Pacific Premier Bancorp, Inc. (NASDAQ:PPBI) Q4 2024 Earnings Conference Call January 23, 2025 12:00 PM ET Company Participants Steve Gardner - Chairman & Chief Executive Officer Ron Nicolas - Chief Financial Officer Conference Call Participants Matthew Clark - Piper Sandler Gary Tenner - D.A. Davidson Chris McGratty - KBW Andrew Terrell – Stephens David Feaster - Raymond James Operator Good day, and welcome to the Pacific Premier Bancorp Fourth Quarter 2024 Earnings Conference Call. [Operator Instructions] ...

Core Insights - Pacific Premier Bancorp (PPBI) reported a revenue of $144.51 million for the quarter ended December 2024, reflecting a significant decline of 265.3% year-over-year. The earnings per share (EPS) was $0.35, down from $0.51 in the same quarter last year. The revenue slightly exceeded the Zacks Consensus Estimate of $143.43 million, resulting in a surprise of +0.75%. The EPS also surpassed the consensus estimate of $0.32, with a surprise of +9.38% [1]. Financial Performance Metrics - The efficiency ratio for Pacific Premier Bancorp was reported at 67.8%, better than the average estimate of 70.4% by four analysts [4]. - The net interest margin was 3%, slightly below the average estimate of 3.1% by four analysts [4]. - The net charge-offs to average loans/leases stood at 0%, outperforming the average estimate of 0.3% by four analysts [4]. - Average interest-earning assets were $16.39 billion, exceeding the average estimate of $16.15 billion based on three analysts [4]. - Total non-performing loans were reported at $28.03 million, significantly lower than the average estimate of $43.55 million by two analysts [4]. - Total non-performing assets were $28.86 million, also below the average estimate of $43.55 million by two analysts [4]. - Total noninterest income was $19.98 million, surpassing the average estimate of $19.05 million by four analysts [4]. - Net interest income before provision for loan losses was $124.53 million, slightly above the average estimate of $124.30 million based on four analysts [4]. Stock Performance - Over the past month, shares of Pacific Premier Bancorp have returned -3.1%, contrasting with the Zacks S&P 500 composite's +2.7% change. The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market in the near term [3].

Core Viewpoint - Pacific Premier Bancorp (PPBI) reported quarterly earnings of $0.35 per share, exceeding the Zacks Consensus Estimate of $0.32 per share, but down from $0.51 per share a year ago, indicating a 31.37% year-over-year decline in earnings [1] Financial Performance - The company posted revenues of $144.51 million for the quarter ended December 2024, surpassing the Zacks Consensus Estimate by 0.75%, compared to revenues of -$87.41 million in the same quarter last year, reflecting a significant turnaround [2] - Over the last four quarters, Pacific Premier Bancorp has exceeded consensus EPS estimates two times and revenue estimates two times [2] Stock Performance and Outlook - Shares of Pacific Premier Bancorp have declined approximately 2% since the beginning of the year, while the S&P 500 has gained 3.5%, indicating underperformance relative to the broader market [3] - The company's earnings outlook is mixed, with current consensus EPS estimates of $0.30 for the upcoming quarter and $1.32 for the current fiscal year, with revenues expected to be $142.38 million for the next quarter and $589.83 million for the fiscal year [7] Industry Context - The Financial - Savings and Loan industry, to which Pacific Premier Bancorp belongs, is currently ranked in the top 11% of over 250 Zacks industries, suggesting a favorable industry outlook [8]

Total assets as of December 31, 2024 were $17.90 billion, compared to $17.91 billion at September 30, 2024, and $19.03 billion at December 31, 2023. Steven R. Gardner, Chairman, Chief Executive Officer, and President of the Company, commented, "Our team delivered solid results in the fourth quarter, closing out the year in a strong financial position. Our performance throughout 2024 reflects the excellence of our organization and the effectiveness of our relationship-based business model that has us well-po ...

