Q3 2024 Pacific Premier Bancorp Inc Earnings Call

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Operator: Good day and welcome to the Pacific Premier Bancorp third quarter 2024 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.

Speaker Change: Good day and welcome to the Pacific Premier Bancorp third quarter, 'twenty 'twenty four conference call.

Speaker Change: All participants will be in listen only mode.

Speaker Change: Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

Operator: 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 2. Please note, today's event is being recorded.

Speaker Change: After todays presentation, there will be an opportunity to ask questions.

Speaker Change: To ask a question you May press Star then one on your telephone keypad.

Speaker Change: To withdraw your question. Please press Star then two.

Speaker Change: Please note today's event is being recorded.

Rocco: I would now like to turn the conference over to Steve Gardner, Chairman and CEO.

I would now like to turn the conference over to Steve Gardner Chairman and CEO. Please go ahead Sir.

Steve Gardner: Please go ahead, Steve. Very good. Thank you, Rocco.

Steve Gardner: Very good. Thank you Rocco good morning, everyone. I appreciate you joining us today as you're all aware, we released our earnings report for the third quarter of 2024 earlier. This morning, we.

Steve Gardner: Good morning, everyone. I appreciate you joining us today. As you're all aware, we released our earnings report for the third 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 material. 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 third quarter performance.

Steve Gardner: We have also published an updated investor presentation with additional information and disclosures on our financial results.

Steve Gardner: 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.

Steve Gardner: 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.

Steve Gardner: On today's call I'll walk through some of the notable items related to our third quarter performance.

Steve Gardner: Ron Nicolas, our CFO. We'll also review a few of the details surrounding our financial results, and then we will open up the call to questions. We delivered solid results in the third quarter as we generated earnings of $36 million, or $0.37 per share. As a result of our business development team's consistent efforts to generate new business while deepening existing client relationships, non-interest bearing deposits increased during the quarter and comprised 32% of total deposits at quarter end. We leverage these positive core deposit trends to further reduce higher cost wholesale funding sources by decreasing broker deposits by $184 million and repaying a $200 million FHLB term advance.

Steve Gardner: 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.

Steve Gardner: We delivered solid results in the third quarter as we generated earnings of $36 million or <unk> 37 per share.

Steve Gardner: As a result of our business development teams consistent efforts to generate new business, while deepening existing client relationships.

Steve Gardner: Noninterest bearing deposits increased during the quarter and comprised 32% of total deposits at quarter end.

Steve Gardner: We leverage these positive core deposit trends to further reduce higher cost wholesale funding sources by decreasing brokered deposits by $184 million and repaying a $200 million FH lb term advance.

Steve Gardner: The prolonged higher interest rate environment impacted our average cost of deposit. which increased to 1.84%. However, our spot deposit costs at quarter end were 1.80%. Overall, our funding costs remain low on a relative basis compared to our peers, and we are confident in our ability to reprice deposits downward, assuming further decreases in interest rates. Our loan portfolio contracted during the quarter, as we saw elevated loan payoffs, in particular in the C&I portfolio, as our clients utilized excess liquidity to reduce debt. This factor reflects, in part, the high-quality nature of the businesses we attract to the franchise.

Steve Gardner: The prolonged higher interest rate environment impacted our average cost of deposits, which increased to 184%.

Steve Gardner: However, our spot deposit cost at quarter end were 180%.

Steve Gardner: Overall, our funding costs remained low on a relative basis compared to our peers and we are confident in our ability to reprice deposits downward assuming further decreases in interest rates.

Steve Gardner: Our loan portfolio contracted during the quarter as we saw elevated loan payoffs in particular in the C&I portfolio as our clients utilized excess liquidity to reduce debt.

Steve Gardner: Factor reflects in part the high quality nature of the business as we attract to the franchise.

Steve Gardner: This dynamic has impacted both sides of the balance sheet for the past few quarters. However, we expect this pressure to diminish as we move through the rest of 2024 and into next year. During the third quarter, our capital ratios increased meaningfully from June 30th as the tangible common equity ratio increased 42 basis points to 11.83%. Our CET1 ratio increased to 16.83%, and our total risk-based capital ratio ended the quarter at 20.05%. On a year-over-year basis, our total risk-based capital ratio increased 231 basis points and all of our capital ratios ranked near the top of the industry.

Steve Gardner: This dynamic has impacted both sides of the balance sheet for the past few quarters how.

Steve Gardner: However, we expect this pressure to diminish as we move through the rest of 2024 and into next year.

Steve Gardner: During the third quarter, our capital ratios increased meaningfully from June 30.

Steve Gardner: As the tangible common equity ratio increased 42 basis points to 11 eight 3%.

Steve Gardner: Our CET one ratio increased to 16, eight 3% and our total risk based capital ratio ended the quarter at 20.05%.

Steve Gardner: On a year over year basis, our total risk based capital ratio increased 231 basis points and all of our capital ratio has ranked near the top of the industry.

Steve Gardner: As we enter 2025, the strength of our capital levels leaves us well positioned to take a more aggressive approach in pursuing opportunities to prudently gain market share and drive new business to the bank. Deposit trends during the third quarter improved and we do not expect significant volatility in deposit flows for the remainder of the year. We saw nice increases in important deposit categories in the third quarter, and it appears the pressure from clients seeking higher returns for excess liquidity is easing. Today, as we look at our level of core deposits, we are optimistic we have reached an inflection point where balances can grow from a year, which gives us confidence to pursue attractive risk-adjusted loan origination opportunities that will further diversify our portfolio.

As we enter 2025, the strength of our capital levels leaves us well positioned to take a more aggressive approach in pursuing opportunities to prudently gain market share and drive new business to the bank.

Steve Gardner: Deposit trends during the third quarter improved and we do not expect significant volatility in deposit flows for the remainder of the year.

Steve Gardner: We saw nice increases in important deposit categories in the third quarter and it appears that pressure from clients seeking higher returns for excess liquidity is easing.

Steve Gardner: Today as we look at our level of core deposits. We are optimistic we have reached an inflection point, where balances can grow from a year, which gives us confidence to pursue attractive risk adjusted loan origination opportunities that will further diversify our portfolio.

Steve Gardner: As of September 30th, our loan to deposit ratio stood at 83.1%. And together, with nearly $1 billion of cash on hand, we have significant capacity to bring new credits onto the balance. In regard to pricing, we believe that deposit costs may have peaked during the third quarter, and Ron will provide some additional detail in his comments regarding our fourth quarter outlook. Our longstanding philosophy has been that franchise value is created through deep client relationships. which is reflected in our strong deposit base. And to that end, it is important to note that the average length of our client relationships is over 13 years.

Steve Gardner: As of September 30, our loan to deposit ratio stood at 83, 1% and together with nearly $1 billion of cash on hand, we have significant capacity to bring new credits onto the balance sheet.

Steve Gardner: In regard to pricing, we believe that deposit costs may have peaked during the third quarter and Ron will provide some additional detail in his comments regarding our fourth quarter outlook.

Steve Gardner: Our long standing philosophy has been the franchise value is created through deep client relationships, which is reflected in our strong deposit base and to that end. It is important to note that the average length of our client relationships has over 13 years.

Steve Gardner: It is a testament to the level of service our bankers provide to our clients and the trust our customers have in Pacific Premier that we have been able to increase average client tenure while maintaining pricing discipline. In our specialty business lines, we continue to enjoy success generating new client relationships in HOA and trust. With the prospect of lower interest rates, we anticipate increased activity in our escrow and exchange division as the volume of commercial real estate transactions increases. Although our loan portfolio contracted during the quarter, recent client conversations have provided optimism for increased loan demand beginning in the fourth quarter.

Steve Gardner: It is a testament to the level of service, our bankers provide to our clients and the trust our customers have and Pacific Premier that we have been able to increase average client tenure, while maintaining pricing discipline.

Steve Gardner: In our specialty business lines, we continue to enjoy success generating new client relationships in HOA and trust and with the prospect of lower interest rates, we anticipate increased activity in our escrow and exchange division as the volume of commercial real estate transactions increases.

Steve Gardner: Although our loan portfolio contracted during the quarter recent client conversations have provided optimism for increased loan demand beginning in the fourth quarter.

