Pacific Premier Bancorp Inc

Good morning, and welcome to the Pacific Premier Bancorp Inc. Second Quarter Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal Conference Specialists by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would like to turn the conference over to Steve Gardner, Chairman, CEO, and President. Please go ahead.

Thank you, Anthony. Good morning, everyone. I appreciate you joining us today. As you are all aware, earlier this morning, we released our earnings report for the second quarter of 2022. We have also published an updated investor presentation that has additional information and disclosures on our financial performance. If you have not done so already, we encourage you to visit our investor relations website to download a copy of the presentation. In terms of our call today, I'll walk through some of the notable items related to our performance. Ron Nicholas, our CFO, will also review a few of the details on our financial results, and then we'll open up the call to questions. I note that our earnings release and investor presentation include a safe harbor statement relative to the forward-looking comments, and I encourage each of you to read through the statement carefully. Our second quarter results reflect our balance between profitable growth and prudent risk management, which has been a fundamental tenet of our ability to consistently create value for shareholders as we have grown our franchise. We delivered strong results during the second quarter, while at the same time maintaining our disciplined approach to proactively managing risk in an evolving environment. This strategy has us well positioned to further strengthen and grow the franchise. we generated a higher level of earnings and returns compared to the prior quarter. Our net income was $69.8 million, or 73 cents per share, resulting in a 16% return on average tangible common equity. During the quarter, we incorporated a more cautious outlook into our CECL model. We ended the quarter with an ACL of 1.30% of total loans, and along with the fair value discounts on acquired loans, we have total loss-absorbing capacity of 1.72 percent, or nearly $260 million. Our reserve levels, liquidity, and capital position all remain strong. We generated well-diversified loan production during the quarter while maintaining pricing, and underwriting discipline. Our consistent approach to business development, along with the deep relationships we have with clients and the expertise that we provide, all led to strong levels of new production. As indicated during our last earnings call, we started to increase loan pricing late in the first quarter, which translated into a 56 basis point increase in rates on new loan commitments during the second quarter. Given our actions on loan pricing, it is encouraging that we still generated $1.5 billion in new loan commitments, which is a slight increase from the prior quarter. Combined with expanded commercial line utilization rates, this translated to annualized loan growth of nearly 10 percent. As a result, the new banking relationships we are generating today are some of the most attractive in our history. With the rise in market interest rates accelerating, we have seen a slowing in demand for CRE credit as investors reassess the impact of the current environment. We expect the decreased demand for credit will also bring slower loan prepayments and payoffs. thus benefiting our net portfolio growth in future periods. From an interest rate risk perspective, we continue to proactively manage our balance sheet in anticipation of and in response to a rising rate environment, as reflected in the higher pricing on new loans and actions we have taken to increase our asset sensitivity and control funding costs. The cost of our core deposits, which excludes time and broker deposits, equaled four basis points during the second quarter. We have always viewed our deposit base as the foundation for creating sustainable shareholder value. And over the years, we have invested in technology to ensure we are providing innovative treasury management and payment solutions that allow us to build deep long-term relationships with our clients. And as we have grown our franchise, we have added specialty deposit businesses to provide access to stable deposit-rich industries, which complements our relationship-driven commercial banking business model. Since the Fed began tightening financial conditions earlier this year, The trends we have seen in our deposit base have generally been consistent with what we have experienced in the past, stability among our clients and a relatively low deposit beta. However, given the unprecedented pace of expected future rate increases and market forces, it is likely we will see added deposit pricing pressures. That said, We expect our deposit costs to remain relatively low. And with higher yields we are seeing on earning assets, we anticipate an expansion in our net interest margin, contributing to higher net interest income over the second half of the year. With that, I'm going to turn the call over to Ron to provide a few more details on our second quarter financial results.