Core Insights - Analysts project that Pacific Premier Bancorp (PPBI) will report quarterly earnings of $0.32 per share, reflecting a year-over-year decline of 37.3% [1] - Revenue is expected to reach $143.43 million, marking a significant increase of 264.1% compared to the same quarter last year [1] Earnings Estimates - There has been no revision in the consensus EPS estimate for the quarter over the past 30 days, indicating a stable outlook from analysts [2] - Revisions to earnings estimates are crucial indicators for predicting investor actions regarding the stock [3] Key Metrics - The consensus estimate for 'Net interest margin' is projected at 3.1%, down from 3.3% a year ago [5] - Analysts expect the 'Efficiency Ratio' to be 70.4%, an increase from 60.1% reported in the same quarter last year [5] - The estimate for 'Average Interest-Earning Assets' stands at $16.15 billion, down from $17.74 billion in the same quarter of the previous year [5] Non-Performing Assets - 'Total NonPerforming Assets' are expected to be $43.55 million, up from $25.07 million in the same quarter last year [6] - The estimate for 'Total NonPerforming Loan' is also $43.55 million, compared to $24.82 million a year ago [6] Net Interest Income - The estimated 'Net interest income before provision for loan losses' is $124.30 million, down from $146.79 million a year ago [7] Stock Performance - Over the past month, shares of Pacific Premier Bancorp have returned -2%, compared to a -0.4% change in the Zacks S&P 500 composite [7] - Currently, PPBI holds a Zacks Rank 3 (Hold), suggesting its performance may align with the overall market in the near future [7]

Pacific Premier Bancorp (PPBI) reported $149.77 million in revenue for the quarter ended September 2024, representing a year-over-year decline of 10.9%. EPS of $0.37 for the same period compares to $0.48 a year ago.The reported revenue represents a surprise of -2.26% over the Zacks Consensus Estimate of $153.23 million. With the consensus EPS estimate being $0.39, the EPS surprise was -5.13%.While investors closely watch year-over-year changes in headline numbers -- revenue and earnings -- and how they comp ...

Company Performance - Pacific Premier Bancorp reported quarterly earnings of $0.37 per share, missing the Zacks Consensus Estimate of $0.39 per share, and down from $0.48 per share a year ago, representing an earnings surprise of -5.13% [1] - The company posted revenues of $149.77 million for the quarter ended September 2024, missing the Zacks Consensus Estimate by 2.26%, and down from $168.1 million year-over-year [1] - Over the last four quarters, the company has surpassed consensus EPS estimates two times and topped consensus revenue estimates just once [1] Stock Performance - Pacific Premier Bancorp shares have lost about 11.1% since the beginning of the year, while the S&P 500 has gained 21.5% [2] - The current status of estimate revisions is unfavorable, leading to a Zacks Rank 4 (Sell) for the stock, indicating expected underperformance in the near future [4] Earnings Outlook - The current consensus EPS estimate for the coming quarter is $0.37 on revenues of $151.55 million, and for the current fiscal year, it is $1.64 on revenues of $626.43 million [4] - The company's earnings outlook will depend on management's commentary during the earnings call and the trends in earnings estimate revisions [3] Industry Context - The Financial - Savings and Loan industry, to which Pacific Premier Bancorp belongs, is currently in the top 23% of over 250 Zacks industries, indicating a favorable industry outlook [5] - Another company in the same industry, BankFinancial, is expected to report quarterly earnings of $0.20 per share, reflecting a year-over-year change of +5.3% [5]