Steve Gardner: Borrowers' sentiment has modestly improved as the interest rate outlook has become more favorable, with more clients considering potential capital investments. Recently, we have taken a number of steps to positively impact our loan portfolio through new originations and loan retention. And as such, our loan pipeline has continued to expand as we have moved through this month. First, in mid-summer, we made strategic pricing adjustments to improve our competitive position in the market. Second, we have added new relationship managers to drive commercial loan production. Third, we dedicated additional resources and improved processes around production and loan retention. Lastly, our bankers are continuing to proactively reach out to existing customers to deepen relationships and manage portfolio balances.

Steve Gardner: Borrower sentiment has modestly improved.

Steve Gardner: The interest rate outlook has become more favorable with more clients considering potential capital investments.

Steve Gardner: Recently, we have taken are taking a number of steps to positively impact our loan portfolio through new originations and loan retention.

Steve Gardner: And as such our loan pipeline has continued to expand as we have moved through this month.

Steve Gardner: First in mid summer, we made strategic pricing adjustments to improve our competitive position in the market.

Steve Gardner: We have added new relationship managers to drive commercial loan production.

Steve Gardner: Third we dedicated additional resources and improved processes around production and loan retention.

Steve Gardner: Lastly, our bankers are continuing to proactively reach out to existing customers to deepen relationships and managed portfolio balances.

Steve Gardner: in advance of scheduled loan maturities and interest rate resets. As we look to the fourth quarter of 2024 and beyond, we've adopted a more constructive posture focused on deploying our excess liquidity and capital toward gaining market share and growing the loan portfolio. All note, our perspective is predicated on macroeconomic factors that have fueled lingering uncertainty will continue to subside, namely interest rate volatility in the upcoming election. Asset quality was solid as non-performing loans decreased $13 million from the prior quarter to $39 million. The favorable third quarter results were a continuation of our long history of outperforming industry averages as non-performing assets decreased to 0.22% of total assets and delinquencies fell to 0.08% of loans.

In advance of scheduled loan maturities and interest rate resets.

Steve Gardner: As we look to the fourth quarter of 2024 and beyond we've adopted a more constructive posture focused on deploying our excess liquidity and capital toward gaining market share and growing the loan portfolio.

Steve Gardner: Note our perspective is predicated on macroeconomic factors that have fueled lingering uncertainty will continue to subside.

Steve Gardner: Namely interest rate volatility and the upcoming election.

Steve Gardner: Asset quality was solid as nonperforming loans decreased $13 million from the prior quarter to $39 million.

Steve Gardner: The favorable third quarter results were a continuation of our long history of outperforming industry averages as nonperforming assets decreased to a point to 2% of total assets and delinquencies fell to a 0.08% of loans.

Steve Gardner: 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. Our proactive approach to credit risk management continues to serve us and our stakeholders well as our asset quality measures are some of the strongest in the industry.

Steve Gardner: 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.

Our proactive approach to credit risk management continues to serve us and our stakeholders well as our asset quality measures are some of the strongest in the industry.

Ron Nicolas: With that, I'll turn the call over to Ron to provide a few more details on our third quarter financial results.

Steve Gardner: With that I will turn the call over to Ron to provide a few more details on our third quarter financial results.

Ron Nicolas: Thanks, Steve, and good morning. For comparison purposes, unless otherwise noted, my remarks are on a linked quarter basis. Let's start with the quarter's financial highlights. Third quarter net income totaled $36 million, or $0.37 per share, and our return on average assets and average tangible common equity were 0.79% and 7.63% respectively. Notably, our return on average tangible common equity continues to be adversely impacted by our high levels of capital. Total revenue was $149.8 million and non-interest expense was $101.6 million, resulting in an efficiency ratio of 66.1% and pre-provisioned net revenue as a percentage of average assets of 1.06%.

Ron Nicolas: Thanks, Steve and good morning.

Ron Nicolas: For comparison purposes, unless otherwise noted my remarks are on a linked quarter basis.

Let's start with the quarters financial highlights.

Ron Nicolas: Third quarter net income totaled $36 million or <unk> 37 per share and our return on average assets and average tangible common equity were <unk>, seven 9% and 763% respectively.

Ron Nicolas: Notably our return on average tangible common equity continues to be adversely impacted by our high levels of capital.

Ron Nicolas: Total revenue was $149 $8 million and noninterest expense was $101 $6 million, resulting in an efficiency ratio of 66, 1% and pre provision net revenue as a percentage of average assets of 1.06%.

Ron Nicolas: The quarter's results were influenced by a smaller balance sheet. as well as narrowing of the net interest margin largely attributable to rising funding cost momentum from earlier in the quarter.

Ron Nicolas: The quarter's results were influenced by a smaller balance sheet.

Ron Nicolas: As well as narrowing of the net interest margin largely attributable to rising funding cost momentum from earlier in the quarter.

Ron Nicolas: Taking a closer look at the income statement. Net interest income decreased to $130.9 million primarily as a result of higher cost of funds as well as lower loan balance. On the funding side, cost of funds increased to 1.97 percent, while earning asset yields remained flat, which resulted in a third quarter net interest margin narrowing 10 basis points to 3.16 percent. Our average non-maturity deposit costs rose 10 basis points to 1.27%. However, the spot cost of non-maturity deposits was 1.26%, lower than the quarterly average. Notably, we are cautiously optimistic that the third quarter represents a peak in deposit costs.

Ron Nicolas: Taking a closer look at the income statement.

Ron Nicolas: Net interest income decreased to $139 million, primarily as a result of higher cost of funds as well as lower loan balances.

Ron Nicolas: On the funding side cost of funds increased to 197%, while earning asset yields remained flat, which resulted in a third quarter net interest margin narrowing 10 basis points to three 6%.

Ron Nicolas: Our average non maturity deposit costs rose 10 basis points to one point to 7%.

Ron Nicolas: However, despite cost of non maturity deposits with $1, two 6% lower than the quarterly average.

Ron Nicolas: Notably we are cautiously optimistic that the third quarter represents a peak in deposit costs.

Ron Nicolas: and we see fourth quarter deposit costs holding flat to down slightly. On the earning asset side, we saw a one basis point increase in average loan yields to 5.31%, and overall earning asset yields were 4.96% compared with 4.97% in the prior quarter. Our swap portfolio contributed 16 basis points to the net interest margin consistent with the prior quarter. As of September 30th, we have $800 million of notional swaps remaining, with $500 million maturing during the fourth quarter. With our current rate expectations, we anticipate approximately three to four million dollars of swap income for the fourth quarter.

Ron Nicolas: And we see fourth quarter deposit costs, holding flat to down slightly.

Ron Nicolas: On the earning asset side, we saw one basis point increase in average loan yields to five.

Three 1% and overall, earning asset yields were 496% compared with $4, 97% in the prior quarter.

Ron Nicolas: Our swap portfolio contributed 16 basis points to the net interest margin consistent with the prior quarter.

Ron Nicolas: As of September 30th we have $800 million of notional swaps remaining with 500 million maturing during the fourth quarter.

Ron Nicolas: With our current rate expectations, we anticipate approximately $3 million to $4 million of swap income for the fourth quarter.

Ron Nicolas: We are actively monitoring market interest rates and anticipate one 25 basis point rate cut in our fourth quarter guidance. We anticipate the fourth quarter net interest margin to be in the 3.05% to 3.10% range due to the full quarter impact of lower rates earned on cash balances. downward repricing of variable rate loans. a lower SOFR-based swap income contribution, as well as lower average loan balance.

We are actively monitoring market interest rates and anticipate 125 basis point rate cut in our fourth quarter guidance.

Ron Nicolas: We anticipate the fourth quarter net interest margin to be in the 3.05% to $3. One zero percent range due to the full quarter impact of lower rates earned on cash balances.

Ron Nicolas: Downward repricing of variable rate loans.

Ron Nicolas: A lower sulfur based swap income contribution as well as lower average loan balances.

Ron Nicolas: As a result... and highlighted in our investor presentation, we anticipate net interest income to be in the $120 to $125 million range.

Ron Nicolas: As a result.

Ron Nicolas: And highlighted in our Investor presentation, we anticipate net interest income to be in the $120 million to $125 million range.

Ron Nicolas: We will also provide updated guidance for the full year 2025 during the January earnings call. Non-interest income of $18.9 million increased $645,000 from the prior quarter, driven by a $748,000 increase in other income attributable to higher CRA investment income and a $203,000 gain on debt extinguishment resulting from the early redemption of the $200 million FHLB term advance as we continue to pay down higher cost funding. For the fourth quarter, we expect our total non-interest income to approximate $19 million. Non-interest expense was $101.6 million, representing an increase of $4.1 million compared to the prior quarter, which included a $4 million legal loss recovery.

