• Earnings Per Share (EPS): $0.35
• Net Income: $33.9 million
• Total Revenue: $144.5 million
• Noninterest Expense: $100.7 million
• Efficiency Ratio: 67.8%
• Preprovision Net Revenue: $43.8 million
• Net Interest Income: $124.5 million
• Net Interest Margin: 3.02%
• Cost of Funds: Decreased 9 basis points to 1.88%
• Cost of Deposits: 1.79%
• Loan-to-Deposit Ratio: 83.3%
• New Loan Commitments: $316 million
• Nonperforming Loans: Decreased $11 million to $28 million
• Total Assets: $17.9 billion
• Tangible Common Equity Ratio: 11.92%
• Total Risk-Based Capital Ratio: 20.28%
• Average Loan Yields: Decreased to 5.13%
• Provision Recapture: $814,000
• Asset Quality: Total delinquencies fell to $2.6 million or 0.02% of loans

• Warning! GuruFocus has detected 3 Warning Sign with PPBI.

Release Date: January 23, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Pacific Premier Bancorp Inc (NASDAQ:PPBI) reported a solid fourth quarter with earnings per share of $0.35, a return on average assets of 75 basis points, and a return on tangible common equity of 7.2%.
• The company successfully reduced higher-cost deposits by $163 million while increasing lower-cost transaction deposits by $146 million, improving its funding mix.
• PPBI's loan portfolio increased slightly, driven by increased commercial and industrial (C&I) and consumer loans, with new loan commitments totaling $316 million, the highest level since Q3 2022.
• The company's asset quality remained strong, with nonperforming loans decreasing by $11 million to $28 million and total delinquencies falling to 0.02% of loans.
• PPBI's capital ratios improved, with the tangible common equity ratio and total risk-based capital ratio increasing to 11.92% and 20.28%, respectively, positioning the company well for future growth.

Negative Points

• The California wildfires have impacted PPBI's clients, with approximately four loans totaling $8 million sustaining some level of damage.
• The company's net interest margin narrowed by 14 basis points to 3.02% due to lower swap income and lower rates on floating-rate earning assets.
• PPBI experienced a significant runoff in its loan portfolio early in the quarter, which was only partially offset by stronger organic loan originations and loan purchases.
• Noninterest expense remained high at $100.7 million, translating to an efficiency ratio of 67.8%, indicating room for improvement in cost management.
• The company's cost of deposits, while decreasing, remains a focus area as it works to further reduce funding costs amidst potential future Federal Reserve rate cuts.

Q & A Highlights

Q: What was the average net interest margin for December, and what are the expectations for the first quarter of 2025? A: Ronald Nicolas, CFO, stated that the December net interest margin was 3.03%. He anticipates that the first-quarter margin will be around the same level, with potential improvements throughout 2025 due to lower funding costs and new originations.

Q: Can you provide details on the compensation expense reversal and expectations for merit increases in the first quarter? A: Ronald Nicolas explained that the fourth quarter saw lower staffing levels, leading to reduced overall incentives and compensation costs. For the first quarter, a budget increase of around 3% is expected, with a couple of million dollars in increases due to merit raises and payroll taxes.

Q: What is the strategy for loan purchases, and what types of assets are being targeted? A: Steven Gardner, CEO, mentioned that loan purchases are used tactically to supplement production. The focus is on acquiring non-CRE loans, although CRE purchases are considered if they meet risk-adjusted return thresholds. The bank targets areas where it has expertise, such as C&I and commercial real estate.

Q: How has the view on CRE concentration changed, and what are the expectations for growth in this segment? A: Steven Gardner noted that while the CRE concentration has been reduced, the bank remains cautious. The focus is on small businesses and middle-market clients, with a preference for C&I over CRE. The bank is open to modest growth in CRE but does not plan significant increases.

Q: What impact do the California wildfires have on growth expectations, particularly in the second half of the year? A: Steven Gardner acknowledged the significant cleanup required and the tightness in construction trades. However, he is encouraged by policymakers' commitment to reducing red tape, which could expedite rebuilding efforts. The bank is well-positioned to support these efforts with its capital levels and expertise.

Q: How have M&A conversations evolved recently, and what is the outlook for potential transactions? A: Steven Gardner indicated that M&A conversations have picked up, with expectations of smoother regulatory processes. The bank is actively pursuing opportunities and remains open to strategic transactions that maximize long-term shareholder value.

Q: What are the expectations for deposit costs, and is there room for further reductions? A: Steven Gardner and Ronald Nicolas believe there is potential to continue reducing deposit costs by growing quality relationships that lead to low-cost transaction accounts. The bank's deposit beta is around 35% to 40%, with more room for reduction in time deposits.

Q: What are the capital priorities, and how do they align with M&A and other strategic initiatives? A: Steven Gardner emphasized maintaining the dividend as a top priority while exploring various capital deployment options, including stock buybacks and strategic balance sheet restructurings. The bank is focused on maximizing shareholder value through organic growth and potential M&A opportunities.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.