Earnings call transcript Q1 2023

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Operator

Good day, everyone, and welcome to the Pacific Premier Bancorp Q1 2023 Conference Call. [Operator Instructions] Please also note today's event is being recorded.

And at this time, I'd like to turn the floor over to Steve Gardner, Chairman and CEO. Sir, please go ahead.

Steven Gardner

Thank you, Jamie. I joining and today. everyone, morning, appreciate us you Good

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

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

the presentation encourage statement note done Relations comments. our to release that forward-looking download copy our we to relative and presentation investor to of visit earnings If you've statement. the each already, include related encourage you harbor of not carefully a so read to a Investor safe website materials. I and I you that

In will first up to we environment on the call sheet quarter of overall another in then today's few We will terms our Nicolas, our delivered financial open notable approach financial Ron a of of details operating CFO, strategy. our call, a walk through challenging the and conservative performance. questions. to our will also I quarter a to items solid performance related balance review maintaining some the of while results,

Our was and per earnings generated $XXX.X of first $X.XX. revenue we share million, total quarter

on continue Despite common basis solid to a return with on equity assets Fed funds impact of We points March of environment a XXXX. and of since returns average XX.X%. and macroeconomic of the X.XX% XXX uncertain return the produce tangible from increases rate

equity relatively year. when consistent remained common compared first tangible on last return quarter the quarter of first Our to

ratio finished common equity at Our quarter tangible X.X%. the

to first and ratios XX XX.XX%, Our increased and XX total and XX.XX% basis points quarter CETX capital risk-based respectively.

ratio with the levels respect in capital ratios. KBW Index Banking quartile and capital upper regulatory us of end quarter ranked our Our to our TCE Regional the

sheet significant levels of provide flexibility us strong management. and terms optionality capital Our with in balance

demonstrates performance the our commercial this in environment banking business model. resiliency relationship-based Our of

client maintain long-tenured provide commitment relentless to based and best-in-class develop bankers Our a on service. relationships high-quality,

small- with offering commercial entrepreneurs, management providing sound and risk diversified products have and a is culture nonprofit investors liquidity of to stability highlighted by the and The businesses and bank failures services traditional proactive prudent focuses capital importance real organizations. on estate bank and through a Mainstream credit and Premier management. medium-sized practices conservative Pacific recent that enterprise companies,

early management, commitment prioritized aligned our accelerating long-standing Dating underwriting our we loan with back selectively growth enhancing increasing risk tightening intentionally liquidity standards. moderating disciplined capital to and XXXX accumulation, pricing to rates by and our and

of us, deposit had quarter, the our and At first ratio uninsured deposits representing of deposits the of end base, XX% total an uninsured Regarding we uncollateralized at deposit X.Xx. an to March liquidity of available $XX billion coverage aggregate represented approximately XX. of

$X.X over capacity. end quarter, our FHLB cash funding quarter not and or Federal did of Our any Notably, window on the program borrowings of the quarter. million borrowing of hand during new point of bank liquidity during we term paid and billion the we Federal Reserve billion $XXX utilize consisted discount the down $X.X by unused at Reserve's

proactive a disciplined, us and approach to helped capital and managing prudent turbulent navigate liquidity Our quarter.

pricing deposit rate raised during quarter, mitigate outflows. the to rising experienced this volatility we and environment industry-wide the During deposit selectively

We continue deeper solutions comprehensive technology investments more to and management and banking leverage in cash our relationships. to integrated foster

balances to average their due as declined on During part deposits as seeking higher first some clients turmoil. returns commercial the in market excess quarter, well

our products cost basis resulted average the we modest increase certain in the points. client pricing, during coupled relatively the core deposit core deposits a Although some disciplined outflows saw of with quarter, to relationships, in of quality XX in

into higher-yielding flows on further clients in to costs time quarter added each liquidity to also we and deposits second continue and managing funding We pressure of bolster some expect as varying During some alternatives. maturities liquidity deposit the as to XX.X%. decreased our focused the loan-to-deposit brokered quarter, ratio deploy remain our excess on

seeing we clients to opportunities new attractive dislocations Notably, our in are given gain market.

diverse perspective. to intentional the were Our depository demand, widely coupled of industries from moderation with across quarter with the both of lending and our growth. first the established of fourth borrower the quarter a loan Many similar set origination muted customers dispersed relationship are trends in loan

During we CRE while new best-in-class service to as loan loan tighten particularly thresholds interest raise did originating underwriting risk-adjusted reduction focused a to connection remain over multifamily loan average actions meet in to our of the and yield basis first We by level XXX the lower increasing quarter, and prior portfolio clients the on with quarter commitments quarter also that prior points loans see to pricing. providing higher from return our evidenced in due a on proactive and our rates, our both the X.XX%. standards demand in

be our to We risk. approach disciplined continue managing to in credit

quality loans. nonperforming from remains asset solid nonperforming loans totaled our of prior total Our the and X.XX% as declined assets quarter,

an Our does team our diverse outstanding loan managing job high-quality, portfolio. proactively

their market, approach overall their the performance business, in We risks. and helps managing our credit with to relative inform which have financial trends overall regular discussions our to borrowers

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

Ronald Nicolas

Thanks, Steve, and good morning.