Ron Nicolas: We will also provide updated guidance for the full year 2025 during the January earnings call.

Ron Nicolas: Noninterest income of $18 $9 million increased 645000 from the prior quarter.

Ron Nicolas: Driven by a $748000 increase in other income attributable to higher CRA investment income and a $203000 gain on debt extinguishment, resulting from the early redemption of the $200 million F. H L. B term advance as we continued to pay down higher cost funding.

Ron Nicolas: For the fourth quarter, we expect our total noninterest income to approximate $19 million.

Ron Nicolas: Noninterest expense was $101 $6 million, representing an increase of $4 1 million compared to the prior quarter, which included a $4 million legal loss recovery.

Ron Nicolas: Personnel costs remain relatively flat as we ended the quarter with headcount of 1,328 compared with 1,348 as of June 30th. Our expectations for the fourth quarter are for non-interest expense to be flat in the range of $101 to $102 million as we continue to tightly manage our expense base. Our provision for credit losses of $486,000 decreased compared to the prior quarter commensurate with the smaller loan portfolio and our current asset quality profile.

Ron Nicolas: Personnel costs remained relatively flat as we ended the quarter with headcount of 328 compared with <unk> hundred 48 as of June 30th.

Ron Nicolas: Our expectations for the fourth quarter are for noninterest expense to be flat in the range of $101 million to $102 million.

Ron Nicolas: As we continue to tightly manage our expense base.

Ron Nicolas: Our provision for credit losses of 486000 decrease compared to the prior quarter commensurate with the smaller loan portfolio and our current asset quality profile.

Ron Nicolas: While we have not seen any meaningful deterioration in asset quality, we continue to actively monitor our portfolio risk concentration.

Ron Nicolas: While we have not seen any meaningful deterioration in asset quality, we continue to actively monitor our portfolio risk concentrations.

Ron Nicolas: Turning now to the balance sheet. We finished the quarter at $17.9 billion in total assets as the reduction in wholesale funding sources were effectively matched by lower loan balances during the quarter. Total loans held for investment declined $454.9 million, driven principally by early payoffs and lower loan production of $104 million. Our C&I line of credit balances at September 30th were $743.1 million, and the utilization rate was 40.2%, compared with $896.4 million outstanding and a 39.4% utilization rate at June 30th. The long runoff experienced in the third quarter has continued early into the fourth quarter. Consistent with our proactive approach to credit risk management.

Ron Nicolas: Turning now to the balance sheet.

Ron Nicolas: We finished the quarter at $17 $9 billion in total assets is the reduction in wholesale funding sources were effectively matched by lower loan balances during the quarter.

Ron Nicolas: Total loans held for investment declined $454 $9 million driven principally by earlier early pay offs and lower loan production of $104 million.

Ron Nicolas: Our C&I line of credit balances at September 30th were $743 $1 million and the utilization rate was 42%.

Ron Nicolas: Impaired with $896 $4 million outstanding and a 39, 4% utilization rate at June 30th.

Ron Nicolas: The long run off experienced in the third quarter has continued early into the fourth quarter.

Ron Nicolas: Consistent with our proactive approach to credit risk management.

Ron Nicolas: We exited our single largest client relationship early in the fourth quarter. However, as Steve noted, we continue to build the loan pipeline and our optimistic loan balances will end the year between $11.75 and $12 billion. Total deposits at September 30th were $14.5 billion, a decrease of $146.7 million from the prior quarter, primarily as a result of maturity and payoff of higher cost broker deposits. non-maturity deposits remain relatively flat. as growth in non-interest bearing deposits of $23 million. offset some of the decrease in interest-bearing non-maturity deposits of $52 million. Of our remaining $300 million of broker deposits, $200 million matures in the second half of 2025 and the remaining $100 million in March of 2026.

Ron Nicolas: We exited our single largest client relationship early in the fourth quarter.

Speaker Change: However, as Steve noted, we continued to build the loan pipeline and are optimistic loan balances will end the year between 11, seven five and $12 billion.

Speaker Change: Total deposits at September 30 were $14 five.

Speaker Change: $5 billion, a decrease of $146 $7 million from the prior quarter.

Speaker Change: Primarily as a result of maturity and pay off of higher cost brokered deposits.

Speaker Change: Non maturity deposits remained relatively flat.

As growth in noninterest bearing deposits of $23 million.

Speaker Change: Offset some of the decrease in interest bearing non maturity deposits of $52 million.

Speaker Change: Of our remaining $300 million of broker deposits 200 million matures in the second half of 2025, and the remaining $100 million in March of 2026.

Ron Nicolas: From a liquidity perspective, we saw our cash position increase to $983.5 million at September 30th, reflecting the stability in non-maturity deposit balances compared to June 30th. We would anticipate our cash position coming down some as we begin to ramp up lending and reinvest excess cash into security. Our cash position, as well as strong cash flow from our securities portfolio. and the almost $9 billion of unused borrowing capacity. provides us a total of $10 billion of contingent liquidity. The securities portfolio remained flat at $3.1 billion and the average yield on our investment portfolio was 3.67%. During the quarter, we reinvested $100 million of proceeds into three-month treasuries with a weighted average yield of 5.05%.

Speaker Change: From a liquidity perspective, we saw our cash position increased to $983 $5 million at September 30th reflecting the stability in non maturity deposit balances compared to June 30th we would anticipate our cash position coming down some as we begin to ramp up.

Speaker Change: Ending and reinvest excess cash into securities.

Speaker Change: Our cash position as well as strong cash flow from our securities portfolio.

Speaker Change: And the almost $9 billion of unused borrowing capacity provides.

Speaker Change: <unk> provides us a total of $10 billion of contingent liquidity.

Speaker Change: The securities portfolio remained flat at $3 $1 billion and the average yield on our investment portfolio was 367%.

Speaker Change: During the quarter, we reinvested $100 million of proceeds into three month treasuries with a weighted average yield of five points 5%.

Ron Nicolas: and the duration on the AFS portfolio remained less than one year at September 30th. In the fourth quarter, we anticipate continued reinvestment of our cash flow from maturing securities and our overall position to increase slightly. We also anticipate some minor duration extension to take advantage of recent higher long-term rates. while maintaining relatively overall a short position in our AFS portfolio in anticipation of loan growth.

Speaker Change: And the duration on the <unk> portfolio remained less than one year at September 30th.

Speaker Change: In the fourth quarter, we anticipate continued reinvestment of our cash flow from maturing securities and our overall position to increase slightly.

Speaker Change: We also anticipate some minor duration extension to take advantage of recent higher long term rates, while maintaining relatively overall, a short position in our <unk> portfolio in anticipation of loan growth.

Ron Nicolas: The combination of solid earnings and a smaller balance sheet further strengthen our capital ratios this quarter with all ratios increasing significantly from June 30th. The Tangible Common Equity Ratio increased 42 basis points to 11.83%, and our tangible book value increased 23 cents to $20.81.

Speaker Change: The combination of solid earnings and a smaller balance sheet further strengthened our capital ratios this quarter with all ratios increasing significantly from June 30th.

Speaker Change: The tangible common equity ratio increased 42 basis points to 11, eight 3% and our tangible book value increased 23 to $20 81.

Ron Nicolas: Lastly, from an asset quality standpoint. Non-performing loans to total loans were 0.32%, a decrease of 10 basis points from the prior quarter. Total delinquency also decreased to 0.08%, and our classified loan levels decreased $63.3 million, or 47 basis points to 1.0% of total loans. Our allowance for credit loss balance of $181.2 million reflected the smaller loan portfolio and resulted in a four basis point increase in the allowance coverage to 1.51%. Our total loss absorption, which includes a fair value discount on loans acquired through acquisition, finished the quarter at 1.80%.

Speaker Change: Lastly from an asset quality standpoint.

Speaker Change: Nonperforming loans to total loans were three 2% a decrease of 10 basis points from the prior quarter.

Total delinquency also decreased 2.08% and our classified loan levels decreased $63 $3 million or <unk> 47 basis points to 1.0% of total loans.

Speaker Change: Our allowance for credit loss balance of $181 $2 million reflected the smaller loan portfolio and resulted in a four basis point increase in the allowance coverage to 151% or.

Ron Nicolas: Our total loss absorption, which includes a fair value discount on loans acquired through acquisition finished the quarter at 180% with that I will turn the call back over to Steve Great. Thanks, Ron.