Financial Performance - Net income for Q3 2024 was $36.0 million, or $0.37 per diluted share, down from $41.9 million in Q2 2024 and $46.0 million in Q3 2023[1] - The company reported a net income of $35,979 thousand for the three months ended September 30, 2024, down from $46,030 thousand in the same period last year[70] - Net interest income for Q3 2024 was $130.9 million, a decrease of $5.5 million, or 4.0%, from Q2 2024[7] - Noninterest income for the third quarter of 2024 was $18.9 million, an increase of $645,000 from the previous quarter, primarily due to a decrease in Community Reinvestment Act investment loss[12] - Net interest income after provision for credit losses was $130,412 for the three months ended September 30, 2024, down from $145,630 in the same period last year, representing a decline of 10.4%[56] - Total revenue for the quarter was $149,765, reflecting a decline of 11.0% compared to $168,099 in the prior year[74] Asset and Liability Management - Total assets decreased to $17.91 billion from $18.33 billion in Q2 2024 and $20.28 billion in Q3 2023[2] - Total liabilities stood at $15,313,253 thousand, with interest-bearing liabilities yielding a cost of 2.85%[58] - Total deposits were $14.48 billion at September 30, 2024, a decrease of $146.7 million, or 1.0%, from June 30, 2024, and a decrease of $1.53 billion, or 9.5%, from September 30, 2023[34] - Total stockholders' equity increased to $2,943,937 thousand from $2,923,764 thousand, an increase of approximately 0.7%[55] - The company has an unused borrowing capacity of $8.83 billion as of September 30, 2024[42] Credit Quality - Nonperforming assets as a percentage of total assets improved to 0.22% from 0.28% in Q2 2024[5] - Provision for credit losses was $486,000 for the third quarter of 2024, a decrease from $1.26 million in the previous quarter and $3.92 million in the same quarter last year[11] - The allowance for credit losses on loans held for investment was $181.2 million as of September 30, 2024, down from $183.8 million on June 30, 2024, and down from $188.1 million on September 30, 2023[26] - Nonperforming loans amounted to $39,084 thousand as of September 30, 2024, a significant decrease from $52,119 thousand in June 30, 2024, reflecting a reduction of 25%[61] - The allowance for credit losses was $181,248 thousand, which is 464% of total nonperforming loans, indicating a strong coverage ratio[61] Loan and Deposit Trends - Loans held for investment totaled $12.04 billion at September 30, 2024, a decrease of $454.9 million, or 3.6%, from the previous quarter[19] - New loan commitments in the third quarter of 2024 were $104.1 million, down from $150.7 million in the second quarter of 2024, but up from $67.8 million in the third quarter of 2023[19] - The total loan-to-deposit ratio was 83.1% at September 30, 2024, compared to 85.4% at June 30, 2024[20] - Non-maturity deposits totaled $12.21 billion, or 84.3% of total deposits, a decrease of $29.0 million, or 0.2%, from June 30, 2024[35] - Total investor loans secured by real estate amounted to $8,068,489 thousand as of September 30, 2024, a decrease of 1.7% from $8,206,124 on June 30, 2024, and a decrease of 7.4% from $8,715,596 on September 30, 2023[23] Capital Ratios and Equity - Common equity tier 1 capital ratio increased to 16.83% from 15.89% in Q2 2024[5] - The total capital ratio stood at 20.05%, an increase from 17.74% a year earlier[46] - Tangible common equity ratio improved to 11.83%, compared to 9.87% on September 30, 2023[80] - Book value per share rose to $30.52, up from $29.78 a year ago[46] - The company declared a dividend of $0.33 per share, payable on November 12, 2024[47] Operational Efficiency - Noninterest expense totaled $101.6 million for the third quarter of 2024, an increase of $4.1 million compared to the second quarter, driven by higher legal and professional services costs[15] - Efficiency ratio increased to 66.1%, compared to 59.0% in the same quarter of the previous year[77] - Compensation and benefits expense was $53,400 for the three months ended September 30, 2024, slightly up from $54,068 in September 2023, indicating a decrease of 1.2%[56] Interest Rates and Margins - Net interest margin decreased to 3.16% in Q3 2024 from 3.26% in Q2 2024[7] - Average yield on loans was 5.31% for the third quarter of 2024, slightly up from 5.30% in the previous quarter[9] - The weighted average cost of total deposits for Q3 2024 was 1.84%, compared to 1.73% for Q2 2024, and 1.50% for Q3 2023[37] - The cost of funds increased to 1.97%, while the cost of non-maturity deposits was reported at 1.27%[58]

