came a primarily at $XX.X million in nonrecurring than $X a due expense to insurance better million, claim. reduction first representing quarter, million to Noninterest of expected $X.X the related compared

also ended Compensation XX. and a X,XXX expense. quarter count $X tax benefits the perspective, relatively compared From lower March staffing to flat million $XX.X expense with decreased as we X,XXX million, a reflecting primarily of payroll head with of

-- million tightly be in approximately third to We to for and to range our $XXX manage the expenses the of expense expenses expectations million. for continue $XXX quarter

quality decreased the the commensurate Our quarter, profile. of compared million $X.X prior provision portfolio with loan for credit smaller current and to losses asset our

continue performance not While any portfolio asset quality, meaningful rate sensitive and our certain more monitor concentrations to are higher asset we deterioration in of classes to for actively seen we the longer have that environment.

portfolio. matched our Turning finished were increases as balances, decreases by in the the billion and lower assets loans deposit in levels now balance XX% total prepayments, at lower cash for by rate XX. from sheet. utilization. AFS to XX% We $XX.X and line Total quarter at paydowns, in offset March and investment declined securities to loans The $XXX million lower driven held maturities decreased C&I spot utilization C&I by

prioritize Consistent opting capital sheet we prudent a and liquidity. with management prior periods, approach risk to balance accumulation enhance maintained to

ongoing sold classified these million $XX during management our we approach. of of part part As credit quarter of the efforts, second risk as proactive adversely loans

of around billion, and due to tax quarter represented million. excess loans the The down liquidity. for continuing quarter returns payments a at anticipated clients which seeking ended deposits $XX.X was higher linked seasonality Total and to decrease decrease pay $XXX

investment average our to portfolio and The securities X.XX%. on increased billion, the $X.X $XXX.X million was portfolio yield

purchased million XX of yield months shorter-term less U.S. average treasuries quarter, a maturities predominantly with at $XXX we weighted or the of During X.XX%.

optionality. Our investment sheet strategy balance liquidity, continues us providing important to prioritize

levels dependent Our interest as upon flows will reinvestment deposit well as customer be risk considerations. rate

earnings March XX. a The this increasing smaller combination and capital balance of quarter from our significantly solid all further with ratios strengthened ratios sheet

increased per increased share In $XX.XX. XX book tangible addition, XX.XX% total value common equity our basis and to our to points

in X.XX% low and also total our lastly, X.XX%. X.XX% an loans, at nonperforming to fell run quality standpoint, And asset the at prior continues from X first were the loans loans classified quarter, X.XX% of to quarter. Delinquency basis from points lower levels from

related million the essentially sale the we substandard at in of segments, quarter ACL million with had X.XX%. our ratio healthy to of We XXXX, million charge-offs primarily across $XX.X quarter. our and remain to X the second very net loans $X.X During of first reserved well all compared flat loan net of charge-offs, coverage a $XXX.X at

as well quality changes and in reflects composition. profile allowance changes as asset our the balances loan market and Our in economic and forecasts portfolio

discount finished through total includes at X.XX%. value the loss acquisitions which acquired absorption, quarter our loans bank fair Finally, the on

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

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

liquidity, and our spent a with building of risk-adjusted position have We thresholds. quarters return war institution to take our chest opportunities of and advantage capital organic several that align strategic to

sources in unchanged leverage where we the we term, grow diverse near we and accelerates. and Should the materialize, that as and ample that demand a anticipate We maintaining base be credit business liquidity. capabilities In to client reaching disciplined to loan prioritize our able balances. will deposit be priorities to may expect cycle point development our capital loan are accumulation of

clients flexible maximize of In better prudent business, expand arise we opportunities as terms our a maintain shareholder while value. serve potential our staying allocation, capital long-term and approach to will

the Our reposition move Which balance continually executive this we Board team, with remainder transactions along evaluate potential include options range a sheet of to capital deployment. the year. of management as could the through for wide

uncertain front, dictate to On We long-term approach will while and M&A that to complement operating our franchise growth. delivering shareholders. discerning transactions value the open our a diversify environments to strategic remain the regulatory and