Steve Gardner: With that, I will turn the call back over to Steve. Great.

Steve Gardner: I'll wrap up with a few comments about our outlook. As I mentioned, we've recently added new loan producers who we expect will capitalize on market disruption within our footprint and will positively impact our loan production capability. In terms of capital allocation, in the near term our focus is to redeploy excess liquidity into more loans to drive earnings and tangible value growth in future periods. Additionally, given our high levels of capital, we have substantive optionality relative to capital management and are committed to returning capital to shareholders. as always. We are considering the full spectrum for capital deployment options in order to maximize value for our shareholders.

Steve: I'll wrap up with a few comments about our outlook.

Steve: As I mentioned, we've recently added new loan producers, who we expect will capitalize on market disruption within our footprint and will positively impact our loan production capabilities.

Steve: In terms of capital allocation in the near term our focus is to redeploy excess liquidity into more loans to drive earnings and tangible book value growth in future periods.

Steve: Additionally, given our high levels of capital, we have substantive optionality relative to capital management and are committed to returning capital to shareholders.

Steve: As always we.

We are considering the full spectrum for capital deployment options in order to maximize value for our shareholders.

Steve Gardner: On the M&A front, we remain open to a broad range of strategic transactions that will maximize long-term value for our shareholders. As we look to 2025, we are encouraged by improving borrower sentiment and are in the right position to move to a more offensive posture as we continue to build our loan pipeline.

Steve: On the M&A front, we remain open to a broad range of strategic transactions that will maximize long term value for our shareholders as.

Steve: As we look to 2025, we are encouraged by improving borrower sentiment and are in the right position to move to a more offensive posture as we continue to build our loan pipelines.

Steve Gardner: In short, our peer-leading capital ratios and strong deposit and liquidity position create significant optionality for our organization to pursue organic and strategic growth opportunities that will enhance long-term franchise value.

Steve: In short, our peer leading capital ratios and strong deposit and liquidity position create significant optionality for our organization to pursue organic and strategic growth opportunities that will enhance long term franchise value.

Steve Gardner: On behalf of the Board of Directors and our entire executive leadership team, I want to thank every one of our team members for their dedication to Pacific Premier, and I'm excited about our prospects for future success.

Steve: On behalf of the board of directors and our entire executive leadership team I want to thank every one of our team members for their dedication to Pacific Premier and I'm excited about our prospects for future success.

Steve Gardner: That concludes our prepared remarks, and we would be happy to answer any questions.

Steve: That concludes our prepared remarks, and we would be happy to answer any questions. Rocco. We please open up the call for questions.

Operator: Rocco, will you please open up the call for questions? Yes, sir. As a reminder, if you'd like to ask a question, please press star then 1. If your question has already been addressed and you'd like to remove yourself from the queue, please press star then 2.

Yes fair as a reminder, if you'd like to ask a question. Please press Star then one.

Speaker Change: Austin was already been addressed and I would like to remove yourself from Hugh Please press Star then two.

David Feaster: Today's first question comes from David Feaster with Raymond James.

Speaker Change: Today's first question comes from David Feaster with Raymond James. Please go ahead.

David Feaster: Please go ahead. All right, good morning, everybody.

David Feaster: Hey, good morning, everybody.

Steve Gardner: Hi, David. I wanted to start, I wanted to start out with the loan growth side. You know, it sounds like things are starting to stabilize here. You know, you talked about some some, you know, a big relationship that you exited here in the fourth quarter, but your demand starting to improve, and you're being a bit more competitive with pricing to drive growth. I'm just curious, how do you think about the growth trajectory as we look forward into 2025? Where do you see the most opportunity for growth? And, you know, given the more competitive price that you alluded to, where do you see a new loan?

Speaker Change: Hi, David.

David Feaster: I wanted to start I wanted to start out with the loan growth side. It sounds like things are starting to stabilize here you talked about some some.

David Feaster: A big relationship that you exited in the fourth quarter, but demand starting to improve and you're being a bit more competitive with pricing to drive growth I'm. Just curious how do you think about the growth trajectory as we look forward into 2025, where do you see the most opportunity for growth in.

David Feaster: Given the more competitive pricing that you alluded to where are you seeing new loan yields.

Steve Gardner: It's predominantly in the C&I, but we're also seeing a couple of opportunities on the construction front. We're starting to ramp up a little bit in the SBA side. And so it's broad-based, but it's generally away from, call it the multifamily, even though that asset class has performed exceedingly well for two to three decades here. Just given the yields on those loans and our overall concentration, we're really not looking to expand that area greatly, but we're not looking to reduce it materially either. So it's really in the various areas, but our core focus remains in this C&I space.

David Feaster:

Speaker Change: Predominantly in the C&I, but we're also seeing a couple of opportunities on the.

Speaker Change: The construction front.

Speaker Change: We're starting to ramp up a little bit in the SBA side.

Speaker Change: And so it's broad based but it's generally away from call. It the multifamily even though that asset class has performed exceedingly well for two to three decades here.

Speaker Change: Just given the yields.

On on those loans and our overall concentration we're really not looking to expand that area greatly but we're not looking to.

Speaker Change: Reduce it.

Speaker Change: Materially either.

Speaker Change: So it's really in the various areas, but our core focus.

Speaker Change: Mains in the C&I space and then additionally, we.

Steve Gardner: And then additionally, earlier in the year, we made some modifications to become a bit more competitive on the consumer front, at least in our HELOC offering. I think as everybody is well aware, we do not offer nor do any kind of mortgage banking activities. But we do see some opportunities to grow that HELOC area, as well as loan purchases. So I think collectively, all of those areas, and given that incrementally improved... environment with our borrowers and existing clients. We're pretty encouraged about the outlook and that's been reinforced by some very nice growth in the loan portfolio over the last couple of months.

Earlier in the year, we made some modifications to become a bit more competitive on the consumer front at least in our HELOC offering I think as everybody is well aware, we do not offer.

Or do any kind of mortgage banking activities.

But we do see some opportunities to grow that HELOC area as well as.

Speaker Change: Loan purchases, so I think collectively all of those areas and given that incrementally improved.

Speaker Change: Environment with our borrowers and existing clients, we're pretty encouraged about the outlook.

Speaker Change: And that's been reinforced by some some very nice growth in the loan portfolio over the last couple of months.

David Feaster: Okay, that's great. I said, I meant the pipeline, excuse me. Yeah, no, I know what you mean. That's great.

Speaker Change: Okay, that's great.

Speaker Change: Ted.

Speaker Change: The pipeline excuse me.

Speaker Change: No I know, it's <unk> that's great.

David Feaster: And then, you know, just, you know, broadly, you just, you talked about the capital, you know, peer leading capital that you've got, and that providing you a ton of optionality, just from a strategic standpoint.

Speaker Change: And then you know.

Speaker Change: Just broadly you just you talk about the capital.

Speaker Change: Peer leading capital that you've got in that providing you a ton of Optionality just from a strategic standpoint, I'm curious if you could touch on some of those opportunities in the <unk>.

Steve Gardner: I'm curious if you could touch on some of those opportunities in the timeline to potentially act on some of those. You just touched on, you know, some potential loan purchases. I'm just curious, maybe what's most attractive to you at this point, from a priority perspective? And, you know, what may be the timeline to potentially start act on? Sure. I think that first and foremost is maintaining the current dividends, something that the board reassesses, of course, every quarter. We think through where we're going from an earnings standpoint, and we think that that begins to inflect as we move into early 2025.

Speaker Change: <unk> to potentially act on some of those you just touched on some potential loan purchases.

Speaker Change: I'm just curious maybe what's most attractive to you at this point from a priority perspective, and what maybe the timeline to potentially start act on some of those share I think that first and foremost is maintaining the.

Speaker Change: Current dividend something that the board Reassesses of course every quarter.

Speaker Change: Quarter.

Speaker Change: And taken.

Speaker Change: Think through where we're going from an earnings standpoint, and we think that that begins to inflect as we move into early.

Steve Gardner: Obviously, earnings have declined here over the past several quarters as we've taken up a relatively conservative posture towards growth in the balance sheet. But certainly as deposits have stabilized, that's allowed us to virtually eliminate all of the wholesale funding, something that we utilize defensively since 2022 from managing interest rate risk. as well as the disruptions that occurred last year in building liquidity, but historically, we haven't used wholesale funding to ever grow the balance sheet. And I think we're much more constructive today, given the fact that we virtually paid off all of that wholesale funding, which, of course, is very expensive.

