Pacific Premier Bancorp Inc

Good day and welcome to the Pacific Premier Bank Corp first quarter 2021 conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touchtone phone. To withdraw your question, please press star then two. 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, Betsy. Good morning, everyone. I appreciate you joining us today. As you're all aware, earlier this morning, we released our earnings report for the first quarter of 2021. We have also published an updated investor presentation that has additional information on our financial performance. If you have not done so already, we would encourage you to visit our investor relations website to download a copy of the presentation. In terms of our call today, we'll walk through some of the notable items. Ron Nicholas, our CFO, will review a few of the financial details, and then we'll open up the call to questions. I note that in our earnings release and investor presentation, we have our safe harbor statement relative to the forward-looking comments. And I would encourage all of you to read through those carefully. Our first quarter results reflect the growing strength and discipline of our team, as well as the added benefits from the scale of the organization. We delivered strong financial performance in the first quarter, with net income of $68.7 million, or 72 cents per share, which translated to a return on average assets of 1.37% and a return on average tangible common equity of 16.21%. Despite the challenges in the current environment, our people are executing at a high level throughout the company. Asset quality remains solid with no remaining COVID-19 loan modifications. During the quarter, we added a number of new commercial client relationships. that contributed to our non-interest-bearing deposits increasing by $292 million, or 20% annualized. The growth in non-interest-bearing deposits helped to reduce our deposit costs to 11 basis points, and in part led to our net interest margin remaining relatively stable. Our recurring fee income businesses are performing well and are accounting for a greater percentage of our overall revenue. Later this quarter, we will complete the system conversion of Pacific Premier Trust and simultaneously deploy our customized Salesforce platform, which we utilize throughout Pacific Premier to support business development, data analytics, and client relationship management. These systems will ultimately improve our ability to scale the trust business as we move into the second half of 2021. While elevated loan payoffs and a further decline in credit line utilization rates impacted loan growth, in terms of new business development, we have the strongest quarter in our history with more than $1.1 billion in new loan commitments, which was up from $911 million last quarter. This is particularly notable given that the first quarter is typically a seasonally low period for new originations. As the economy continues to strengthen, we are seeing greater diversification in the mix of loan and deposit relationships across our lines of business as compared to the prior quarter. The more balanced loan production resulted in an improvement in the average rate on new loan commitments, which increased eight basis points. to 3.63% in the first quarter. There were a number of factors that are contributing to the increase in loan production that we are seeing across the portfolio. Our teams are collaborating and working at a high level to develop and close new opportunities with improved efficiency. We are seeing the benefit of scale as a $20 billion institution in terms of our ability to attract banking relationships with larger, more sophisticated middle market companies and stronger credit sponsors of commercial real estate projects. Businesses and investors are exhibiting greater confidence in a sustainable recovery as more of the economy reopens. That confidence is beginning to translate into business expansion as line utilization rates appear to to have hit their low point at the end of the first quarter. Lastly, the current environment is providing our leaders the opportunity to selectively add and upgrade talent to their teams, which is having a positive impact on our capabilities to win new business. With that, I'm going to turn the call over to Ron to provide a few more details on our first quarter results.

Thanks, Steve. And good morning. The majority of my comments will be directed on a linked quarter basis. Overall, total revenue was $185.4 million for the quarter, compared with $191.4 million in the prior quarter, driven by lower interest income primarily due to two less days in the quarter and lower accretion income. Both our efficiency ratio at 48.6 percent and our pre-provision net revenue as a percent of assets at 1.86 percent remain strong, highlighting the benefit of our increased operating scale. The net interest margin came in at 3.55 percent for the quarter, a decrease of six basis points from the prior quarter, as changes in the mix of earning assets and lower loan yields, as well as lower accretion income, were partially offset by a lower cost of funds. Our core net interest margin, excluding the impact of accretion, decreased two basis points to 3.30 percent. With the continued margin pressure of excess liquidity and less room on deposit repricing, we see the core NIM in the 3.25 percent range. Non-interest income of $23.7 million included $2.3 million in PPP referral fee income in the quarter. We do expect some additional PPP referral fees in the second quarter as the program winds down. Non-interest expense excluding merger related costs came in at $92.5 million compared with $94.5 million in the prior quarter. The cost savings from the OPUS acquisition has been fully realized and exceeds the amount we estimated when the transaction was announced last year. Personnel costs were largely flat to the prior quarter and headcount increased to $1,520 from $1,477 at the prior quarter end. Our quarterly non-interest expense should approximate $94 million as we continue to invest in people and technology. Turning now to the allowance and asset quality. Our allowance for credit losses finished the quarter at 2.04% and the total loss absorbing capacity comprised of the allowance and the remaining fair value discount on acquired loans totaled $371 million at quarter end or 2.81% of loans held for investment. The factors affecting our allowance for credit losses during the quarter were modest, driven primarily by the economic forecast and model dynamics at the segment level, as well as the portfolio mix. Revision for credit losses was $2 million compared with $1.5 million in the prior quarter, while net charge-offs totaled $1.3 million, down from $6.4 million in the prior quarter. Overall, our asset quality continued to perform well with non-performing assets at 19 basis points of total assets and total delinquencies at 17 basis points of loans held for investment. Given our strong credit quality and the improving economy's impact on our CECL modeling, we are likely to see reserve releases in the coming quarters. although it is not possible to estimate the exact likelihood or magnitude at this time. With respect to the balance sheet, loans decreased during the quarter as we continued to see higher level of payoffs and lower levels of CNI line utilization, which fell to less than 30% at quarter end. Total investment securities were $3.88 billion at quarter end, a slight decrease from the prior quarter. The yield on our securities portfolio remained stable at 1.71%, and the duration increased to 6.2 years. During the first quarter, we grew total deposits by over $500 million, or 12% on an annualized basis. Notably, we grew non-maturity deposits by nearly $800 million, an increase of 5% on a linked quarter basis, as we continued to price down our higher-cost retail CDs, and run off our broker CDs. As noted in our release, we redeemed $25 million of high-cost debt early in the second quarter after paying off some higher-cost FHLB term borrowings this past quarter as we continue to look for ways to lower our cost of funds and support our NIM. With that, I'll hand it back to Steve.