Branch Operations - As of June 30, 2024, the company operates 58 full-service depository branches across California, Washington, Oregon, Arizona, and Nevada[193] Financial Performance - Net income for the three months ended June 30, 2024, was $41,905 thousand, a decrease of 10.5% from $47,025 thousand for the three months ended March 31, 2024, and a decrease of 27.4% from $57,636 thousand for the three months ended June 30, 2023[220] - The return on average assets (ROAA) for the three months ended June 30, 2024, was 0.90%, down from 0.99% for the three months ended March 31, 2024, and down from 1.09% for the three months ended June 30, 2023[220] - The adjusted net income for average tangible common equity for the six months ended June 30, 2024, was $93,206 thousand, compared to $124,655 thousand for the six months ended June 30, 2023, reflecting a decrease of 25.3%[223] - Net income for the six months ended June 30, 2024, was $88,930, a decrease of 26.5% compared to $120,198 for the same period in 2023[241] - Comprehensive income for the three months ended June 30, 2024, was $47.5 million, compared to $44.9 million for the same period in 2023, reflecting an increase of 3.9%[232] Investment Securities - The company reported total AFS investment securities of $1,098,737,000 with gross unrealized losses of $30,261,000[198] - The company reported an unrealized gain on securities available-for-sale of $2.98 million for the three months ended June 30, 2024, compared to a loss of $15.55 million for the same period in 2023[232] - The company reported a net unrealized loss on AFS investment securities of $29.9 million as of June 30, 2024, an improvement from a net unrealized loss of $36.0 million at December 31, 2023[260] - The total held-to-maturity (HTM) investment securities were $1.71 billion as of June 30, 2024, down from $1.73 billion at December 31, 2023, indicating a decrease of about 1.2%[432] - The total HTM investment securities included municipal bonds valued at $1.15 billion as of June 30, 2024, with a gross unrecognized loss of $235.8 million[431] Deposits and Liquidity - Total deposits decreased to $14,627,654,000 from $14,995,626,000, a decline of 2.46%[227] - As of June 30, 2024, total deposits decreased to $14.63 billion, down $368.0 million or 2.5% from $15.00 billion at December 31, 2023[435] - The liquidity ratio was 15.2% as of June 30, 2024, exceeding the minimum policy requirement of 10.0%[445] - Uninsured deposits amounted to $5.78 billion as of June 30, 2024, compared to $5.98 billion at December 31, 2023[438] Credit Quality and Risks - The company anticipates potential increases in past due, nonaccrual, and classified loans due to economic pressures, which may lead to higher net charge-offs[197] - The company faces risks related to credit quality, particularly if economic conditions deteriorate, which could strain borrowers[197] - The allowance for credit losses (ACL) may need to be increased if future economic conditions deteriorate, impacting the company's financial performance[209] Interest Rates and Economic Conditions - The Federal Open Market Committee has been tightening monetary policy since March 2022, impacting both interest income and expense for the banking industry[196] - Economic activity in the U.S. has expanded modestly in 2024, with unemployment remaining low, but inflation is still above the Federal Reserve's 2% target[196] - The company anticipates that deposit costs will continue to increase due to elevated interest rates and competitive pressures in the near term[212] Capital and Equity - Total stockholders' equity increased to $2,923,764,000 as of June 30, 2024, from $2,882,581,000 on December 31, 2023, representing a growth of 1.43%[226] - The tangible book value per share and tangible common equity ratio are key metrics for assessing the company's capital adequacy, excluding intangible assets from calculations[225] - The company and Bank exceeded the minimum capital ratios required under Basel III, maintaining a capital conservation buffer of 2.5%[453] Operational Strategies - The company is committed to supporting its subsidiary depository institutions as a source of financial strength[192] - The company has a focus on enhancing its digital banking and treasury management services to meet customer needs[194] - The company continues to monitor economic conditions and will adjust its strategies as necessary to maintain operational stability[215] Earnings and Expenses - Basic earnings per share decreased to $0.43 from $0.60, a decline of 28.33%[230] - Noninterest expense decreased to $97,567,000 from $100,644,000, a reduction of 3.07%[230] - Cash dividends declared were $0.66 per common share, totaling $63.5 million for the six months ended June 30, 2024[234] Interest Rate Risk Management - Interest rate risk management is actively monitored, with strategies evaluated quarterly to mitigate potential impacts on net interest income[456] - The company's Earnings at Risk is projected to increase by 5.9% with a 300 basis point rate change, resulting in a $33,246 thousand increase[458] - The projected Net Interest Margin rate is forecasted to be 3.62% with a 300 basis point increase in rates[458]