2025, obviously earnings have declined here over the past several quarters as we've taken a relatively conservative.

Speaker Change: Conservative posture towards growth in the balance sheet, but certainly as deposits have stabilized that's allowed us to virtually eliminate all of the wholesale funding.

Speaker Change: Something that we utilize defensively.

Speaker Change: Since 2022 from managing interest rate risk.

Speaker Change: As well as the disruptions that occurred last year and building liquidity, but historically, we haven't used wholesale funding to ever grow the balance sheet and I think we're much more constructive today, given the fact that we virtually paid off all of that.

Speaker Change: Wholesale funding, which of course is very expensive.

Speaker Change: And so we.

Steve Gardner: And so we're looking at the dividend, looking to really grow the balance sheet, drive the earnings from here going forward, in particular, redeploying that excess liquidity we have in cash and the securities portfolio into loans. And those remain our priority. Of course, the board is consistently reassessing other options for the use of capital. We've talked about it in the past, some tactical areas of potential balance sheet repositioning. We continue to assess and analyze those and think about the pros and cons on each side. Certainly, interest rates play a big impact there. the outlook from the FOMC of declining interest rates here, or at least on the Fed Fund side, over the next several quarters.

Speaker Change: Looking at the dividend looking to really grow the balance sheet drive the earnings from here going forward in particular redeploying that excess liquidity, we have in cash in the securities portfolio.

Into loans.

Speaker Change: And those remain our priority of course, the board is consistently reassessing.

Speaker Change: Other options for the use of capital we've talked about it in the past some tactical areas of potential balance sheet repositioning, we continue to SaaS and analyze those in and think about the pros and cons on each side certainly <unk>.

Speaker Change: Just rates play a big impact there.

Speaker Change: And given.

Speaker Change: The outlook from the F O M C.

Speaker Change: Reclining interest rates here or at least on the fed funds side.

Speaker Change: Over the next several quarters.

Steve Gardner: That influences how we think about any of those options, but we'll continue to reassess them.

Speaker Change: That influences, how we think about any of those.

Speaker Change: Options, but we'll continue to reassess them and then lastly of course, we have a sizable.

Steve Gardner: And then lastly, of course, we have a sizable repurchase plan in place, which we have not executed on for a couple of years. I think as we gain greater clarity, it's certainly something that the board is going to be taking a closer look at going forward.

Speaker Change: Repurchase plan in place.

Speaker Change: We have not executed on for for a couple of years I think as we gain greater clarity. It's certainly something that the board is going to be taking a closer look at going forward.

David Feaster: That's great. And then just last one for me, you talked about some new hires. I'm curious, you know, your appetite for new hires currently, where you're seeing the opportunities and where you're focused on both, I guess, by geography. Is there a specific segment that you're focused on? I'm just kind of curious what you're seeing there.

Speaker Change: That's great.

Speaker Change: And then just last one from me you talked about some new hires I'm curious your appetite for new hires.

Speaker Change: Currently where youre seeing the opportunities and where you are focused on both I guess by geography is there a specific segment that you're focused on.

Speaker Change: Just kind of curious.

Speaker Change: What youre seeing there.

Steve Gardner: Sure. I think that, David, always we've thought about consistently upgrading talent where we can, and where we can bring individuals on that have significant relationships with quality small businesses, middle market clients, or in particular specialty areas, be it construction, SBA, or other areas, we're going to consider those individuals. And so, we're regularly reassessing the strength of the team, which I think is overall very solid, but there's always opportunities to upgrade, and we're continually going to assess those. I would generally say it's not specifically focused on geographic, it's really just bringing on talented individuals that can have a meaningfully positive impact on the organization.

Speaker Change: Sure.

I think that David always we've thought about.

Speaker Change: Consistently.

Speaker Change: Grading talent, where we can and where we can bring individuals on that have significant relationships with quality small business is middle market clients more in particular specialty areas be it construction SBA or other areas.

Speaker Change: We're going to consider those individuals.

Speaker Change: Individuals and so we are regularly reassessing the.

Speaker Change: The strength of the team, which I think is overall very solid, but there's always opportunities to upgrade and.

Speaker Change: We're continually assess those I would generally say, it's not per civically, specifically focused on geographic it's really just bringing on talented individuals.

Speaker Change: Ed can have a meaningfully positive impact.

Speaker Change: On the organization.

Speaker Change: That's great. Thanks, everybody.

David Feaster: Great.

Operator: Thanks, everybody. Thank you.

Speaker Change: Thank you and our next question today comes from Matthew Clark Piper Sandler. Please go ahead.

Matthew Clark: And our next question today comes from Matthew Clark at Piper Sandler.

Matthew Clark: Please go ahead. Hey, good morning, guys.

Matthew Clark: Hey, good morning, guys.

Ron Nicolas: Good morning.

Matthew Clark: Morning.

Ron Nicolas: Maybe first one for Ron on the swap revenue this quarter. Could you give us that amount? Yeah, it's going to be in a three to four million dollar level, Matt.

Matthew Clark: Maybe first one for Ron on the swap revenue this quarter could you give us that amount.

Ron Nicolas: Yes, it's going to be in a $3 million to $4 million level.

Matthew Clark: Matt.

Ron Nicolas: for next quarter, but what was it this quarter? Oh, this quarter, it was just under $7 million.

Matthew Clark: For next quarter, but what was it this quarter.

Matthew Clark: This quarter it was.

Speaker Change: Just under $7 million.

Matthew Clark: Okay.

Ron Nicolas: And then any appetite to layer in some more swabs to help mitigate that downdraft here? Well, you know, unfortunately, I think I think the bias, the interest rate bias is going in the other direction. So the likelihood that you'll be able to to do anything new to mitigate in terms of swaps, silver based swaps is is somewhat limited at best.

Matthew Clark: Any appetite to layer in some more swaps to help mitigate that downdraft here.

Speaker Change: <unk> well.

Matthew Clark: Well.

Matthew Clark: Yes.

Matthew Clark: Unfortunately, I think I think the bias the interest rate bias is going in the other direction. So.

Matthew Clark: The the likelihood that youll be able to to do anything new to mitigate in terms of swaps silver based swaps.

Matthew Clark: Is.

Matthew Clark: Is somewhat limited at best.

Ron Nicolas: And however, I will I will tell you that we have of the remaining swaps, we have three long positions long in terms of time that are what I would consider to be fairly profitable. The weighted average cost of those three positions is under one point strike price. So so we're going to be seeing still some some decent revenues on a relative basis with those three those three positions going forward.

Matthew Clark: However, I will I will tell you that we have of.

Matthew Clark: The remaining swaps, we have three long positions long in terms of time.

Matthew Clark: That are what I would consider to be fairly profitable the weighted average cost of those three positions is under one point.

Matthew Clark: The strike price, so we're going to be seeing still some some decent.

Matthew Clark: Revenues on a relative basis with those three those three positions going forward.

Steve Gardner: Okay, and then Steve, why didn't you do a large kind of securities loss trade this quarter?

Speaker Change: Okay, and then Steve.

Matthew Clark: <unk>.

Speaker Change: Why why didn't you do a large kind of securities loss trade. This quarter did you have to wait a year after doing one in last year's fourth quarter was that part of the maybe part of the reason why you Didnt trigger one.

Steve Gardner: Did you have to wait a year after doing one in last year's fourth quarter? Was that maybe part of the reason why you didn't trigger one? No, not necessarily. But that's, you know, we look at the broad spectrum of of factors and take into consideration what we're thinking about there. So, you know, and you're balancing it between the impact to tangible book value up front, what that potential payback period is. And then and then how interest rates play into that, where you could redeploy that cash. What are the other options? So we're continuing to think about it.

Steve Gardner: No not necessarily but that's we look at the broad spectrum of factors and take into consideration.

Steve Gardner: What we're thinking about there.

Steve Gardner: And you're balancing it between the impact to us.

Steve Gardner: Tangible book value upfront, what that potential payback period is.

Steve Gardner: And then and then how interest rates play into that where you could redeploy that cash what are the other options.

Steve Gardner: So we're continuing to think about it but.

Steve Gardner: But it's obviously very dynamic as we you know, consider the current environment.

Steve Gardner: But it's obviously very dynamic.

Steve Gardner: As we.

Steve Gardner: Good suite or the current environment.

Ron Nicolas: Okay, and then just on the dividend, you have a ton of capital, it sounds like you want to maintain the dividend here.