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

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

$XXX.X common quarter were our XX.XX%, respectively. at expense noninterest was First revenue $X.XX million. $XXX.X income net and per average and totaled million, return X.XX% on assets $XX.X tangible Total average equity in and came share, million and

X.XX%. the As as our result, and for of was ratio assets net percentage equaled a efficiency XX.X% pre-provision quarter our average revenue a

TCE regulatory increased book basis to XX value as and All per did our points tangible X.XX%. ratios share of our ratio increased capital

sources to Lastly, asset billion. we further solid, quality and contingent remains our enhanced liquidity $XX

statement. at look closer a take income the Let's

as interest the loan of fewer interest of of cost as decreased days well higher result lower quarter. $XXX.X income balances as funds average Net in X a and income million to

as interest funds margin. On the our funding side, mix net of cost as well both deposit impacted the our higher

the deposit Our rose to costs points, and total quarter. in in core deposit CDs points XX basis balances basis increase costs reflecting and retail deposit were X.XX% XX an both broker

XX net the result, first basis narrowed a to As interest margin X.XX%. quarter points

loan have XX our an increase of higher we asset noted pricing, to yields, continued the to contributed by point which we funds. offset basis in earning increase cost As earlier,

interest net potential see for although continued from we March income, rate expectations rates margin likely quarter benefit will changes second on net increasing higher anticipate deposit costs and we deposit in our and interest the originations, from Regarding pressure hike loan new continued mix.

first a We the will in funding. exchange noninterest from quarter. evaluating to in $XX.X These net lower the revenues million continues well interest margin be annual quarter, million other as offset higher to income down increased tax-related driven continue lower as by impacted opportunities estate by balance which activity trust during cost liquidity commercial income of received real increase to in lower were increases considerations and pay the $XXX,XXX transaction escrow while by and business, partially fees $X.X market. prior our Noninterest

accruals, payroll loan costs in Compensation $XXX,XXX origination reflecting incentive by or increase second flat million, XXXX, cost and million of loan excluding $XX increase and the due any expense and million, of taxes million to a our sales. For staffing, primarily increased premiums. expect our total we to benefits a million insurance noninterest FDIC quarter lower and in range offset bonus deposit was million, lower higher $X.X at to $XX the Noninterest to income in securities partially deferrals. $X.X expense be $XXX.X $XX.X

$XXX manage in full well to $XXX deposit annual continued We our expenses million increases. the million to and quarter as increases the are of expectations continue to as expense approximately prudently, due quarter merit for impact second

credit provision for quarter's slightly prior expense million. increased to of Our losses of million compared the $X $X.X provision

well systemic the meaningful quality, macro economic we we While issues impacting higher as closely are in have deterioration pressures monitoring rates. not as as slowing inflationary such interest seen asset our borrowers any activity,

now by the loan held for Turning Total million, fundings $XXX balance lower $XXX declined of to million. loans sheet. investment driven

average considerably. originations have demand in been lower the to interest has $XXX million activity maturities compared with million in offset XXXX $XXX of prepayments, slowed approximately higher payoffs Given partially last quarters Lower refinance million earlier loan $XXX and quarters. by rates, and X on

a our the next strategy, scheduled represented quarter as totaling billion, funds a first decline of continue to higher-yielding expect and XXXX, the customers with which half billion quarter $XX.X some trends deposits balance amortization million, largely least into time driven over was The Consistent mix of CDs decrease and reflecting towards broker their X $XXX alternatives. linked in with core the quarters a sheet by at retail $X.X we decrease redeployed maturities Deposits ended through quarter at these deposits. shift linked

higher. during To continue help billion rate broker we term manage deposit flows, helped the customer as additional laddered hand deposits, XX-month CDs XX liquidity provided and terms rates position $X.X our to million $XXX million and to to This to protection cash move on quarter. should retail added of in interest X and March of $XXX across increase another

remainder we with as capital spot to The million $X.X securities XX increasing securities flow on anticipate to million portfolio average The compared sold flows further combination XX, and and significantly our and risk-based reinvestment The deposit from over earnings ratios balance and the all smaller XXXX. cash investment $XXX as $XXX in investment end. quarter the of a a of quarter portfolio the dependent investment considerations. with of securities. of X.XX% amortization $XXX our be yield points portfolio basis billion from sheet approximately million upon to strengthened approximately of to quarter year We this X.XX%, the of X.XX% will December our increased fourth maturities liquidity yield solid decreased

