Q2 2022 Pacific Premier Bancorp Inc Earnings Call
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Speaker 2: Good morning and welcome to the Pacific Premier Bank Court and the second quarter conference call.
Speaker 2: All participants will be in the Sonoma mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero.
Speaker 2: After today's presentation, there will be an opportunity to ask questions.
Speaker 2: To ask a question, you may press star then 1 on your telephone keypad.
Speaker 2: To withdraw your question, please press starting too.
Speaker 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.
Speaker 3: Thank you, Anthony. Good morning, everyone. I appreciate you joining us today, as you were all aware, earlier this morning, we released our earnings report for the second quarter of 2022. Hoover javers,
Speaker 3: We have also published an updated investor presentation that has additional information and disclosures on our financial performance.
Speaker 3: If you have not done so already, we encourage you to visit our investor relations website to download a copy of the presentation.
Speaker 3: In terms of our call today, I'll walk through some of the notable items related to our performance.
Speaker 3: Ron Nicholas, our CFO , will also review a few of the details on our financial results, and then we'll open up to call the questions.
Speaker 3: I note that our earnings release and investor presentation include a say parlor statement relative to the forward-looking comments.
Speaker 3: And I encourage each of you to read through the statement carefully.
Speaker 3: Our second quarter results reflect our balance between profitable growth and prudent risk management, which has been a fundamental tenant of our ability to consistently create value for shareholders as we have grown our franchise.
Speaker 3: We delivered strong results during the second quarter.
Speaker 3: while at the same time maintaining our disciplined approach to proactively managing risk in an evolving environment.
Speaker 3: This strategy has us well positioned to further strengthen and grow the franchise.
Speaker 3: We generated a higher level of earnings and returns compared to the prior quarter.
Speaker 3: Our net income was $69.8 million or 73 cents per share.
Speaker 3: resulting in a 16% return on average tangible common equity.
Speaker 3: During the quarter, we incorporated a more cautious outlook into our Cecil model.
Speaker 3: We ended the quarter with an ACL of 1.30% of total loans.
Speaker 3: And along with the fair value discounts on acquired loans, we have total loss absorbing capacity of 1.72%, or nearly 260 million dollars.
Speaker 3: Our reserve levels, liquidity and capital position all remain strong.
Speaker 3: We generated well-diversified loan production during the quarter, while maintaining pricing and underwriting discipline. für aufh ?yi Kensington you
Speaker 3: Our consistent approach to business development.
Speaker 3: Along with the deep relationships we have with clients and the expertise that we provide, all led to strong levels of new production.
Speaker 3: As indicated during our last earnings call, we started to increase loan pricing late in the first quarter.
Speaker 3: which translated into a 56 basis point increase in rates on new loan commitments during the second quarter.
Speaker 3: Given our actions on loan pricing, it is encouraging that we still generated one and a half billion dollars in new loan commitments. One and a half billion dollars in new loan commitments.
Speaker 3: which is a slight increase from the prior quarter.
Speaker 3: Combined with expanded commercial line utilization rates,
Speaker 3: This translated to annualized loan growth of nearly 10%.
Speaker 3: As a result, the new banking relationships we are generating today are some of the most attractive in our history.
Speaker 3: With the rise in market interest rates accelerating,
Speaker 3: We have seen a slowing in demand for CRE credit as investors reassess the impact of the current environment.
Speaker 3: We expect the decreased demand for credit will also bring slower loan prepayments and payoffs, thus benefiting our net portfolio growth in future periods.
Speaker 3: 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.
Speaker 3: As reflected in the higher pricing on new loans, in actions we have taken to increase our asset sensitivity. In actions we have taken to increase our asset sensitivity.
Speaker 3: and control funding costs.
Speaker 3: The cost of our core deposits, which excludes time and brokered deposits,
Speaker 3: Equal four basis points during the second quarter.
Speaker 3: We have always viewed our deposit base as the foundation for creating sustainable shareholder value.
Speaker 3: 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. Thank you. Thank you.
Speaker 3: 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.
Speaker 3: Since the Fed began tightening financial conditions earlier this year.
Speaker 3: The trends we have seen in our deposit base have generally been consistent with what we have experienced in the past. The trends we have seen in our deposit base
Speaker 3: stability among our clients and a relatively low deposit beta.
Speaker 3: However, given the unprecedented pace of expected future rate increases and market forces,
Speaker 3: It is likely we will see added deposit pricing pressures.
Speaker 3: 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.
Speaker 3: With that, I'm going to turn the call over to Ron to provide a few more details on our second quarter of confidential results. This is a man named Patie ???? 30 and years of pre????. The DAM fact that they work in the way that they welcome you
Speaker 4: Thanks Steve and good morning.
Speaker 4: For comparison purposes, the majority of my remarks are on a linked quarter basis.
Speaker 4: Let's start with the Income Statement highlights.
Speaker 4: Second quarter EPS increased the 73 cents per share, while 4% increase on a linked quarter basis.
Speaker 4: driven by total revenue increase of $7.2 million to $195 million, as net interest income increased almost 7% compared to the prior quarter.
Speaker 4: Non-interest expense for the second quarter came in at the lower end of our expected range at $99 million.
Speaker 4: As a result...
Speaker 4: Our pre-provision net revenue increased $5.9 million to $96 million or 1.77% of average assets.
Speaker 4: and our efficiency ratio improved to 49%.
Speaker 4: Taking a closer look at the income statement.
Speaker 4: 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.
Speaker 4: On the deposit front, core deposits were essentially flat.
Speaker 4: And our cost of core deposits increased one basis point to four basis points for the quarter.