Speaker Change: Okay, and then just on the dividend you have a ton of capital. It sounds like you want to maintain the dividend here do you have to earn the dividend necessarily or do you think because you have all that capital even if you don't earn it in the upcoming quarter it still should be okay.

Ron Nicolas: Do you have to earn the dividend necessarily? Or do you think because you have all that capital, even if you don't earn it in the upcoming quarter, it still should be okay?

Ron Nicolas: Yeah, I think, you know, of course, that'll be a decision for the board. But the way I think about it is that, you know, if earnings were, you know, rather the dividend payout ratio was above 100 percent, just given the very strong levels of capital we have, our asset quality, all of those factors, I'd certainly be confident in continuing to maintain that dividend, you know, at its current level.

Speaker Change: Yes, I think.

Speaker Change: Of course that will be a decision for the board, but the way I think about it is it.

Speaker Change: If earnings were.

Speaker Change: Rather the dividend payout ratio was above 100% just given the very strong levels of capital we have our asset quality all of those factors.

Speaker Change:

Speaker Change: Certainly be confident and continuing to maintain that dividend.

Speaker Change: At its current level.

Matthew Clark: Okay. And then just on C&I, the C&I loans, I think if you look at the peak to trough there, they're down about 43%, just kind of the true C&I, you know, not the franchise stuff. You know, I know a lot of liquidity paydowns have been part of that, but can you maybe slice and dice how much you would attribute to just borrowers using excess liquidity to pay down, how much of it might have been deliberate, and then how much might have been just maybe losing some market share?

Speaker Change: Okay, and then just on the C&I C&I loans.

Speaker Change: I think if you look at the peak to trough, there theyre down about 43%.

Speaker Change: Just kind of the true C&I not the franchise stuff.

Speaker Change: I know a lot of liquidity paydowns have been a part of that but can you maybe slice and dice. How much you would attribute to just borrowers using excess liquidity to pay down how much of it might've been deliberate.

Speaker Change: And then how much might have been just maybe losing some market share and then just as a follow on some of the hires you've made can.

Steve Gardner: And then just as a follow-on, some of the hires you made. Can you give us a sense for how many and whether or not those are all C&I lenders or most of them and the books of business they have coming from the prior banks that they were at? Sure. I don't have the exact number in front of me here. We can see if we've got that available and get back to you. But I would tell you that a substantial portion of the payoffs and paydowns we've seen are from borrowers pulling liquidity out of the accounts.

Speaker Change: Can you give us a sense for.

Speaker Change: How many and whether or not those are all CNI lenders or most of them.

Speaker Change: The business they have coming from the prior banks that they were that were at.

Sure.

Speaker Change: I don't have the exact number in front of me here.

Speaker Change: We can see if we've got that available.

Speaker Change: Get back to you, but I would tell you that a substantial portion of the payoffs and Paydowns. We've seen are from borrowers pulling liquidity.

Steve Gardner: And when you think about it, it's pretty straightforward. We don't pay a high rate on money market. Non-interest bearing have been very high for a long period of time. They've come down somewhat but have held very well over this period of time. And a significant part of those payoffs, paydowns has come from the other side of the balance sheet, which has certainly negatively impacted us on both sides. Because those C&I credits along with other adjustable rate loans that we've seen payoff and paydown are our highest yielding. And that's a bit frustrating. But at the same time, it really owes to the high quality nature of who we bank.

Speaker Change: Out of the accounts and when you think about it it's pretty straightforward, we don't pay a high rate.

Speaker Change: On on money market.

Speaker Change: In noninterest bearing have been very high for a long period of time, they have come down somewhat but have held very well over this period of time.

Speaker Change: And a significant part of those payoffs Paydowns has come from the other side of the balance sheet, which has certainly negatively impacted us on both sides because those C&I credits.

Speaker Change: Along with other adjustable rate loans that we have seen payoff and paydown.

Speaker Change: Our our highest yielding and that's a bit frustrating, but at the same time, it really owes to the high quality nature of who we bank.

Steve Gardner: I would say that very little of it is attributable to clients moving to other organizations. We haven't seen that. We have seen following the disruptions last year with Silicon Valley, First Republic, to a lesser extent, Signature and the ongoing turmoil, clients that had substantial balances moved some of that out into treasuries, money market accounts for higher yields, and even to some of the larger banks, which again is a bit frustrating, but was just part and parcel with what was going on. Again, as we talked to those clients and asked them what their thinking was, many of them told us, look, I'm not moving my relationship to any of the largest banks.

Speaker Change: I would say that very little of it.

Speaker Change: <unk> is attributable to.

Speaker Change: Clients moving to other organizations, we havent seen that we had seen.

Speaker Change: Following the disruptions last year.

Speaker Change: Silicon Valley first Republic to lesser extent signature and the ongoing turmoil.

Speaker Change: Clients that had substantial balances move some of that out into treasuries money market accounts for for higher yields and even to some of the larger banks, which again is a bit frustrating.

Speaker Change: But was just.

Speaker Change: Part and parcel with what was going on again.

Speaker Change: As we talk to those clients and ask them what their thinking was how many of them told us look I am not moving my relationship to any of the the largest banks in fact, that's where I came from and I Love The service I'm going to maintain it but ive got it for peace of mind, I am going to diversify for higher yield I'm going to <unk>.

Steve Gardner: In fact, that's where I came from. I love the service. I'm going to maintain it. But for peace of mind, I'm going to diversify for higher yield. I'm going to move some of the money out. I think that over time, that money will be returning. The producers are across the board. I think I mentioned some folks that are focused specifically on the SBA sector, construction, and then some of the C&I folks. We're always looking for experienced relationship managers that do have a book of business and are going to positively impact the institution. And that's exactly the kind of folks that we've hired here over the last few months.

Speaker Change: Some of the money.

Speaker Change: So I think that over time.

That that money will be returning.

Speaker Change: The producers are across the board I think I mentioned, some folks that are focused specifically on the SBA sector construction and then some of this eni.

Speaker Change: <unk>.

Speaker Change: We're always looking for experienced relationship managers that do have a book of business and.

Are going to positively impact the institution and that's exactly the kind of folks that we've hired here over the last few months.

Matthew Clark: Great, thank you.

Speaker Change: Great. Thank you.

Matthew Clark: Sure thing. Thank you.

Speaker Change: Sure thing.

Speaker Change: Thank you and our next question today comes from Gary Tenner of D. A Davidson. Please go ahead.

Gary Tenner: And our next question today comes from Gary Tenner at D.A.

Gary Tenner: Davidson. Please go ahead. Thanks.

Gary Tenner: Good morning. Morning. I appreciate the additional outlook commentary for the fourth quarter. And Steve, I know you've talked about earnings inflection, you know, in say early 2025. Give them a commentary on kind of where you think you're at alone. finish up and what I assume is at least a partial quarter carryover of the SWOT maturity impact. Does NII, is there a way do you think of stabilizing NII in the first quarter or is that likely a 2Q event?

Gary Tenner: Thanks, Good morning.

Gary Tenner: Marty I appreciate the additional.

Gary Tenner: Outlook commentary for the fourth quarter and Steve I know you talked about earnings inflection.

Gary Tenner: And say early 2025.

Gary Tenner: Given the commentary on kind of where you think year end loans finished.

Gary Tenner: Finish up and what I assume is at least a partial quarter carryover of the swap maturity impact.

Gary Tenner: NII is there a way do you think of stabilizing NII in the first quarter or is that likely a QQ about.

Gary Tenner: Okay.

Ron Nicolas: Ron, why don't you go ahead and take it over. Sure, sure. Yes, Gary. Yeah, you know, what we've seen, I think what we've tried to highlight here is we've seen, you know, the liability costs, which are largely driving the squeeze. Steve's talked a lot already about the loan balances, and we do believe that, you know, we're somewhat optimistic that this quarter's going to be the trough for the, this being the fourth quarter, the trough for the loan balances. On the NII, we're also cautiously optimistic that we're going to be able to manage down that cost of deposits.

Ron Nicolas: Ron Why don't you go ahead and take sure sure Yes, Gary.

Gary Tenner: Yes.

Ron Nicolas: What we've what we've seen I think what we've tried to highlight here is we've seen the liability costs, which largely driving the squeeze Steve talked a lot already about the loan balances and we do believe that that.