Pacific to I for team contributions their all Premier members quarter. throughout the exceptional thank want

their for we to as stakeholders of sustainable ongoing say you committed support all Additionally, I want our to remain organization long-term value. our creating of to thank

happy questions. Nick, That call the questions. concludes we and any prepared answer up open for would remarks, our be please to

Instructions]. [Operator

first with The comes question James. Raymond David from Feaster

going confidence I just back what wanted and gives half I And you elaborate balances stabilizing to here? are is that? it -- gives I active. loan you on deposits bankers about you curious deposit could maybe being your to mean, just commentary business was that your the in prospects or stabilize? what activity in hoping the or just of rates loans confidence more down I'm and

It's activity It's Also the deposit a we in to that the the bit see a outflows outflows. that had with loans that due in in conversations historic mentioned, in clients. quarter, part And loan amount the deposit matched for of Ron modest here we're we've the fact also of the did many a of in seasonality seeing, the contraction from as second the institution. hearing from ways, although we're some we portfolio. larger perspective, relatively the originated that,

impact, as think you then election two, a the will we've lastly, we declining got around determination positive as rates, a and also, then I gain the that mentioned, certainty all approaches there. having And potential

here David, factors, year. and So of I of think combination as move out through part we the the it's look remaining a

on mean, And conversations are seeing that you're in just encouraging front? you -- are the to the to it's activity? having increasing I'm or you where where get confidence to with I giving where C&I having you success? in improvement, that deposit originations curious what things what's in in with see activity, quarter. potential C&I then seeing stabilize are is the increase And could you start the part clients, the

to so, think extent. I an

second that is of and/or that we've banked bit front, quite payoff liquidity. deposit loans our the through excess had historically very some a redeployed strong And seasonality factors business the again, into being the reality businesses and paydown of And redeployed is, alternatives. On the either the model that of carried in with quarter. is higher-yielding as that

the You maybe stabilization of pieces and expectation those our think that year before right that kind the now. put potentially of start reach we together, all here, is to end we

modest bit pretty of are C&I origination seeing We pickup little what's We've at the lending, on in pipeline. side. good the least a the some in seen construction

So this how we'll of the materializes in see coming all here quarters.

just And then one last for me.

maybe of concluded your liquidity. maybe some and to more a appetite as but interested loan you in? or also kind you're today. [ sounds repositioning capital remarks, it sounds of just focused sheet or about broadly? some some like I'm you what balance a in shift of prepared securities deploy ] talked like be And Would You repositioning ward of It that interested on just purchases potential M&A curious another you bit primarily opportunities. M&A have pool kind

I them and about and answer David, through all each the we're what we'll options. thinking of be on thoughtful the And to very assessing is are the I But do. one options. think question, the we thorough analyzing and we thinking think all of considering

earlier how the mentioned see play every I did the has from uncertainty the M&A in a investment is country. the operating of front. remarks, those I'm back And announced In certainly on We We're see banker the I in as transactions there activity. environment, out. the we'll there's As quarter. hopeful in prepared couple regulatory get front, sizable think, held sure

these So how to are we'll are all the all going but our but factors and of in options, see considering of be approach. analytical we play, thoughtful

from The with next Matthew Piper question Sandler. comes Clark

was one, Ron, that interest income? First how revenue swap this the quarter, much

X was it about consistent expect about just we points, loans. XX to Fed September. interest, net third quarter, in here basis again, And in the move In XX assuming

then NIM June? of average you And in month if at the the Okay. had

look back that, get at I'll and take a on I that. with Matt, can you

to the in then quarter? little be cuts, do that third quarter here, from approach us costs -- might stability fourth spot peak thinking decline December. gave deposit even I assume starts and plan assuming X just in guess, Do rate, some you Okay. you or should rate But in in we like September mean deposit costs And we through how is from the the up to just there? there delay feel you I in get which a further. and a

that stability. here. I about also probably think we would as well some say flows the It's on

