Pacific Premier Bancorp Inc

Hello, everybody, and a warm welcome to today's Pacific Premier Bangkok Q4 2021 conference call. My name is Melissa, and I'll be your operator. If you would like to ask a question on today's call, that will be star followed by one on your telephone keypad. If you change your mind, that will be star followed by two. I now have the pleasure of handing over to our host, Steve Gardner, Chairman and CEO. Steve, please go ahead.

Thank you, Melissa. Good morning, everyone. I appreciate you joining us today. As you're all aware, earlier this morning, we released our earnings report for the fourth 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, I will walk through some of the notable items Ron Nicholas, our CFO, will review a few of the financial details, and then we will 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 you all to read through those carefully. We delivered another quarter of strong financial performance that reflects the strength of our diversified commercial banking model. During the fourth quarter, we generated net income of $84.8 million, or 89 cents per share, as full-year 2021 net income increased to a record $339.9 million, or $3.58 per share. Our full-year 2021 results highlight the growing capabilities and sophistication of our bankers as total revenues increased 19%, year over year to a record $770 million. Despite the challenges presented throughout the year, including the impact of the pandemic, supply chain disruptions, and labor shortages, we grew total assets by 7% to $21.1 billion. Asset quality remained and trended favorably as we finished the year with non-performing assets representing just 15 basis points of total assets and net charge-offs of two basis points of average loans for the year. As a result of the balance between loan and deposit production, as well as our solid profitability, we increased our tangible book value per share by nearly 9%, while returning $140 million in capital to shareholders during 2021. On behalf of the Board of Directors, I want to thank the entire Pacific Premier team for their efforts in delivering another year of outstanding performance and maintaining our commitment to continuous improvement that not only enables us to deliver strong financial results in the near term, but also increases the value of our franchise for the long term. We finished the year with another strong quarter of business development. generating nearly $1.5 billion in new loan commitments. Our loan production was more heavily weighted towards commercial loans than earlier in the year, as we saw an increase in demand among new and existing commercial clients. We are also benefiting from and able to capitalize on the disruptions that we are seeing from merger activity within our markets. Over the past two years, we have naturally generated more multifamily loans given the relationships we added through the Opus acquisition and the opportunities that this asset class presents on a risk-adjusted basis during the pandemic. Over the longer term, our primary focus remains on commercial banking and serving the needs of business clients. And in the fourth quarter, we saw a shift back towards our traditional mix of loan production. New C&I loan commitments increased by more than 50%, from the prior quarter, while franchise loan commitments more than doubled. Additionally, we saw another quarter of higher utilization rates on lines of credit. The combination of new loan production and an increase in utilization rates this past quarter resulted in annualized loan growth of 9%. Our disciplined approach to business development and the competitive advantage we have from our proprietary Premier 360 technology allows us to consistently generate new business banking relationships. Premier 360 enables our production, underwriting, closing, and treasury management teams to work seamlessly and to be highly responsive to our clients so that when businesses and entrepreneurs have additional credit or cash management needs, They turn to the Pacific Premier team knowing they can count on us to deliver. It's been an important element of our success in building deep, long-lasting relationships with clients and is one of the reasons why we win business based on providing exceptional service rather than competing on price or terms. Reflective of our deep client relationships, non-maturity deposits increased $1.5 billion over or 10% compared to last year. And although our period end deposits were slightly lower than the third quarter, this was largely a result of seasonality and deposit flows for some of our business and commercial real estate clients. Outside of the high quality relationships our bankers continue to produce, we are seeing positive trends across most areas of the business and our key performance metrics. Our strong loan growth enabled us to further redeploy excess liquidity into higher-yielding assets, which combined with a reduction in our cost of deposits resulted in a higher net interest margin this quarter. As we mentioned on our last earnings call, we have intentionally maintained a meaningful portion of the investment portfolio and highly liquid short-term securities while also lowering the effective duration of the entire portfolio. This strategy provides us with the flexibility to quickly redeploy these funds into higher-yielding assets as the opportunities arise. This strategy has helped us realize an improvement in our loan-to-deposit ratio and a more favorable mix of earning assets. We also have another solid quarter across the majority of our fee-generating businesses. Pacific Premier Trust has been able to maintain a higher level of fees that began to materialize during the second half of last year. Our commercial escrow and exchange businesses continues to perform at a high level as we are realizing synergies with our lending teams. With that, I'm going to turn the call over to Ron to provide a few more details on our fourth quarter results.