Ron Nicolas: We're somewhat optimistic that this quarter is going to be the trough for the this being the fourth quarter the trough for the loan balances on the on the NII. We're also cautiously optimistic that that we're going to be able to manage down that debt cost of deposits. It will be a little bit slower, but we think we're going to be able to deal with that.

Ron Nicolas: It'll be a little bit slower, but we think we're going to be able to deal with that and hopefully stabilize that NIM, the net interest margin, you know, if not this quarter, certainly in the early part, first quarter of 2025. And then obviously build back from there with the momentum that we've talked about already on the loan pipeline and continuing to deploy the excess liquidity and capital we have available to us. So that is the, that's the plan. We see the trends we're seeing, as we've talked about, are certainly favorable in that direction. Obviously we're going to have to execute against it, and we're going to have to, you know, see how it plays itself out.

Ron Nicolas: And hopefully stabilize that.

Ron Nicolas: NIM the net interest margin.

Ron Nicolas: No.

Ron Nicolas: Not this quarter is certainly in the early part first quarter of.

Ron Nicolas: Of our 2025, and then obviously build back from there with the momentum that we've talked about already on the loan.

Ron Nicolas: Pipeline and and.

Ron Nicolas: And continuing to deploy the excess liquidity and capital we have available to us. So that is the that's the plan we see the trends we're seeing as we've talked about are certainly phase.

Ron Nicolas: Favorable in that direction, obviously, we're going to have to execute against it and we're going to have to.

See how it plays itself out.

Steve Gardner: There's, as you well know, there's a fine arc between the managing that deposit cost down and managing and retaining those balances and growing those balances. So you know, we'll see how that plays itself out, but we're, again, cautiously optimistic we can execute. Yeah.

Ron Nicolas: Well no there is a fine art between the.

Ron Nicolas: Managing that deposit costs down and managing and retaining those balances and growing those balances. So.

Ron Nicolas: We'll see how that plays itself out but were again cautiously optimistic we can execute I think also chew Gary as we think about is this the trough on the net interest income and part of that is really just the timing here.

Steve Gardner: I think also too, Gary, as we think about, you know, is this the trough on the net interest income? And part of that is, is really just the timing here. The pipeline has built nicely, and it's a matter of moving that through and getting the team really back in their groove to, you know, move these loans through, do the appropriate underwriting and analysis, but get them to the point of closed and funded so that we're earning on those balances, and that just takes time. And so depending upon when and how much that production pulls through here in the fourth quarter is naturally going to impact that net interest income.

Ron Nicolas: The pipeline has built nicely.

And it's a matter of moving that through and getting the team.

Ron Nicolas: Really backing their groove.

Ron Nicolas: To move these loans through.

Ron Nicolas: Due to the appropriate underwriting and analysis says, but get them to the point of closed and funded.

Ron Nicolas: So that we're earning on those balances and that just takes time and so depending upon when and how much that production pulls through here.

Fourth quarter is naturally going to impact that net interest income.

Gary Tenner: Got it, thank you. And Steve, you did provide a ton of thoughts around kind of the phenomenons of the C&I customer kind of deleveraging their balance sheets and impacting both sides of the PPBI balance sheet.

Speaker Change: Got it thank you.

Speaker Change: And Steve you did provided.

Speaker Change: Thoughts around Canada, Phenomenons C&I customer.

Speaker Change: Deleveraging, our balance sheets and impacting both sides of the <unk> balance sheet.

Steve Gardner: Just going back to kind of your commentary, I think, you know, back over the summer as it relates to kind of balance sheet stabilization over the back half of the year, is that the only factor that? you know, do you think pushed out that stabilization a little further than you maybe otherwise expected? I think we were a bit surprised at the strength and level of payoffs in the third quarter. As we said, we had this large credit that we managed out and, you know, it's disclosed in our K, that commitment was close to $400 million, outstandings were in the neighborhood of about $200 million, and that paid off here in early October.

Speaker Change: Going back to kind of your commentary I think back over the summer as it relates to kind of balance sheet stabilization over the back half of the year is that is that the only factor that.

Speaker Change: Do you think pushed out that stabilization a little further than you maybe otherwise expected.

Speaker Change: I think we were a bit surprised at the strength and the level of pay offs in the third quarter.

Speaker Change: As we said we had this large credit debt.

Speaker Change: That we managed out and its disclosed in our K that commitment was close to $400 million Outstandings were in the neighborhood of about $200 million.

Speaker Change: And that paid off here in early October.

Speaker Change: Sure.

Steve Gardner: So, I think just the level of payoffs and then a bit of the muted demand. We thought that demand might be a bit stronger, but we really started to see a bit more optimism from clients once the Fed dropped the Fed funds by 50 basis points and indicated that they were really looking to remove the level of tightness that exists in monetary policy.

Speaker Change: So I think just the level of payoffs and then a bit of the muted demand, we thought that demand might be a bit stronger.

Speaker Change: But we really started to see some a bit more optimism from clients.

Speaker Change: Once the fed.

Speaker Change: Dropped the fed funds by 50 basis points and indicated.

Speaker Change: They were really looking to.

Speaker Change: Remove the level of tightness that exists in monetary policy.

Steve Gardner: And so, I think all of those things and then maybe, you know, once we get through the election, just to get that behind us as we're talking to clients, I think are all catalysts here and that we're encouraged by.

Speaker Change: And so I think all of those things and then maybe once we get through the election, just to get that behind us as we're talking to clients I think are all a catalyst here.

Speaker Change: And that we're encouraged by.

Gary Tenner: Thanks, appreciate the thought. Thank you.

Speaker Change: Thanks, I appreciate the thoughts.

Speaker Change: Thank you and our next question today comes from Andrew <unk> with Stephens. Please go ahead.

Andrew Terrell: And our next question today comes from Andrew Terrell with Stevens. Please go ahead. Hey, good morning.

Speaker Change: Hey, good morning, good morning, good morning, Andrew.

Andrew Terrell: Good morning. Morning, Andrew.

Steve Gardner: Steve, I wanted to go back to, you made a comment in discussing some of the potential for balance sheet repositioning efforts just around the Fed and the outlook they have for declining interest rates over, call it the next several quarters. I think you said that influences how you think about the options that you have to restructure. How exactly does it influence it? Does it make you more likely or less likely to reposition? I think it's... I don't know that it influences it one way or another. We're constantly assessing what is the cost up front, the impact, in essence, the loss that you would take and the impact of tangible book value.

Speaker Change: Steve I wanted to go back to you mean, you made a comment in discussing some of the.

Andrew: The potential for balance sheet repositioning efforts just around the <unk>.

Andrew: That and the outlook for declining interest rates ever.

Andrew: So call. It the next several quarters I think you said that that influences. How you think about the options that you have.

Speaker Change: Have to restructure how exactly does it influence that does it influence does that make you more likely or less likely to reposition.

Andrew: Yeah.

Andrew: I think it's.

Andrew: I don't know that it influences it one way or another we're constantly.

Andrew: Assessing what what is the cost upfront the impact in essence, the loss that you would take in the impacted tangible book value.

Steve Gardner: And then what is that earn back period of time? What other kind of optionality might it give you to redeploy that into really what our core business is, which is lending. It's not in managing a securities book. And frankly, if you take that strategy, you're to an extent making a bet on future rates. So it's taking it all into consideration as well as our capital level options that we may have. And how do they play into any kind of strategic things that we might be pursuing?

Andrew: And then what does that earn back period of time.

Andrew: What other kind of Optionality might give view too.

Andrew: To redeploy that into really what our core business is which is lending it's not in managing.

Andrew: Our securities book and frankly.

Andrew: If you you would take that strategy here to an extent, making a bet.

Andrew: On future rates.

Andrew: It's taking it all into consideration as well as our capital level.

Andrew: Options that we may have and.

Andrew: And how do they play into.

Andrew: Any kind of strategic things that we might be pursuing and I think as everyone is well aware.

Steve Gardner: And I think as everyone is well aware, the board and management are open to any type of transactions that is going to maximize long-term shareholder value. So it's weighing all of those differing dynamics and aspects to whether you pursue one thing or another.

Andrew: The board and management are open to any type of transactions that are going to Max that is going to maximize long term shareholder value. So.

Andrew: It's weighing all of those different dynamics in the aspects, whether you pursue one thing or another.

Andrew Terrell: Yeah, okay. Makes sense. You know, if I just look at kind of the four Q guidance, kind of at the midpoint, and maybe a little step up in provision would imply that, you know, you are, you would earn kind of less than the quarterly dividend, totally understand the comfortability with the dividend, especially given how robust the capital position is. But, you know, there's being above 100% payout ratio, even for, you know, a short, a short timeframe.