-- interrelated quarter. yes, an to should extent they're think I through fourth

obviously, also I in and well cut the if seeing price about as how on we're see what coming Matt, -- and it. we competition what rate when we're we're would -- quarter, maybe fourth we add, X we managing and price, based the

I So we sure, would but we part -- the end at our -- the see way day, approach that of it. for just suggest on actions from the pricing probably that's

mix. well what that. time, in the shift predict obviously is of But seen that interest what into seen The movement we've past time the has markets quarter. industry at interest-bearing the bearing We net out same can't we as is and the this deposit money in deposits saw

little So that's a predictable. less

going could Now be from move but Maybe point a face certainly psychologically some that's not it, of big XX cut. that move, pricing basis subside, but to material a it's a standpoint. a let's

by pricing marketplace. place probably the currently the in we the shifts with just continued So see the momentum and movement out today in that's with that's

that of replace. although pretty pay going do the broker it's add, million likelihood and We will move And deposits that $XXX in won't all cost. about off will And we I'd carry this not -- mature not those -- number have to high substantively. quarter

Yes.

FHLB you have then And the what left? the plans Okay. $XXX of are for that still million

They mature in quarter fourth .

November.

Yes, those we'll off. pay

Yes. Yes.

that Just renewals. without let mature

fourth In you said?

quarter, fourth yes. The

Yes. Yes.

have it's I Look, to advances overall, and I historically, them no broker you utilize advances, periods or reason, is in very they our belief this no utilize FHLB borrowings. see that But at wholesale think have of we little, business, time. wholesale whether value deposits

And so and over to is pay down our intent off those time.

consider rest HTM you're book last just restructure AFS we restructuring would then year? you portfolio you potential that Or assume too? loss the securities the a on trade. considering the And of Okay. Should didn't

looking we're think options. at I all

on... just then Okay. And

aware you well well, there. certainly the consider, focus And yielding at we big regulators investors from We It's concentration. credits this a loan in either for It's exceedingly would low portfolio area well environment. have I that the are CRE but look been managed. performed of of and/or all

great in thing but do would impact drive position at looking be a maybe take options. all to have may potentially longer capital term we said, the to term. the I immediate actions that in a and earnings have negative in we're the as The So to is higher that

of So at looking options. all these we're

you most your just level your Okay. your to just And capital. you as what's do willing on, constraining would excess What's view capital? be the guesstimate then to operate ratio? on minimum trying -- And what

Yes.

Our that and the in most we a restraining that the we outlooks. we've risks balance is the got fact it. risks have economy, part broader that But of the lot internal Look, our targets. of off own in sheet we various based see in see they're

remain flexible So extent. to they an

me. then Okay. And one for last

much substandard the of related sold, were quarter, $XX that loans this how on the the that million? charge-offs were of to Just net

You [indiscernible] I or, the number portion mean, of it. a on top know good the head of your

Just about of all it.

pretty it. about to close Just of all --

just of about was it it. Yes, all

In fact, all but...

yes. pennies, few a Yes,

The with comes McGratty Chris next question from KBW.

begin can on year? together sheet those just the balance the of Steve, X and grow? just revision But If is mean can and and result Ron, to trying because comments there's is that if the -- pushed kind were probably headwind off opportunity kind that I next to . a think, size. of begin out you think zoom the after NII of net the if to swap together, you NII sheet roll put restructuring. that into the balance quarter grow I'm downward I

Yes.

