Pacific Premier Bancorp Inc

And welcome to the Pacific Premier Bancorp fourth quarter 2023 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist 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 one on your telephone keypad. 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, Gary, and good morning, everyone. I appreciate you joining us today. As you're all aware, we released our earnings report for the fourth quarter of 2023 earlier this morning. We have also published an updated investor presentation with additional information and disclosures on our financial results. If you've not done so already, we encourage you to visit our investor relations website to download a copy of the presentation and related materials. I note that our earnings release and investor presentation include a safe harbor statement relative to the forward-looking comments. I encourage each of you to carefully read that statement. On today's call, I'll walk through some of the notable items related to our fourth quarter performance. Ron Nicholas, our CFO, will also review a few of the details surrounding our financial results, and then we'll open up the call to questions. Our team delivered another solid quarter to close out 2023, which was an extraordinary year for the banking industry. Rapidly rising interest rates, high-profile bank failures in rapid succession, and heightened regulatory expectations brought challenging dynamics to the market. Throughout it all, we maintained our focus on prudent and proactive capital liquidity and credit risk management. We have built our organization to be dynamic and adaptable to various operating environments. This served us and our stakeholders extremely well in 2023. For example, Our bankers responded quickly to the industry challenges throughout the year, collaborating across business lines to meet clients' needs and to reinforce the strength of our franchise. This responsiveness and engagement deepened existing relationships and led to new business development opportunities for our teams. During the fourth quarter, We leveraged the strength of our balance sheet and strong capital levels to proactively reposition our securities portfolio. This transaction enhanced our future earnings profile, provided additional liquidity, and is reflective of the optionality we have created within the franchise. The securities repositioning produced immediate results, expanding our net interest margin by 16 basis points. I'd like to highlight a few key areas, as many of the trends were similar to what we observed in the third quarter. Although we reported a quarterly net loss of $1.44 per share, excluding the one-time effects of the FDIC special assessment and our securities portfolio repositioning, our operating earnings per share was 51 cents. We saw some nice lift from our fee-based businesses as well as a reduction in non-interest expense compared to the third quarter, excluding the FDIC special assessment. Our commitment to capital accumulation in the current environment continues to drive our strong capital ratios, which remain top tier among our peers, even after layering in the impact of the loss on the securities portfolio sale. In the fourth quarter, Our TCE ratio increased 85 basis points to 10.72%, and our tangible book value per share increased 33 cents to $20.22. Our CET1 ratio came in at 14.32%, and our total risk-based capital ratio was a healthy 17.29%. Our ability to deepen our relationships with existing customers and attract new clients to the bank generated meaningful growth in new deposit account openings while maintaining pricing discipline. The new account opening activity, coupled with our ability to opportunistically deploy liquidity generated from the security sale, supported the favorable remix of the balance sheet. We redeployed a portion of the proceeds from the securities portfolio into cash and U.S. treasuries, while also reducing higher cost broker deposits by $617 million and prepaying $200 million of FHLB term advances. Our available liquidity at the end of the fourth quarter totaled approximately $9.9 billion. We did see some customer deposit outflows and mix shift during the fourth quarter, which included seasonal outflows related to business tax payments. Not surprisingly, some clients continue to pursue higher yielding non-bank alternatives. Ultimately, we saw non-maturity deposits increase to 84.7% of total deposits. our constant emphasis on cultivating high-quality client relationships and disciplined deposit pricing resulted in a well-controlled cost of non-maturity deposits of 102 basis points. On the asset side of the balance sheet, we saw slight growth in our overall loan portfolio balances due to increased line utilization from commercial borrowers. Prepayment activity was similar to the third quarter as business and commercial real estate clients continue to deploy excess cash reserves to pay down debt. Our bankers remain focused on generating high quality relationships that meet our risk adjusted return requirements. As always, we are proactive in terms of portfolio management and credit monitoring. We have ongoing communication with our clients relative to market trends in their businesses and industries. These updates on our clients' financial performance, liquidity, and collateral values inform our approach to managing individual credits. Our year-end asset quality metrics remain solid, as delinquencies were 0.08% of total loans and non-performing assets were 0.13% of total assets. We are closely monitoring the trends in commercial real estate markets and proactively identifying and managing potentially weaker credits. Overall, our loan portfolio is well managed in all facets across the organization. With that, I will turn the call over to Ron to provide a few more details on our fourth quarter financial results.