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

in you well be added securities our pro we all value of would ratio and forma portfolio, capital fair our remain TCE capitalized if across would Further, the X.XX%. ratios impact held-to-maturity regulatory

to position capital We regulatory and investor strength maintenance. a of continue maximize operate the to from institution strategic expectations capital regarding and optionality

as a of total asset asset prior X.XX%, of Finally, quality from loans standpoint, loans from quality X.XX% the each improved quarter. both nonperforming and of as delinquent stable loans remained percentage an

was X.XX%. Our basis terms coverage effectively X in points dollars increased our allowance to credit ratio for loss and of flat

not Our includes could economic environment on a acquisition finished coverage materializes. total uncertain potential X.XX%. the anticipate loans economic given value an loss through absorption, at quarter would significant discount decreases acquired ratio the a our We and in increase see downturn fair any which if

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

Steven Gardner

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

First, effort employees stakeholders, look during of and our this our communities, including board clients, shareholders. grateful for of I'm all the our our for team extraordinary quarter the benefit past

sheet it environment Historically, more of upon the and how growth slowing and manage and beginning coming building financial on outcomes balance clients' intentionally earlier, We the in a quarters. for through this impact conservative deliver while effectively businesses. capital economic shifted cautionary is us cycles enabled of to liquidity. strong to by a depending believe noted variety prepared At the its point, forecast well over to results. evolves we are project our how difficult economy approach a will our our XXXX, consistently has posture to As variety we develop

management, expense will Regarding in franchise. invest to we continue the

However, we ensure are the to level of appropriately expected be activity, staffing business our commensurate steps teams to with levels taken aligned. and have are

remain in that will flexibility long-term priorities our focused high allowing remain of capital open-minded will value. management strategic degree that We optionality. all capital transactions manner a benefit us deploying Our to and of stakeholders opportunistic a on while maximize shareholder and

In colleagues built once summary, delivered have stakeholders. franchise a and our have our quality for we again

our That would sheet strength and culture, be acquire concludes of any clients answer to expand to results-oriented we our existing questions. the opportunities Given remarks, new to on prepared strong we relationships. with and and capitalize combined balance expect happy capital our levels,

the please questions. for up Jamie, open call

Operator

Sandler. from Instructions] Matthew begin comes at Ladies question time, Clark gentlemen, [Operator first question-and-answer the session. and And this Piper today we'll from our

Matthew Clark

just -- Maybe of most the us in you flows, month then one March? in Can saw for date? March? to January, of a quarter deposit in it February, give on you me for And assume first sense of occurred terms what any update on flows. I April just

Steven Gardner

Bank week of by weekend. levels saw, -- saw had treasuries activity end obviously, that G-SIFIs. died Yes. We mainly pretty following increased really a we significantly. Signature volume and Silicon of announcements of from maybe of that Valley to clients outflows some following But that high and A to week, the the call the that down extent, lesser the some by

treasuries. extent, this here that we're outflow of due bit clients quarter. the again, consistent. the a And are as those higher of little as the to as so second We've like well excess seen I into that redeploying liquidity, tax payments beginning sitting flows our lesser managing it. consider pretty a on But and to mainly

as job. And doing mentioned, opportunities seeing great add Our team we're clients there a as attractive is some out I to well.

Matthew Clark

And different even a might try California. ratios Pacific opportunity of lot larger First banks. most in well bit of given and some of having is of presence there little a as the grabs, be the capital your going Republic like up your get to there's some I but as, it's model, though know it to presence I promote deposits? those and Northwest to it there up seem a mean, obviously, deposits does for an

Steven Gardner

any of our rank Yes. slide compared certainly, I met in don't KRX. deck, in But want peer pretty highlight to you we open the comment strength see on our I capital our banks. to significantly we group where investor the

And important and who our know that reassuring clients differentiator is have of so an talked yes, many the think position. that us. of to strength we that, that our talked to find very I we've our capital bankers for

do us we as various talk And it folks. benefiting we so see with

Matthew Clark

relatively earn shorter portfolio, a back, those appetite willingness time you blow least I Okay. securities have mature? there? what And portfolio. then reasonable takes and capital of we it to of could securities to to it mean any than the think, ton at just I your shifting a Any in just AFS period, out and for

