Pacific Premier Bancorp Inc

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Great. Thank you, Gary. Good morning, everyone. I appreciate you joining us today. As you're all aware, we released our earnings report for the fourth quarter of 2024 earlier this morning. We have also published an updated investor presentation with additional information and disclosures on our financial results. If you have 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 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 will open up the call to questions. I want to take a moment to discuss the events currently unfolding here in Southern California. Our hearts go out to everyone affected by the devastating California wildfires, including our colleagues, clients, and neighbors in the Los Angeles area. We stand ready to support our community's needs during this challenging time and in future rebuilding efforts. As always, we remain committed to serving as both a financial partner and a source of strength for the communities we proudly call home. In response, Pacific Premier will launch several initiatives in consumer and commercial lending with expanded products and services to support the displaced homeowners and businesses. With these enhanced product offerings, our goal is to create an efficient, streamlined process for those affected with the intention to provide the necessary financial support as soon as possible. Our restoration efforts begin. We will be there as a primary capital provider to the builders, contractors, and related businesses as part of our Rebuild LA initiatives. Our teams are continuing to assess the direct and indirect impact of the wildfires on our clients' residents as well as their business. Of those clients personally affected by the fires, the preliminary indications are that approximately four loans totaling $8 million have sustained some level of damage. However, of those loans, $5 million reflects a single credit that is well collateralized and secured by multiple properties. We are closely monitoring the ongoing situation and corresponding impacts on our clients, and we stand ready to work with those in need over the coming weeks and months. Looking now at the results, our team delivered a solid fourth quarter, closing the year in a strong financial position. We generated earnings per share of $0.35, a return on average assets of 75 basis points, and a return on tangible common equity of 7.2%. Our performance throughout 2024 highlighted the resiliency of our organization and the strength of our relationship-based business model. This success was a testament to the outstanding business development efforts of our entire team, attracting new small business and middle market clients, deepening existing relationships, and driving new customers to the bank. I'll note that late in the fourth quarter, the OCC approved our application to convert from a California chartered bank to a national banking association. This change in charter better aligns our West Coast business banking model that is supplemented by our complementary national lines of business. Amidst a more favorable economic outlook, borrower sentiment improved during the quarter, which drove a positive shift in our funding mix, effectively reducing higher-cost deposits by $163 million, while increasing lower-cost transaction deposits by $146 million. These encouraging trends allowed us to reinvest excess liquidity into loans and short-term U.S. treasuries enhancing our overall balance sheet position. While the absolute level of short-term rates remains somewhat elevated, we made progress in lowering our funding costs as cost of funds decreased nine basis points to 1.88% and our spot deposit costs at year-end declined eight basis points to 1.72%. Overall, our cost of deposits remains low on a relative basis when compared to our peers. As such, we will take a balanced approach toward funding loan growth while driving pricing down further, all of which will likely be impacted by the timing and magnitude of potential Fed moves. With the Federal Reserve having initiated interest rate cuts in September, coupled with the resolution of pre-election uncertainty, we observed growing optimism among our clients about the future. These positive trends provide us with renewed confidence for stronger organic originations in commercial and business loans, as well as high-quality opportunities in construction, multifamily, and CRE. Our loan portfolio increased slightly during the quarter, driven by increased CNI and consumer loans. During the fourth quarter, new origination activity accelerated with new loan commitments totaling $316 million, our highest level since the third quarter of 2022. As our loan pipelines ramp up and our teams build on the momentum established in the fourth quarter, we will continue to complement organic loan growth with strategic loan purchases in participations in lines of business where we have established expertise. CNI loans we acquired are predominantly comprised of investment-grade credits and not leveraged loans. We may modestly add to this portfolio to supplement