Good day, and welcome to the Pacific Premier Q1 2022 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference session by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Steve Gardner, Chairman and CEO. Please go ahead. Thank you, operator. Good morning, everyone. I appreciate you joining us today. As you are all aware, earlier this morning, we released our earnings report for the Q1 of 2022. We have also published an updated investor presentation that has additional information on our financial performance. If you have not done so already, we would encourage you to visit our investor relations website to download a copy of the presentation. In terms of our call today, I will walk through some of the notable items. Ron Nicolas, our CFO, will review a few of the financial details, and then we'll open up the call to questions. I note that in our earnings release and investor presentation, we have our safe harbor statement relative to the forward-looking comments, and I would encourage all of you to read through those carefully. Overall, we delivered solid financial performance in the Q1, driven by strong loan and deposit production that generated net income of $66.9 million or $0.70 per share. The quarter's results are reflective of our disciplined approach to growing capabilities of our teams and the benefits of our technology-driven growth strategy. Notwithstanding our solid performance in the past quarter, we are mindful that the macroeconomic dynamics and global geopolitical headwinds introduce a new level of uncertainty that must be managed prudently. Although it's typical to see some level of production seasonality at the beginning of the year, our bankers were able to generate nearly $1.5 billion in new loan commitments, essentially the same level as the prior quarter. Which reflects our focus on consistent business development that results in new client acquisition and expanding existing relationships that meet our high credit standards. Given the deep and talented teams we have built and the expertise we have developed, we had well-balanced production in the Q1 across all of our lending segments. Commercial line utilization rates increased as our business clients responded to the higher levels of activity they are seeing as the economy expanded and moved beyond the pandemic's impacts. During the Q1, the average utilization rate on commercial lines of credit increased to 39.5% from 35.2% last quarter, while the quarter end spot rate was 41%. The combination of loan production, increased utilization rates, and a lower level of prepayments and payoffs translated into 12% annualized loan growth in the Q1. Importantly, we were able to fund our loan growth with strong inflows of low-cost core deposits, which increased 13% annualized. With the Q1 loan growth, we continued to drive a favorable shift in our mix of earning assets, and as such, we anticipate an expansion in our net interest margin and higher levels of interest income as we move through the year in conjunction with the expected increase in the fed funds rate. During the quarter, we were successful in terms of attracting new talent across the company that will support our growth and risk management objectives. We are benefiting from our reputation as a high-performing organization, and we were able to add quality talent that bring a level of sophistication, knowledge, and deep client relationships from larger regional and national banks. In keeping with our core value of continuous improvement, the talent we are adding is in enabling us to expand and upgrade our capabilities in many areas of the company. Given the macroeconomic and geopolitical issues that intensified during the Q1, our team has sharpened its focus on risk management. During the quarter, the Federal Reserve began what is widely expected to be one of the most rapid tightening cycles in decades that will occur simultaneously with a contraction of its balance sheet in an effort to address high inflation. In a relatively short period of time, risks to the economic outlook have increased, creating a more uncertain operating environment. Our long track record of success and ability to build franchise value through varying cycles is attributable to the effective balance that we are able to strike between profitable growth and risk management. While we have been adding new clients and customers and expanding existing relationships, we have been mindful of the potential for a changing environment. We've been taking proactive steps to position our balance sheet to manage interest rate risk and mitigate the impact we may see from a potential deterioration in economic conditions. The actions we have taken over the last few quarters include reducing the size and duration of the securities portfolio and increasing our liquidity with higher cash balances, maintaining strong levels of tangible common equity, growing total capital, and maintaining overall high levels of regulatory capital ratios. Adding $1.2 billion of fixed to floating rate swaps, which increased our asset sensitivity. Adding $600 million in low cost term FHLB advances, which reduced our interest rate risk, and making refinements to our CECL model to reflect a greater impact from supply chain disruption, inflationary pressures and geopolitical unrest than what is reflected in Moody's current economic forecast. These actions reflect our commitment to prudent risk management and operating with a