Andrew: Yes, Okay makes sense.

Andrew: If I just look at kind of the <unk> guidance.

Andrew: Kind of at the midpoint and maybe a little step up in provision would imply that you are.

Andrew: You would earn kind of lessen the quarterly dividend totally understand that comfortably with the dividend, especially given how robust the capital position is but.

Andrew: Thats being above 100% payout ratio even for a short short timeframe does that preclude you from potentially buying back stock until you kind of get back to a sub 100 payout ratio.

Steve Gardner: Does that preclude you from potentially buying back stock until you kind of get back to a sub 100 payout ratio? Not that I'm aware of. I don't believe there are any regulations in in that regard. Again, there's a number of factors that play into buying back stock from the board's perspective in the outlook. But I don't believe there's any regulatory limitation.

Speaker Change: Not that I'm aware of I don't believe there are any regulations.

Speaker Change: In that regard.

Speaker Change: Again, there is a number of factors that play into.

Speaker Change: Buying back stock from the board's perspective, and the outlook, but I don't believe theres any regulatory limitations.

Steve Gardner: Yeah, I mean, just working out philosophically. I think philosophically, what you're looking at is a whole host of things, what's your outlook from an asset quality standpoint, from an earning standpoint, how quickly are you going to get back to earning that dividend and exceeding it. A number of factors are taken into consideration. But again, when you look at really the strength of our asset quality, and maybe a bit of an improving outlook, at least removing some levels of the uncertainty here, things that we've talked about around the election, Fed funds coming down, all of these things, we're pretty comfortable with where we are and are committed to the dividend.

Speaker Change: Yes.

Speaker Change: Philosophically.

Speaker Change: I think philosophically what you are looking at is a whole host of things what's your outlook.

Speaker Change: From an asset quality standpoint from an earnings standpoint, how quickly are you going to get back to earning that dividend and exceeding it.

Speaker Change: A number of factors are taken into consideration, but again when you look at really the strength of our asset quality.

Speaker Change: Maybe a bit of a an improving outlook at least removing some levels of uncertainty here things that we've talked about around the election.

Fed funds coming down all of these things.

Speaker Change: We're pretty comfortable with where we are and are committed to the dividend.

Andrew Terrell: But again, that's something that the board will consider and think through and ultimately make the decision on. Yep. Okay. Makes sense. I appreciate it.

Speaker Change: Again, that's something that the board will consider and think through and ultimately make the decision on.

Speaker Change: Yes, Okay makes sense I appreciate it and if I could sneak one in for Ron maybe.

Ron Nicolas: And if I could sneak one in for Ron, maybe. I'm looking at page 15 of the investor presentation, you guys call out the Despite yield on the securities portfolio of 3.55%, 12 basis points or so below the quarterly average, despite some decent, decently high yielding purchases during the quarter. I'm just curious, is there any noise in that number? Or is that reflective of maybe the move down in SOFR we saw throughout the quarter? And I think you might have some in floating rate bonds. If you could just remind us the exposure you have to floating rate securities.

Speaker Change: I am looking at page 15 of the Investor presentation, you guys call out.

Speaker Change: Despite yield on the securities portfolio of 3.55% 12 basis points or so below the quarterly average despite.

Speaker Change: Some decent decently high yielding purchases during the quarter I'm. Just curious is there any noise in that number or.

Speaker Change: Is that reflective of maybe the move down and so far we saw.

Speaker Change: Throughout the quarter and I think you might have some floating rate bonds. If you can just remind us the exposure you have to floating rate securities.

Ron Nicolas: Uh, yeah, there is probably a little bit of noise in that spot rate versus the average there, uh, you know, we've got a few, um... a little bit of dividends that have a tendency to spike the realized rate, if you will, the realized yield versus the spot yield on that. As far as the floating rate, I'm trying to recall off the top of my head.

Speaker Change: Yes, there is probably a little bit of noise in that spot rate versus the average there.

Speaker Change: We got a few.

Speaker Change: A little bit of dividends that have a tendency to spike the realized rate. If you will the realized yield versus the spot yield on that.

Speaker Change:

Speaker Change: As far as the floating rate I'm trying to recall off the top of my head I have to get back to you on that.

Ron Nicolas: I'll have to get back to you on that. It's a smaller percentage of the overall portfolio, but I think of the AFS portfolio, it's obviously a Well, it's a smaller percentage of the overall portfolio. Let me leave it at that and I'll get back to you on the percentage in particular.

Speaker Change: It's a it's a smaller percentage.

Speaker Change: Of the overall portfolio, but I think of the <unk> portfolio, It's obviously up.

Speaker Change: <unk>.

Speaker Change: Well, it's a smaller percentage of the overall portfolio, let me leave it at that and I'll get back to you on that on the percentage in particular.

Ron Nicolas: Okay, great.

Speaker Change: Okay, great. Thank you all for taking the questions.

Operator: Thank you all for taking the question.

Speaker Change: Yeah.

Speaker Change: Thank you and our next question comes from Chris Mcgratty UK VW. Please go ahead.

Christopher McGratty: And our next question comes from Chris McGratty, KBW. Please go ahead.

Steve Gardner: So, great. Real quick, I guess, Steve, Ron, on the potential loan purchase, if there was appetite for purchases, what kind of assets are out there? Are they complementary to existing portfolios, niche portfolios? Just interested in kind of who the seller of the assets might be. You know, there's a wide variety of portfolios that are out there, Chris. You could talk to some of your colleagues, I think, in the firm, and they are from a broad spectrum of entities, from traditional commercial banks, more consumer-oriented banks, and then a lot from the fintechs that we can't quite figure out the decision-making on how they're doing that.

Chris Mcgratty: Oh great.

Chris Mcgratty: Real quick I guess, Steve Ron on the potential loan purchase if there is appetite for purchases what kind of assets are out there on a complementary to existing portfolios niche portfolio I'm just interested in kind of who the seller of the assets might be.

Speaker Change: There's a wide variety of portfolios that are out there Chris you could talk to some of your colleagues I think in.

Chris Mcgratty: In the firm.

Speaker Change: And they are from a broad spectrum of entities from traditional commercial banks more consumer oriented banks.

Chris Mcgratty: And then a lot from the fin tax that.

Chris Mcgratty: We can't quite figure out the.

Chris Mcgratty: The decision making.

Chris Mcgratty: And how they are doing that so that doesn't seem to fit with our philosophy.

Steve Gardner: So that doesn't seem to fit with our philosophy. But it's a pretty broad spectrum, you know, whether it's single-family, HELOC on the consumer front, there's various C&I portfolios out there, there's commercial real estate, multi-family and the like. But as I said, we're really not looking to expand the multi-family segment much. There's participations, there's shared national credits, all of them have a diverse level of risk and return. And as always, we would, you know, do very thoroughly and complete diligence to ensure it meets our risk adjusted return threshold. Okay, great. Thanks.

Chris Mcgratty: It's a pretty broad spectrum.

Chris Mcgratty: Either it's.

Chris Mcgratty: Single family he lock on the consumer front.

Chris Mcgratty: There is various C&I.

Chris Mcgratty: Portfolios out there there is commercial real estate multifamily in Hawaii, but as I said, we're really not looking too.

Chris Mcgratty: Expand the multifamily segment.

Chris Mcgratty: Much.

Theres participations or shared national credits.

Chris Mcgratty: All of them that have a.

Chris Mcgratty: Diverse level of risk and return and as always we would do.

Chris Mcgratty: Very thorough and complete diligence.

Chris Mcgratty: To ensure it meets our risk adjusted return thresholds.

Speaker Change: Okay, great. Thanks, Thanks, Steve.

Steve Gardner: Thanks, Steve. Sure.

Chris Mcgratty: Sure.

Operator: Thank you.

Speaker Change: Thank you and that concludes our question and answer session I would like to turn the conference back over to Steve Gardner for closing remarks.

Steve Gardner: And that concludes our question and answer session.

Steve Gardner: I'd like to turn the conference back over to Steve Gardner for closing remarks. Great. Thank you, Rocco, and thank you, everyone, for joining the call today.

Steve Gardner: Great. Thank you Rocco and thank you everyone for joining the call today.

Operator: Thank you, everyone.

Speaker Change: Thank you everyone that concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

Operator: That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

Speaker Change: Yeah.

Speaker Change: Sure.