Steven Gardner

more It's we we've in Slide something with looked to in Board. securities sell XX on were entire if and than we at the that fact, that the And our in highlight fact, portfolio. discussed once deck,

capital remain would fact, well-capitalized above we'd all believe that level. even the ratios ratios. under the peer median significantly be above in I scenario, capital And Our on

So have optionality. long towards flexibility continue it to determinations and We'll an about make you're the the a what's institution lot right. We for of in eye term. best think do with and

Matthew Clark

to just shrink loan see care I right given guys to And Okay. loans don't I have we anyway. of should good balances. But that just mean, demand? continue I to just you loan then it's assume see pricing. and think And that on weaker now mean, most raised tightening growth here standards

Steven Gardner

extending being as a the reasonable is credit began second here then, move second We're is think we the in half as that pretty plays of again, But We'll into pretty out. year the XXXX. we and selective something that I we light. -- the we're that's of see in quarter. demand this course, assumption commented, implementing how

see don't this quarter. I So it here changing

Matthew Clark

me, M&A. for one at Have last all? And just picked Okay. on up conversations

Steven Gardner

No.

Operator

comes next from KBW. question from Our Chris McGratty

Chris McGratty

time? would balance take? were And flip you your of that like to of others in you've it Is banks space you obviously the with pull to one in economy kind got of sheet. see it first script paying the because to the it's is it it the to position have. back. Or something passage What's have Steve, for feel you a don't going

Steven Gardner

Yes.

develop It's think really dynamic see operate I I a that that a of how it's Chris. We single out, obviously variety economy, there's want we'll factors things in. per out it that don't -- a plays dynamic that marker there's se. we you take all there to into And marketplace consideration. see here. a think how

nearly -- that of years, quite XX a a of followed very course, and interest time, interest strong we've level $XX at the time, the I period about a followed talk economy into in period been of we're or rates translated years financial the inflation. by very Board X it, of into levels think unusual of short it we XX bit since injection trillion of high by very crisis, an over approximately And growth. X of rates which call

credit. now coupled likely now tightening engaged points a with rapidly period raising is so in of basis general in year's and pretty and as just And pullback rates, the quantitative in Fed time XXX a

it dynamics change that's to I all know thinking because at the just it continue this pretty at will think cautious. But those absolutely we'll be least here. And point. we environment, to we're about how lead one monitor

Chris McGratty

Is Obviously, a question there's paused. uncertainty have buy prudent of your banks scenario follow-up stock buy there would interested about most is here? a where here? a lot But -- stock Matt's right there's you And if just acquisitions. to to it

Steven Gardner

buyback we think I stock plan the that obviously Board. approved have from an

have. executed we've haven't it we from years. -- That's capital levels X We the on that nearly of from in benefited it

it, risks about taking continue see as performs portfolio we within we'll and consideration to then outlook and the our environment the and well. in how so And it think that into the own

is And thoughtful Board consideration. that in capital it very how thinks take the about we'll all management. So into

Chris McGratty

-- if on numbers I could sure want make got cash I flows. And to just I bond the the

then also square what the -- cash quarters? up billion, flows over referenced $XXX you wrong, that heard You I but just million. $X.X are come few off referenced going you Can the next you maybe to the

Ronald Nicolas

of or Yes, sure. securities off million, $XXX million portfolio. The off more Yes. a $X.X less of quarter billion is the the And portfolio. loan the $XXX

Steven Gardner

And $X.X is X the billion for next estimate an the quarters.

Ronald Nicolas

right. That's

yes. of quarters, the X For next the remainder year,

Operator

Gary And our Davidson. from comes D.A. next question from Tenner

Gary Tenner

in of asked, help a CMOs movement were to was quarter. Obviously, shifts of but the maturity curious questions I saw [indiscernible] the year. health the last maturity and of in from healthy million My $XXX lot AFS portfolio, we

Do rates, the kind doing about on thought the of bias Or curious doing towards I process have Just that to a that you now? timing interest now. higher protect what's wanted yourself?