Financial Data and Key Metrics Changes - The second quarter net income totaled $41.9 million or $0.43 per share, with a return on average assets of 0.90% and return on average tangible common equity of 8.92% [43][49] - Net interest income decreased to $136.4 million, primarily due to higher cost of funds and lower loan balances, resulting in a net interest margin that narrowed 13 basis points to 3.26% [55][49] - The provision for credit losses was $1.3 million, a decrease compared to the prior quarter, reflecting a smaller loan portfolio and stable asset quality [45][49] - Total assets at the end of the quarter were $18.3 billion, with total deposits at $14.6 billion, representing a linked quarter decrease of $560.2 million [57][58] Business Line Data and Key Metrics Changes - Loan production increased to $151 million, but was offset by higher loan payoffs as clients utilized excess liquidity to reduce debt [38] - Total loans held for investment declined by $522 million, driven by prepayments, paydowns, maturities, and lower C&I line utilization [57] - Noninterest income decreased to $18.2 million, down $7.6 million from the first quarter, primarily due to a prior quarter's debt extinguishment gain [81] Market Data and Key Metrics Changes - The average cost of non-maturity deposits increased to 1.17%, while total deposit costs rose to 1.73% [44][49] - Nonperforming loans were 0.42% of total loans, a decrease of 7 basis points from the prior quarter, indicating stable asset quality [60] Company Strategy and Development Direction - The company is focused on capital accumulation and proactive liquidity management, with a CET1 ratio of 15.89% and total risk-based capital ratio of 19.01% [50][39] - Management is considering various strategic options, including balance sheet repositioning and potential M&A opportunities, while maintaining a disciplined approach to credit and pricing [64][49] - The company aims to leverage its diverse client base and disciplined business development capabilities to grow loan and deposit balances as economic conditions improve [63] Management's Comments on Operating Environment and Future Outlook - Management noted a challenging operating environment marked by prolonged elevated interest rates and competitive loan and deposit pricing dynamics [48] - There is optimism regarding stabilization in loan and deposit levels as the year progresses, driven by client communications and seasonal factors [67][76] - The company remains committed to prudent credit risk management and is prepared to add new loans as demand strengthens [53][63] Other Important Information - The company sold $35 million of adversely classified loans during the quarter as part of its proactive credit risk management approach [57] - The efficiency ratio improved to 61.3%, with noninterest expense decreasing to $97.6 million [80] Q&A Session Summary Question: What gives confidence that loans and deposits will stabilize? - Confidence stems from client conversations and observed seasonality in deposit outflows, which have matched loan portfolio contractions [67] Question: Where is the company seeing activity and potential success? - There has been a modest pickup in C&I originations and construction lending, indicating potential stabilization [69][96] Question: What are the company's interests regarding capital deployment? - The company is considering various options, including M&A and balance sheet repositioning, while remaining flexible to opportunities [70][64] Question: How does the company view its capital ratios? - The company has strong capital ratios and is well-positioned to pursue organic and strategic growth opportunities [76][116] Question: Has there been any change in conversations regarding concentration risk in CRE? - There has been a heightened focus on CRE concentration, but the company has managed its portfolio well and continues to perform strongly [141]