existing originations, but expect them to make up a relatively small portion of our overall loan production in the coming quarters. Prudent risk management continues to remain a priority, demonstrated by our robust capital ratios, which increased from September 30th. Our tangible common equity ratio and total risk-based capital ratio increased to 11.92%, 17.05%, and 20.28%, respectively, at year end. On a year-over-year basis, our total risk-based capital ratio increased nearly 300 basis points, and all our capital ratios continue to rank near the top of the KBW Regional Banking Index. As we move into 2025, our strong momentum and robust capital levels position us well to adopt a more constructive approach in driving new business through loan and deposit growth. Customer deposit trends during the quarter were positive, as we saw an increase in lower-cost deposits. We are cautiously optimistic that increased business and commercial real estate activity will lead to additional deposit growth as we move through the year. Looking ahead, our team of bankers are laser-focused on expanding both new and existing loan and deposit relationships, enabling us to pursue attractive risk-adjusted opportunities to drive higher levels of net interest income and increased earnings power. As of December 31st, our loan to deposit ratio was 83.3%, providing us with ample liquidity to fund our growth objectives. Regarding pricing, we will remain disciplined, but our ability to make immediate adjustments will be somewhat dependent on how the interest rate outlook unfolds. Ron will provide additional detail in his comments regarding our forward assumptions within our full year guidance. Our longstanding philosophy emphasizes that franchise value is built through deep client relationships, as evidenced by our strong deposit base. It is important to note that our average client relationship has a tenure of over 13 years. As I discussed during our last call, we saw the benefit from the strategic actions we took during the summer to positively impact loan production. We have improved our competitive position in the market, which has translated into a nice pickup in new loan activity that carried an attractive weighted average rate on new originations of 6.92%. The team is successfully managing existing portfolio balances ahead of scheduled loan maturities and interest rate resets. As a result, we saw 95 million in multifamily production for existing customers. Having moved past key factors that previously fueled broader uncertainty, we anticipate expanding our loan production efforts consistent with our ability to attract low-cost deposits. In the coming quarters, we expect organic originations to meet or exceed the level of prepayments and payoffs. Asset quality results remain strong as non-performing loans decreased $11 million to $28 million and total delinquencies fell to $2.6 million or 0.02% of loans. These favorable asset quality results represent our effective approach to credit risk management demonstrated throughout our history and will continue to benefit us and our stakeholders. With that, I'll 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 net income of $33.9 million, or 35 cents per share. We had total revenue of $144.5 million, and non-interest expense was $100.7 million, which translated to an efficiency ratio of 67.8% and pre-provisioned net revenue of $43.8 million. The quarter's results were influenced by the sizable churn of the loan portfolio, which saw significant runoff early in the quarter, offset comparatively by stronger organic loan originations and supplemented by loan purchases in the back half of the quarter. Taking a closer look at the income statement, net interest income of $124.5 million came in at the high end of our third quarter guidance as growth in non-maturity deposits resulted in a favorable funding mix shift and lower average funding costs. Our non-interest margin net interest margin narrowed 14 basis points to 3.02% as average earning asset yields declined to 4.74% due to lower swap income, lower rates on floating rate earning assets, and paydowns and payoffs of higher yielding loans, partially offset by lower cost of funds, which decreased nine basis points to 1.88%. Our cost of deposits decreased to 1.79%, and average non-maturity deposit costs were flat at 1.28%, with the spot cost of non-maturity deposits decreasing to 1.24%. Our SOFR-based swap portfolio contributed 10 basis points to the net interest margin, and we have $300 million remaining of notional swaps that matured during the first half of 2026. With our current rate expectations for two Fed rate cuts in 2025, we anticipate approximately $2 to $3 million of swap income for the first quarter. Average loan yields decreased to 5.13% due to lower rates on floating rate loans and combined prepayments carrying an average coupon rate of 7.23%. While we fully offset the elevated level of prepayments with new organic originations at an average rate of 6.92% and loan purchases that carried an average rate of 6.54%, the fundings occurred later in the quarter. This dynamic, along with the