long-term perspective. While some of these actions have had a short-term impact on earnings, they are helping us maintain important flexibility to capitalize on the opportunities that may arise from a variety of outcomes. With that, I'm gonna turn the call over to Ron to provide a few more details on our Q1 results. Thanks, Steve, and good morning. For comparison purposes, the majority of my remarks are on a linked quarter basis. Let's start with the income statement. Highlights for the Q1 included total revenue of $187.7 million, as net interest income was $161.8 million, and non-interest income, $25.9 million. Pre-provision net revenue totaled $90.1 million or 1.72% of average assets. Non-interest expense in the Q1 was consistent with our prior expectations at $97.6 million, and our efficiency ratio equaled 50.7%. Lastly, asset quality remains favorable and at historically low levels. I will provide more detail on our ACL and asset quality later in my remarks. Net interest income decreased $8.9 million to $161.8 million, primarily due to $2.6 million in lower interest income due to two less days in the Q1 and nearly $5 million in lower loan-related prepayment fees and accretion income as loan prepayments fell 23% from the prior quarter. Our reported net interest margin came in at 3.41% for the quarter, and the core net interest margin narrowed five basis points to 3.33%, which included the impact of six basis points due to the aforementioned lower loan-related fees, partially offset by the favorable shift in our earning asset mix, where we strategically reduced the size and duration of our securities portfolio to fund loan growth during the quarter. With the expectation for increases in the fed funds rate, we would see incremental benefit in future quarters to the net interest income and net interest margin of $1.2 billion of notional overnight SOFR-based fixed to floating rate swaps. As of March 31st, the fair value of these swaps amounted to $38.7 million. Looking ahead to the Q2 of 2022, we expect our core net interest margin to be in the range of 3.25%-3.30%, excluding the potential benefit of the swaps. This includes the full quarter impact of $600 million in FHLB term borrowings at a blended rate of 2.15%. Non-interest income of $25.9 million decreased $1.4 million from the prior quarter, largely due to $1.5 million of lower security gains. Escrow fees decreased $560,000 as a result of seasonally higher transaction volumes in the Q4 compared to the Q1. Going forward, we expect our non-interest income for the Q2 to be in the range of $23 million-$24 million, excluding any security sales. Consistent with our expectations, non-interest expense was essentially flat at $97.6 million compared to $97.3 million in the Q4. Salaries and benefits increased to $57 million, reflecting a partial quarter impact of annual merit increases as well as higher payroll taxes. Staffing overall increased to 1,577 employees as we continue to make strategic investments to hire key people to support the business. Professional expense decreased $1.8 million due to the timing of certain legal and professional fees. Our non-interest expense should approximate $99 million-$100 million in the Q2, reflecting the full quarter impact of higher compensation costs. The Q1 provision for credit loss of $448,000 was driven principally by loan growth and the increasing uncertainty of downside macroeconomic risks due to higher inflation, increasing interest rates, and supply chain challenges. Turning now to the balance sheet. Q1 results reflected both strong organic loan and deposit growth. Loan production for the quarter totaled $1.46 billion, an increase of 27% over the Q1 of 2021. Average loan balances increased $366 million, while average securities decreased $287 million. The decrease in average securities was attributable to our actions to shorten duration and add liquidity to the balance sheet. Additionally, we moved approximately $642 million of available-for-sale securities to held to maturity during the quarter, bringing the total held to maturity portfolio to just under $1 billion. On the funding side, we continued to grow non-interest-bearing deposits, which increased to 40.2% of total deposits, and our total cost of deposits remained unchanged at 4 basis points. As noted, we added $600 million in term FHLB borrowings to bolster liquidity and provide additional interest rate protection from projected higher interest rates and increased cash balances by $505 million at quarter end owing to the evolving environment. Our combined cash and securities portfolio represented just under 25% of total assets. Tangible book value decreased to $19.12 at March 31st, compared with $20.29 at December 31st. With the higher interest rates, we had a $1.44 per share negative impact to tangible book value for the mark-to-market loss on our AFS portfolio. I'd like to note that all else being equal, these mark-to-market losses will accrete back to capital over time. Despite the AOCI loss, our tangible common equity to tangible assets ratio remained a solid 8.79% as of March 31st. Finally, from an asset quality standpoint, asset quality remained strong despite an increase in non-performing loans of $25.3 million related to a single credit where we believe we are well collateralized. Non-performing assets overall remained at very low levels at 0.26% of total assets compared to 0.15% in the prior quarter. Net charge-offs totaled $446,000 for the quarter, compared with a $1 million recovery in the prior quarter. Lastly, our allowance for credit losses ended the quarter at 1.34%, and the total loss-absorbing capacity comprised of the allowance plus the remaining fair value discount on acquired loans totaled $268.7 million at quarter end, or 1.81% of loans held for investment. With that, I'll hand it back to Steve. Great. Thanks, Ron. I'll wrap up with a few comments about our outlook. We've seen positive trends to begin the year. Our clients have proven resilient and loyal as their businesses and investments continue to generate strong cash flow. Pacific Premier clients trust and value the relationships they have with our bankers, and they look for us for innovative technology-enabled products and services. Our loan pipeline remains strong at $2.1 billion, and we are experiencing strengthening line utilization rates as well as lower prepayment and payoff rates. However, we expect loan production to moderate over time as we have meaningfully increased new loan origination rates in recent weeks. Additionally, we anticipate that the operating environment, which has changed quickly over the last quarter, may become more challenging as a result of the confluence of rapidly rising interest rates, high inflation, and the ongoing disruptions caused by geopolitical events. As always, we are being proactive, disciplined, and prudent as we think through these emerging risks and preparing for a variety of macroeconomic environments. The current level of uncertainty creates a wider range of outcomes than what we expected at the beginning of the year. At this point, it's difficult to forecast the degree to which these challenges may impact loan demand and whether businesses and investors may delay their planned investments until there is greater clarity. As always, we will maintain our disciplined pricing, structuring, and underwriting of new credits, as well as proactive portfolio management. The discipline is a key aspect to our approach that has enabled the organization to perform well through a variety of cycles. Lastly, we will maintain our focus on delivering long-term value for our shareholders, clients, and the communities we serve. We believe with our nimble technology-enabled business model, capital strength, and operating expertise, we are well-positioned to take advantage of organic and strategic growth opportunities to profitably expand our franchise. That concludes our prepared remarks, and we'd be happy to answer any questions. Vanishi, will you please open up the call for questions. Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from David Feaster with Raymond James. Please go ahead. Hey, good morning, everybody. Good morning. Hi, David. I just wanted to first, I guess, follow up on your commentary in the prepared remarks, talking about adding talent and capitalizing on the disruption from some larger M&A. Just curious where you're seeing the most opportunities. Are there any segments or geographies where you're seeing more opportunity than others? Are you looking at potentially filling in some gaps in the footprint or entering new segments or verticals with some new hires? There's a lot of questions there, David. Let me try to make sure I cover the whole gamut. Generally, it's not geographic specific. It's throughout the markets we're operating in, and it's in a variety of roles, whether it's production, operations, credit, treasury management or the like. Generally, we don't look to initiate or enter new market segments or lines of business through a de novo approach, if you will, or hiring of teams. That's just not what we've done. That return on investment, our experience is it takes a long time, and it's a high level of uncertainty. We've had far greater opportunities and success through acquiring, whether it's specialty lines of business and of course, whole banks. Okay, that makes sense. Then just maybe touching on the fee income side. Appreciate the $23 million-$24 million guidance. Just wanted to get some of the puts and takes there, especially with the trends that you're seeing on the trust side, just given the volatility in the markets. Then curious whether your guidance includes any adjustments for, you know, adjustments on NSF or overdraft fees. We have very little in the way of NSF overdraft fees. We've been generally, for a long period of time, very conservative in that respect. I think, as you know, very little of our deposit base is consumer related. I think that takes into consideration all the factors that we're seeing in the marketplace and as we're thinking about how they will impact us here and obviously the guidance was for the Q2, but moving forward. From the trust side of the business, we have made some great progress and strides there. Well, I know I've talked about it quite a bit on how we've spent time building the foundation to ensure operational excellence there. That has really come along over the last six months and during that period of time, we have been building up the sales team and our outreach and meeting with clients. We're certainly encouraged about the opportunity that line of business presents to continue to grow it. Okay. Just wanted to follow up too, on your commentary about being able to meaningfully increase new loan yields. Just curious if you could give us any color where you're seeing the most opportunity to push pricing, and then just how the competitive