Thanks, Steve, and good morning. For comparison purposes, The majority of my remarks are on a linked quarter basis. Beginning with the income statement, highlights for the fourth quarter included total revenue of $198 million as net interest income increased to $170.7 million, and non-interest income came in at $27.3 million. Our pre-provision net revenue was $100.7 million, or 1.93 percent of average assets. reflecting strong organic loan growth and higher revenue contributions from our fee-based businesses. Non-interest expense in the fourth quarter was consistent with our prior expectations at $97.3 million, and our efficiency ratio came in at 48 percent. Lastly, we continued to see favorable asset quality results with a provision for credit loss recapture of $14.6 million in the fourth quarter compared to the prior quarter's recapture of $19.7 million. Net interest income increased $1.7 million to $170.7 million. Higher average loan balances of $346 million and a higher securities yield drove the increase in interest income of $1 million. On the funding side, we had a favorable shift in our average deposit mix lowering our cost of deposits to four basis points compared to six basis points in the prior quarter. Our net interest margin came in at 3.53 percent for the quarter and the core margin at 3.36 percent, an increase of six basis points from the third quarter. The margin expansion was driven principally by a favorable remix of average earning assets with average loan balances $346 million higher and average cash balances $329 million lower. Loan yields decreased 10 basis points to 4.46 percent as rates on new originations were lower than rates on loan maturities and repayments during the fourth quarter. Accretion contributed 22 basis points to loan yields in the quarter compared with 27 basis points in the third quarter. Looking ahead to the first quarter of 2022, we expect our core net interest margin to be in the 3.25 to 3.3 percent range. Non-interest income of $27.3 million decreased $2.8 million from the prior quarter, primarily attributable to a $2.5 million decrease in valuation adjustments for certain CRA equity investments. Trust custodial fees increased $165,000 and escrow and exchange fees increased $354,000 as a result of higher transaction volumes. Going forward, we expect our non-interest income for the first quarter to be in the range of $24 to $25 million, excluding any security sale gains. Consistent with our expectations, Non-interest expense totaled $97.3 million compared to $96 million in the third quarter. Salaries and benefits increased $2.5 million to $56.1 million, reflecting higher production and performance-based incentives, as well as market-driven wage pressures. Staffing overall remained flat at 1,520 employees. Professional expense increased due to the timing of certain legal and professional fees. Our non-interest expense should approximate $97 to $98 million in the first quarter due to the anticipated higher payroll taxes and lower deferred loan origination costs offset by lower business incentive accruals. And as I mentioned earlier, the fourth quarter recapture of $14.6 million was driven principally by the continued improvement in the current and forecasted macro environment as well as key modeling variables. Turning now to the balance sheet. Loans grew $316 million, or 9% annualized, as we saw another quarter of strong loan production and increased line utilization, partially offset by higher levels of loan prepayments. In addition, we added $900 million in overnight SOFR-based fixed-to-floating rate swaps for a total notional position of $1.2 billion. Our securities portfolio decreased $225 million to $4.7 billion, which provided additional liquidity to fund the incremental loan growth. We will continue to manage the securities portfolio in conjunction with loan and deposit growth. With consistently solid earnings, the company continues to generate significant amounts of capital, supporting balance sheet growth and strengthening our capital ratios. Tangible book value grew to $20.29 at December 31st, compared with $19.75 at September 30th. As noted in our earnings release, the Board of Directors declared a 33-cent dividend payable on February 11th to shareholders of record on February 4th. And finally, from an asset quality standpoint, total delinquencies remained unchanged at 14 basis points of loans held for investment, while classified assets to total assets declined to 58 basis points. Net recoveries totaled $1 million for the quarter, compared with $1.8 million of net charge-offs in the prior quarter. Lastly, our allowance for credit losses ended the quarter at 1.38%, and the total loss-absorbing capacity comprised of the allowance plus the remaining fair value discount on acquired loans totaled $274.9 million at quarter end, or 1.91 percent of loans held for investment. With that, I will hand it back to Steve. Great.