That Yes. certainly would objective. be the

big to why that various of something. That's a going driver future if execute analyzing on is -- we're but would Right. it the all be of options, Right. That's we're earnings.

with respect remarks just in change of Has been to couple and times there CRE. on concentration focus in risk. conversations Steve, you your And a then, the regulatory investor Okay. any your mentioned

Has XXX you've that noticed? a tone at shift specifically issue been any you, but top change industry. obviously above for never always an been of the the there's there You've been it's

issues the this you Have Chris, very Journal tone I ongoing any think, reports Silicon and Yes. is Republic out and on take big shift. lenders regulators signature some seriously. we mean here, Bloomberg, Yes, those even it the been clearly an but the there's before CNBC, from Silvergate's look, of comments failures the that being clear the the the a seen And it Coast have of I First and queues of earlier liquidation Valley regulators year. then and there, started concern. facetious maybe East multifamily faced --

last one, The maybe in And you on a position? dividend an timing -- to be bit the one Okay. did more might capacity being careful does a and the that do contemplated, have restructuring the then that and that's securities technical. you of given loss be terms last just operating of in when little

feedback and think are do would get thing I the question. to to think analysis. run we and something perspective that's that's is great the from to all that if advisers factors what There management has way. sure all thorough number right a we the along Board and one And of traps, -- exactly that's do. that a consideration. multitude important, into that we We They're a we make take do of is the that try

a So we'll them. It's all consider good question. of very

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

to So more. a a dead of ask bond transaction that horse beating question. I'm on risk going one

considering the a you it? I about outlook CETX and to would the all CETX be dividend, going be what argument talking of year, that bond you've options of the loan higher, of the mean against just With last kind the but portfolio, would create you're let's to say, know a for about continue of question you answered for against the flattish the amount argument repositioning? what rest the accreted a year, course, I

capital, will. That's would To the that those own think investors the would about how have to did. And that fair securities hit pretty cash? ever hit. big -- analyze we And we're of we Where most does earnings easy this in perspectives. depending anyway. differing that there. mines, that rate you we impacting any that's all But value, their that's question, I probably think outlook answers. do, think to interest in a I look, that size make what's to and to continue how it? although about that value be sizable got out a that various a the One sure simple Look, any And and back play upon earnings, to going approach multidimensional you've do decision tangible options have the don't redeploy environment? that's Well, it's you how if into you there's be from has out pretty sizable you think which or the book you

deposits. think until I easing on a thoughts think like be it rate and a say, And materially know cycle you an deposit we permanent have reaction to of September more on it tightening dynamics on do depending that. what your of the And go-forward that around lower on a seeing near-term there . But way of deposits, you this asked basis. like on Or beta was deposit your I cut. question environment a question cycle, down? then the you on about changed do you follow-up looks kind would XXXX, a could as appreciate the start think the pricing costs that in some basis? was match maybe seems of where kind

to hard say. It's

that and they good our they a clients. about have have with to sending clients to about our the really . think left how I'd have and price hard would paid of loans, deposits would Gary. and we with the reason in And never institution all wrong as them. deliver We the lot deposits what the the at business risk but that down deposits. because repricing message on of pay in or us. good say do well, for to been been It's have have of what retained go clients, of us the trust the bank that been organization frankly, business in our many I what service that's have a bankers I could environment. core they our think of model a relationship the that is and question But and we back probably, we we our it's this do likelihood, the

with The Stephens. next from Terrell comes Andrew question

beating here, were really around around look the the of Probably CETX mid capital. but some late to kind back wanted of at a to questions kind XX% risking I if dead go you I horse of of XXXX, back We've sheet seen to the XXX the CETX? your to significantly, call balance you willing it, capital level down Would pretty points XX% and compress ratio. but your capital on CETX higher take back the now. basis is be

I think, itself. again, in look all outlook, and I of the portfolio. in is the economy, level risks think we're pretty to But that you of the the healthy have that on our in going at dynamics seeing a XX%

Look, there's we're those. about sitting are high on the is of levels So of thinking we reality very -- all capital.

out, capitalized data we highest. bank capital be the measure, once on I the including are suspect fact, all that the the In virtually we're highest every going KRX, comes TCE, to

the And are through continue very They dynamics thorough if questions. direction I discussions And So take. and going to an important capital like optionality. of the we us to the lot flexibility take here might all that. happen we we think all think to approach investors have we -- whatever more this extent, We to it gives of through at to these dynamics, and a and a of us know deploying rapidly, Board. of just we're see understand

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

week. you a us all today. Have nice joining . Thank for

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

disconnect. now may You