immediate repricing of floating rate loans and swaps, had a pronounced effect on the fourth quarter average loan yields. It's important to note that the fourth quarter total end of period weighted average interest rate on loans, excluding fees, discounts, and swaps, decreased only four basis points to 4.78%. As highlighted in our investor presentation, we anticipate 125 basis point rate cut in March and 125 basis point cut in September and expect full year net interest income to be in the 500 to $525 million range. Noninterest income increased to $20 million as a result of higher investment income of $1.1 million. For the full year 2025, we expect our total noninterest income to be in the range of $80 to $85 million. Noninterest expense decreased $1 million to $100.7 million attributable to a $3 million decrease in compensation expense, as well as lower facilities and deposit costs, partially offset by $4.1 million in higher legal and professional services. From a staffing perspective, we ended the quarter relatively flat with a headcount of 1,325 compared with 1,328 as of September 30th. Our expectations for full year 2025 are for non-interest expense to be in the range of $405 to $415 million as we continue to diligently manage our operating expense. We had a provision recapture of $814,000 compared to $486,000 of provision expense in the prior quarter commensurate with our loan portfolio mix shift and our current asset quality profile. As Steve noted, asset quality continues to trend favorably as we proactively manage our credit risk. Turning now to the balance sheet, we finished the quarter at $17.9 billion in total assets, consistent with the level at September 30th, as we deployed excess cash into loans and AFL securities. Total loans held for investment were flat from the prior quarter at $12 million as increases in C&I and single-family residential loans offset reductions in CRE, multifamily, and construction loan balances. During the fourth quarter, new origination activity increased as new loan commitments totaled $316 million and fundings totaled $193.8 million. In addition to organic loan growth, we purchased $401.3 million of investment grade CNI loans and $116.3 million of single family residential loans. Our CNI lines of credit outstanding as of December 31st were $536.8 million and the utilization rate was 33.5% compared with $743.1 million outstanding and a utilization rate of 40.1% at September 30th. I'll note the elevated level of prepayments and decreased line utilization seen in the fourth quarter was impacted by the plan exit of the large commercial relationship in early October. Looking ahead, our loan pipelines are building and we anticipate low to mid single digit loan growth in 2025. As Steve noted, we will continue to supplement organic loan originations with loan purchases to meet and exceed runoff. Total deposits were $14.5 billion, a decrease of $17.2 million from the prior quarter. Non-maturity deposits increased $145.8 million to $12.4 billion and the level of non-maturity deposits increased to 85.4% of total deposits, with non-interest bearing deposits remaining steady at 32%. The growth in non-maturity deposits, coupled with a deliberate reduction in higher cost time deposits, resulted in an overall cost of deposits of 1.79%. We saw our cash position trend more toward our historical levels, ending the quarter at $610.6 million. The remix of our balance sheet reflects the stability in our deposit base, and moving forward, we anticipate our cash position will remain at this lower level. The securities portfolio increased $365.1 million to $3.5 billion, and the average yield on our investment portfolio was 3.65%. During the quarter, we purchased $705 million of AFS securities, consisting almost entirely of short-term treasuries with a weighted average yield of 4.13%. From a liquidity perspective, we entered 2025 in a strong position with $610.6 million of cash on hand, a loan-to-deposit ratio of 83%, $9 billion of total available unused borrowing capacity, and $1.1 billion of scheduled cash flow coming back from our investment portfolio. The combination of solid earnings, stable overall balance sheet size, and a favorable loan mix shift strengthen our capital ratios, with all ratios increasing over the prior quarter. Our tangible common equity ratio increased nine basis points to 11.92%. and our tangible book value per share increased 75 cents year-over-year to $20.97. Lastly, from an asset quality standpoint, we continued to see improvement overall in our asset quality numbers as non-performing loans decreased $11.1 million to $28 million, or 0.23% of loans. Total delinquency decreased six basis points to 0.02%, And classified loans decreased 12 basis points to 0.88% of total loans. Our ACL balance and ACL coverage ratio remained at healthy levels, totaling $178.2 million. And our coverage ratio came in at 1.48% compared to 1.45% at December 31, 2023. Our total loss absorption which includes the fair value discount on loans acquired through acquisitions, finished the quarter at 1.75%. With that, I'll turn the call back to Steve.