Thanks, Steve, and good morning. For comparison purposes, the majority of my remarks are on a linked quarter basis. Let's start with the income statement highlights. Second quarter EPS increased to 73 cents per share, a 4 percent increase on a linked quarter basis driven by total revenue increase of $7.2 million to $195 million as net interest income increased almost 7 percent compared to the prior quarter. Non-interest expense for the second quarter came in at the lower end of our expected range at $99 million. As a result, our pre-provision net revenue increased $5.9 million to $96 million, or 1.77 percent of average assets, and our efficiency ratio improved to 49 percent. Taking a closer look at the income statement, Net interest income increased $10.9 million to $172.8 million, driven primarily by $548 million in higher average loan balances and higher interest earning asset yields. On the deposit front, core deposits were essentially flat, and our cost of core deposits increased one basis point to four basis points for the quarter. Our reported net interest margin expanded by eight basis points to 3.49%, reflecting a favorable remix towards higher yielding loans and higher accretion income and fees, as we saw an uptick to our loan prepayments compared with the prior quarter. The core net interest margin of 3.33% was flat to the prior quarter and included seven basis points of higher core loan yields, offset by a seven basis point increase in our cost of funds, primarily due to the full quarter impact of the $600 million of FHLB term advances. Looking ahead to the third quarter, we expect our core net interest margin to be in the range of 3.35 to 3.40 percent. Given the actions we've taken to secure lower cost fixed rate funding and the quality of our core deposit base, we are well-positioned given the expectations for higher interest rates. Non-interest income, excluding security gains of $22.2 million, decreased $1.5 million from the prior quarter, due largely to $1.2 million of lower trust income due to the seasonal timing of the annual tax fees recognized in the first quarter. Going forward, we expect our non-interest income for the third quarter to be in the range of $22 to $23 million, excluding any security sales. Non-interest expense came in at the lower end of our expected range at $99 million, up slightly compared to the $97.6 million in the first quarter. Salary and benefits expense increased $581,000 to $57.6 million reflecting higher compensation and incentives. Staffing overall decreased slightly to 1,566 employees. As noted in our release this morning, we continue to optimize our staffing levels based on our outlook and growth objectives, while continuing to make investments in technology to drive innovation. Professional expense increased $561,000 mostly due to the timing of certain legal fees for general corporate purposes. Our non-interest expense should approximate $100 to $101 million in the third quarter, excluding the impact of the $1.1 million of one-time severance costs. Our provision for credit losses of $469,000 was flat to the prior quarter's $448,000. With the increasing probability of downside risks due to high inflation and the ongoing supply chain challenges, we are carefully monitoring the current and forecasted macroeconomic environment. Turning now to the balance sheet, the second quarter results reflected solid loan growth of $356 million, or 9.7% annualized, driven by $1.5 billion in new loan commitments and continued increases in line utilization, which grew to a quarterly average of 41.6 percent compared to 39.5 percent in the prior quarter. Period-end core deposits were essentially flat, down by $27 million from the prior quarter, but remained higher than year-end 2021 by almost $600 million and nearly $900 million higher from June of 2021. Additionally, we transferred approximately $445 million of our remaining available for sale municipal securities to Health and Maturity to limit future valuation changes due to interest rate increases. In June, we also added $600 million in term broker deposits to bolster our liquidity position and provide greater balance sheet flexibility. This is another source where we were able to lock in fixed-rate funding at attractive rates. Our loan-to-deposit ratio remained flat at just over 83 percent, and our cash balances increased $164 million to $973 million at quarter end. We continue to closely monitor and manage our liquidity and earning asset mix. Our common tangible equity ratio ended the quarter at 8.52% as tangible book value per share decreased 1.4% to $18.86 at June 30th. Our CET1 ratio increased to 11.91% on a consolidated level and to 13.72% on a bank level. We believe that our current capital and future earnings profile position us well to continue supporting organic growth and opportunistically deploying capital through a variety of avenues. And finally, from an asset quality standpoint, asset quality remains solid as non-performing loans decreased $11 million from the prior quarter to 0.3 percent of loans held for investment from 0.38% in the prior quarter. Total delinquency fell six basis points to 0.24%, and classified loans fell 12 basis points to 0.71% of loans held for investment. Net charges were $5.2 million for the quarter, the bulk of which was attributable to one credit. And our allowance for credit loss was effectively flat in terms of dollars and coverage ratio as improvement in our asset quality profile was tempered by loan growth and macroeconomic concerns. And with that, I'll hand it back to Steve.