dynamics are on the pricing front, how new loan yields are trending, and whether you're starting to see more aggressiveness from the competitive landscape in terms of terms or structures. It was mid- to late part of Q1 that we began really in earnest moving up pricing. That's continued. As far as the competitive landscape, I don't know that I would necessarily quantify it as we moved pricing up because we saw opportunity. It was just a reality of what we were seeing, of course, occur on the yield curve and so how we price credits in general. From a competitive standpoint, we've seen few of our competitors move pricing. You know, hey, if that works for them, so be it. For us, you know, we're thinking about future impacts. You know, look, we've got the Fed that is talking about, and I think generally the markets are pricing in, as I mentioned, pretty aggressive rate increases over the remaining part of this year. Coupled with a shrinking balance sheet of $95 billion a month that, although that hasn't been set in stone, that's the expectation here beginning as early as May or June. We think that is gonna have an impact in the market. We don't know exactly how, but that's how we're thinking about it, and that's what's driven us to really move pricing up and think even more so about overall risk management. All right. Appreciate it. Thank you. Certainly. The next question comes from Matthew Clark with Piper Sandler. Please go ahead. Hey, good morning. Morning. Maybe just starting with the uptick in non-accrual, the C&I relationship. Can you just give us a sense for what the situation is there, the resolution process, you know, the type of business, expected loss? Sounds like there's some collateral there if not fully covered. Yeah. Any expected loss we've already taken the charges on. As Matthew, as you know, and most, I think most folks, we move through problem credits fairly aggressively, and that'll be the case here. I'd expect our team to get it resolved if it's not this quarter, next quarter fully. That approach that we take, that proactive approach, serves us well. I mean, at this point, we're not seeing any degradation in cash flows in any segment. We're going to have like, I think, anybody who extends credit an occasional one-off situation, and that's the case here. Okay. The type of business though, just, I know it sounds one-off, but just curious. It's. They're located in L.A. and they have a variety of business interests. So I'm not gonna comment though specifically on it. It's not really related to any segment that we're seeing any of the supply chain disruptions per se or maybe some of the other challenges around commodity pricing. Okay. Maybe just moving to the reserve didn't come down as much as we might have thought. It seems like part of that's the growing uncertainty in the economic environment, which is prudent. But is it fair to assume that we, you know, we might stabilize above day one, or do you feel like we could still approach day one kind of CECL level? That seems so long ago. That was pre-pandemic, pre-everything. That we're looking at 40-year highs in inflation, a Fed that's gonna tighten the fastest in decades, shrink their balance sheet. We've got lockdowns in China impacting supply chains. We have the war in Ukraine impacting commodities. I don't know that we have any sense of how all of this plays out from a reserve standpoint relative to, you know, the day one CECL reserve level. That's my high-level thoughts. I don't know. Ron, maybe you have some more specifics that you might like to add. Steve, the only thing I would add is I think you nailed it. It's very difficult to say what is normalized at this juncture. So I think it would be premature to you know to even take a swag at it. So, I like your answer. Yeah, totally. Yeah, Matthew, I just add to it that, you know, the way that we think about the ACL along with the credit discounts that we have so that loss-absorbing capacity of 181 basis points is also a similar approach that we have in capital management and how we're thinking about our capital ratios and the composition of our capital. I think we're frankly in a great position, depending upon how the economy evolves over the next several quarters. We'll be able to take advantage of opportunities, and I like where we stand today. Great. Just on that point on capital, I would suspect that buyback is, you know, on hold for now. Maybe just confirm that. Just your latest, you know, trend in conversations with potential targets. Sure. Our approach to capital management and buybacks in particular has not changed. We've talked about the fact that historically we'd be opportunistic around buybacks. But that also factors in our outlook for the bank, for our portfolio, for the economy as a whole. We'll continue to think about it, but we have that available to us, and we certainly have very strong levels of capital. As far as conversations, we're having conversations, we're looking at and considering, and we have been for several quarters, various opportunities. I think what remains true is similar to what I've said in the past, that ideally we're pursuing transactions that are going to move the needle and really add franchise value. We take into consideration the current environment and how that might impact targets and if it is going to really add to the franchise value, not only being financially accretive and attractive. Great. Thank you. Certainly. Our next