Steven Gardner

about that in was as early we quarter the were things. thinking occurred of that Part

And we of anything so March. some that, of early certainly, Ron, before have course, add? you to do in turmoil the saw

Ronald Nicolas

No.

and think just spot in decision. point those on, that in intent Steve. or -- that's at so hold ahead And we the thing and -- at was point that time, to the to least we at Gary, I time prudent the we this that have felt maturity and went to obviously, do made

Steven Gardner

prudent. we feel the And still it's

Ronald Nicolas

do. we Yes,

Gary Tenner

to at a kind of cash, as cash long the higher you where end And that then sheet liquidity liquidity of bit on about say, kind your how a are as What's of normalizing versus balance running you kind little the higher. sheet to of many kind you of manage think year. just from on of balance were, level sense

Steven Gardner

Sure.

good -- like earning look cash we today. like down, time comes that know that same actually returns doing look over the I or time, in on we're at regard. I that, we what pretty actually think we're

So I'd Gary, to expect, come down. over time,

Gary Tenner

of but this obviously, of up had of asked, But the you've last the path, be growth paydowns. pricing loan on loan sort think, of end early towards of addressed from commentary to following a loan will, here net real projected the quarters year. around I kind this know from on There And you and things seem you now, consecutive with I billion when was $X.X X is the -- doesn't kind it, of if to year. tighten underwriting contraction

you've later there's some like it. right addressed the but out year, Just opportunity, maybe things seems in I it kind It know the now, seems of way lay unlikely.

Steven Gardner

Yes, expect I the -- second said the seeing much credit the plays new we're in this demand to of half out. that in too, that trend I'd in the continue year quarter. of that's We'll the of see less A part for second marketplace. way just is, how

discount I cap to and for think real think going many the thinking put that I rate that rate is that real investors a business what's terminal are business, estate. the rate current what cash I'm or about the flows of whether environment or appropriate to is on it's the the adjusting estate

But cautious pretty the that certainly the capital day, hurdles. we better get benefit and with that the And the end out our us to that clarity, that I meet investors as we've them as clarity so cycle well. work on wherever expect get better ensure how been maybe to as tightening the here and terminal as funds think returns of and length outlook have Fed we'd it put about, to be and duration as and we we've at understanding, would start then of the this to rate, talked to might plays risk-adjusted got more get the

the year. that plays a we'll half not was in way how saying much, long-winded of of second the thinking out That it see but

Operator

Stephens. question And comes our Terrell from next from Andrew

Andrew Terrell

Ron, on the margin. maybe just quickly

to some better your the up for I a think kind margin held just forward? relative in slow of cadence peers you has think quarterly But to the lot I benefit first prepared quarter, forward, expect of compression some I throughout the going compression about have. continued pressure. guess of you mix heard would margin remarks I guess, the guys expectations you going than the the when should quarter think you non-interest I cadence the

Ronald Nicolas

the maybe the and very good here. answer. certainly, rate Obviously, believe at and of a we I least at pace, still deposit here. moving the costs in a hikes even future a that's Andrew, one question that are remaining to course, think faster foreseeable industry, and the than difficult

say, we're would the And expect human as cadence to again, to And funding trying to margin. you mindful -- our opportunistic model very of protecting going So arise. to -- be down I be But very, it in our be I would very going course, we're difficult liquidity. similar. of Steve net But when as of pay of mindful going those can't higher likes very terms be stated, also to we're behavior. interest to opportunities costs

Andrew Terrell

I of if Did on total missed you it. the I And rate period the end at give spot apologize the deposits.

Ronald Nicolas

It's XX, in our I believe core slide in rate on the presentation. in believe, is basis. deck. a the The is total I spot $X.XX deposit

Andrew Terrell

Steve, I the deck for appreciate all in office then the and exposure. the around commentary color maybe And really

I levels Class trending your markets be can that think if you Just to there? mentioned had so, maybe on larger guess might question the exposure And any And then you how is, of or areas? specific to credits? larger you portfolio? the the in the occupancy very I or talk some of incremental a A districts. about A business central properties do exposure color Class have central business the any minimal underwriting I had those high-rise in are office

Steven Gardner

large loans, off typically A that. de buildings require my ones the is, head not We've minimis. what never pretty just the really and top of number we to Class been -- that been it's historically know make but have don't I

-- that limited of inherited participations. have them that we've If bank because there where the relatively we've acquired from ones we of amount it. have We typically we've

other minimis, call thing in business And de if is it it's pretty do the those much frankly. districts, downtown. stuff that. we don't So But the central get any, we just could

downtown not we've Seattle, what or just San it's whether historically done. L.A. it's Francisco, So

Operator

ending question-and-answer And with that, for gentlemen, floor Gardner be we'll the back and I'd Steve like to turn to remarks. closing ladies session. over today's any

Steven Gardner

for joining and good thank Well, thank us, a you again day. Jamie. you, Great. Have all

Operator

And gentlemen, for thank you We today's conference call that, we'll with joining. and ladies and conclude presentation.

now may You lines. disconnect your

Pacific Premier Bancorp (PPBI) 27 Apr 232023 Q1 Earnings call transcript