Q2 2024 Pacific Premier Bancorp Inc Earnings Call

In This Article:

Participants

Steven Gardner; Chairman of the Board, President, Chief Executive Officer; Chief Executive Officer, Director of the Bank; Pacific Premier Bancorp Inc

Ronald Nicolas; Chief Financial Officer, Senior Executive Vice President; Chief Financial and Administration Officer of the Bank; Pacific Premier Bancorp Inc

David Feaster; Analyst; Raymond James

Matthew Clark; Analyst; Piper Sandler Companies

Chris McGratty; Analyst; Keefe, Bruyette & Woods North America

Gary Tenner; Analyst; D.A. Davidson & Company

Andrew Terrell; Analyst; Stephens Inc.

Presentation

Operator

Good day, and welcome to the Pacific Premier Bancorp 2024 second quarter conference call. (Operator Instructions). 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.

Steven Gardner

Very good. Thank you, Nick. Good morning, everyone. I appreciate you joining us today. As you are all aware, we released our earnings report for the second 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 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 second-quarter performance. Ron Nicolas, our CFO, will also review a few of the details surrounding our financial results, and then we will open up the call to questions.
During the second quarter, our team delivered consistent results as we navigate a challenging operating environment marked by prolonged elevated interest rates, competitive loan and deposit pricing dynamics, and heightened regulatory expectations. Our-second quarter results reflect Pacific Premier's ongoing support of our small- and medium-sized business clients along with our commitment to expanding existing relationships and driving new customers to the bank.
Looking now at the results for the second quarter. We generated earnings per share of $0.43, a return on average assets of 90 basis points, and a return on tangible common equity of 8.9%. The prolonged higher interest rate environment continued to impact our cost of deposits, which increased 14 basis points to 1.73%, though our funding costs remained low on a relative basis compared to our peers.
Loan production increased to $151 million but was offset by higher loan payoffs as our clients utilized excess liquidity to reduce debt. This dynamic that has impacted both sides of the balance sheet for the past few quarters, in part, reflects the high-quality nature of the businesses we attract to the franchise. Based on client communications, we expect loan and deposit levels to stabilize as we move through the second half of the year.
Our capital ratios rank among the strongest in the industry. In the second quarter, our TCE ratio increased 44 basis points to 11.41%, and our tangible book value per share increased to $20.58. Our CET1 ratio came in at 15.89%, and our total risk-based capital ratio was a robust 19.01%. These capital levels provide us with significant optionality, and we are considering a number of strategic options, including balance sheet repositioning that could drive earnings higher in future periods.
Our total liquidity position of approximately $9.8 billion was double the level of our uninsured deposits at June 30. This consisted of $1.2 billion of cash and unpledged short-term treasuries, as well as $8.6 billion of unused borrowing capacity.
As you are aware, we have placed a strong emphasis on capital accumulation and proactive liquidity management over the past several quarters for good reason. We are well positioned to pursue organic and strategic growth opportunities, especially once risk-adjusted spreads on new loans normalize relative to those currently available in today's market.
As noted on last quarter's call, the anticipated decline in deposit balances was concentrated in the early part of the quarter due to seasonality around tax payments and distributions. Additionally, clients are using deposits to pay down and pay off loans, and, to a lesser extent, seeking higher returns for excess liquidity.
Our relationship managers continue to bring in new relationships. And, in particular, our teams at Pacific Premier Trust and Community Association Bank ring are delivering solid results. That said, the current deposit-gathering environment remains highly competitive.
Throughout this rate cycle, we have maintained our disciplined deposit pricing practices due to the quality of our client relationships and their trust in our organization. As a proof point, our average cost on non-maturity deposits was 117 basis points for the second quarter. As of June 30, non-interest-bearing deposits comprised 32% of total deposits. which compares favorably to our peers.
Our relationship-based business model is also reflected in our long-tenured client base, as the length of our commercial and consumer banking relationships is, on average, 13.3 years. Tepid demand for CRE and multi-family loans, lower C&I loan utilization rates, in conjunction with our disciplined approach to managing credit risk, contributed to our loan portfolio contracting during the quarter.
Across our footprint, competition persists in terms of structure, [tenor], and credit spreads. Candidly, some of our competitors are originating loans that are not consistent with our approach to credit and pricing discipline. We remain focused on providing the highest level of service to our clients while staying committed to originating loans that meet our risk-adjusted return thresholds.
We appreciate that uncertainty persists within certain commercial real estate markets. Importantly, our CRE concentration has steadily decreased with the portfolio continuing to perform well. And broadly speaking, we are not seeing an overall degradation in borrower cash flows within our loan portfolios.
Our asset quality remains solid, as non-performing loans decreased $11.7 million to $52.1 million from the prior quarter. Non-performing assets ended the quarter at 28 basis points of total assets, while classified assets declined 9 basis points to 1% of total assets.
We have been transparent in our commitment to prudent and proactive credit risk management. We work quickly to identify and move problem credits off our balance sheet. And we historically have done very few workouts or extensions.
To be successful in our approach, we must maintain open lines of communication with our clients regarding their financial status, liquidity, and market dynamics, all of which inform our process for managing individual credits. Should demand for credit strengthen as the economy progresses through the cycle and borrowers gain more clarity following the November election, we are well positioned to add new loans and drive organic growth.
With that, I'll turn the call over to Ron to provide a few more details on our second-quarter financial results.