Thanks, Steve, and good morning. For comparison purposes, My comments today are on a linked quarter basis, unless otherwise noted. Let's begin with the quarter's results. For the fourth quarter, we recorded a net loss of $135.4 million, or $1.44 per share. Our reported results included the impact from two non-recurring items, the $1.26 billion AFS securities sale that had a net after-tax loss of $182.3 million and $2.1 million of additional non-interest expense due to the special FDIC assessment. Excluding these two items, our operating results were net income of $48.4 million, or 51 cents per diluted share, which yielded a return on average assets of 0.99% and a return on average tangible common equity of 11.19%. Our operating efficiency ratio came in at 58.8%, and our adjusted pre-provision net revenue as a percentage of average assets was 1.34% for the quarter. Please refer to our non-GAAP reconciliation in our investor presentation and earnings release for more details. Taking a closer look at the income statement, net interest income of $146.8 million was negatively impacted by lower average earning asset levels, partially offset by a favorable mixed shift toward higher yielding earning assets as a result of the securities repositioning and the reduction of higher cost wholesale funding sources. Our actions led to 16 basis points of net interest margin expansion to 3.28%, due to an increase of 38 basis points on the investment securities for the quarter, as well as eight basis points of higher loan yields. On a spot basis, excluding fees and discounts, the weighted average rate on our loan portfolio increased 11 basis points to 4.87%, reflecting higher lines of credit draws for the quarter. Overall, cost of funds was up only two basis points to 1.69%, reflecting the favorable mixed change from paying down higher cost wholesale funding. And our non-maturity deposits increased to 84.7% of total deposits, while costs were well controlled at 1.02%, with our cumulative total deposit beta of 29%, illustrating discipline pricing actions throughout this rate cycle. Notably, our spot deposit costs were 1.55% and ended the quarter one basis point lower than the average total deposit cost for the quarter of 1.56%. For the first quarter, we expect further balance sheet optimization through a combination of lower cash levels and a reduction in higher cost wholesale funding. Namely, We expect both broker deposits and FHLB advances to trend lower from year-end levels. We believe the combination of these items will help partially mitigate net interest margin pressures in the first quarter. Our core fee-based businesses had a solid quarter, excluding the security sale loss of $244.1 million. Our non-interest income came in at $19.9 million. Our fundamental fee income trends were favorable as trust income came in at $9.4 million and escrow and exchange fee income at $1.1 million, both up slightly over the prior quarter. For the first quarter of 2024, we expect our total non-interest income to be in the range of $20 to $21 million with the benefit of PPT's annual tax fees. Non-interest expense increased slightly to $102.8 million. Compensation and benefits expense decreased to $2.2 million, reflecting the benefit from the staff realignment across certain business lines during the quarter. From a staffing perspective, we ended the quarter with headcount of 1,345 compared to 1,355 as of September 30th. as our staffing levels continue to track with the overall size of the balance sheet. We remain focused on tightly managing our operating expenses, and we expect first quarter expenses in the range of $102 to $103 million with the anticipated higher first quarter payroll taxes. Our provision for credit losses of $1.7 million decreased from the prior quarter as our ACL coverage ratio increased three basis points to 1.45%, consistent with the fourth quarter's loan composition, level of new loan commitment activity, and our economic outlook. Turning now to the balance sheet, we finished the quarter at $19 billion in total assets with loans flat to the prior quarter. As noted, Lower cash and securities enabled us to pay down higher-cost wholesale funding in the form of brokered CDs and FHLB term borrowings. Total loans held for investment increased $19 million, driven by net draws on existing lines of credit of $355 million and new commitments of $128 million, offsetting prepayments, sales, and maturities of $455 million. Total deposits ended the quarter at $15 billion, a decrease of $1 billion driven mostly by a $617 million reduction in broker deposits. Other deposit categories fell $395 million as we continued to see clients redeploying funds into higher yielding alternatives, prepaying loans, as well as the impact of fourth quarter seasonal tax-related outflows. Even with the continued mix shift, Our non-interest-bearing deposits remain a robust 33% of total deposits, reflecting our strong client relationship business model. The successful execution of our deposit pricing strategies is evident as our non-maturity deposits ended the year at 1.04%, only two basis points above the quarter's average of 1.02%, generating positive momentum for us heading into the first quarter. The securities portfolio decreased $783 million to $2.9 billion, and the average yield on our investment portfolio increased 38 basis points to 3.08%, partially benefiting from the purchase of $539 million of short-term U.S. treasuries. We stand to benefit from a full quarter of the reinvested proceeds in the first quarter as the spot rate on our securities portfolio ended the year at 3.48%. Not surprising, given the rally in the yield curve late in 2023 and combined with the securities sold, our pre-tax accumulated other comprehensive loss on the total AFS portfolio improved to $36 million at December 31st. Our capital ratios remain significantly higher than the required well-capitalized thresholds. With our CET1 and Tier 1 capital ratios at 14.32% and our total risk-based capital at 17.29%, we continue to rank in the top tier relative to our peers. In addition, our tangible common equity ratio now stands at a very healthy 10.72%, and our tangible book value per share grew $0.33 to $20.22. And lastly, from an asset quality standpoint, asset quality across all measurables remained solid. Non-performing assets were flat at 0.13%, and total delinquency was also flat compared to the prior quarter at just eight basis points. Our total classified loans decreased five basis points to 1.07%. And our allowance for credit losses finished the quarter at $192.5 million, with our coverage ratio increasing to 1.45%. Our total loss absorption, which includes the fair value discount on acquired loans, ended the quarter up one basis point at 1.77%. With that, I'll turn the call back over to Steve.