question comes from Chris McGratty with KBW. Please go ahead. Great. Thanks, Steve. Following up on Matt's question about capital. Does the rapidly changing economic outlook and also the rate outlook make the economics of deals more challenging to get over the finish line, given the marks? Is that something that would prohibit kind of a near-term consummation of a deal? No. I mean, it is a factor, of course, that we consider, Chris, and that we are looking at. You certainly, of course, have to have a meeting of the minds of the two parties, the two boards. That doesn't preclude it. You know, we've always had our own perspective on maybe what the value of an entire franchise is. We obviously place nearly all the value on the liability composition of that institution, the deposit base and what is the extent of the relationships. Then figuring out what the marks are, whether it's a credit mark or interest rate mark is, you know, to a certain extent, it's just math. Obviously the volatility in the equity markets and with all banks for some maybe make it more challenging. I've told folks that, look, we've bought institutions when we were trading below 1.20 of tangible book, and we've bought institutions when we've been trading at 2.5 times or, you know, high single-digit PE multiples or mid-teen PE multiples. It's all relative to the market. Really ultimately, from the way that we think about it, can you put the two institutions together and create greater value and returns for the combined shareholder bases over a period of time that either institution would have done on their own? That and that's how we think about it. That's great. Great color. If I could one more on deposits. That's, it's been a hot topic this quarter. You obviously had nice growth. I guess the question would be, given the commercial nature of the balance sheet, have you done any kind of analysis that would potentially identify, you know, a sliver of the book that might be higher risk of either flight or beta that might move off over the next, you know, couple quarters as the Fed unwinds? You know, I would think that it's hard to know exactly what is gonna transpire for the entire industry. Given our deposit base and that it is predominantly relationship based with business owners, our belief, at least in history. We actually have a slide in the investor deck that I mentioned and referenced about our deposit beta, at least in the last tightening cycle, how it behaved. We certainly think that over the years, we've continued to solidify and strengthen the relationships with our business owners. If I think about a particular segment, we don't do a lot, but we have a little bit in municipal deposits. I don't know, Ron, if you have your number. I think it's around $500 million or less. That they tend to be maybe a little bit more price sensitive. Given the fact that we're also really sensitive to pricing, meaning we're not gonna move it up much, it's possible that they find somebody else. We know that's probably available to them today. We know there's institutions out there offering higher pricing already. Ron, I don't know, do you have that number? Yeah. Steve, you know, you're spot on. It's about $500 million and your characterization of that is spot on. The only other thing I would add, Chris, is that when we model, of course, we do our internal modeling here. You talk about doing the analysis, the segment analysis. We do model, you know, deposit betas higher than what we've actually experienced, as highlighted on slide 19 in the investor deck. Also we do show a little bit of negative migration, in other words, coming out of the non-interest-bearing to the interest-bearing. All of that does. You know, we think it's prudent to model it in that respect and into some of the things that Steve highlighted earlier in his prepared comments, you know, take a more prudent approach to the risk management and actions in that. You see a lot of our actions are driven by, you know, trying to be very thoughtful and analytical in terms of the way we model this. That's great. Thank you very much, both of you. Our next question comes from Andrew Terrell with Stephens. Please go ahead. Hey, good morning. Hi, Andrew. Good morning. Steve, I know you guys have been very disciplined in kind of historical underwriting, and I know you've pulled back some in the past when things don't make as much sense in the market. Would love to just hear any kind of thoughts on, I guess, what portfolios, if any, you're watching more closely right now. Just given kind of the macro backdrop, any appetite to kind of pull back the reins a little bit or just any color there would be helpful. Yeah. Are we watching any portfolio more so? No, not really. We're watching them all real closely. That is historically been our approach. We have not pulled back or changed materially any of our underwriting analysis. You know, the folks that we look to bank, we're looking for, you know, the whole relationship and for good, solid businesses and investors that have a track record of managing the business and/or assets pretty conservatively. We've always been a cash flow underwriter. We're not, you know, loan-to-value. I know that a lot of folks like to focus on it. We report it, but that is not, never has been our focus. That has always been on the existing cash flows, the quality, the durability of those cash flows in a variety of environments. That's something that we're going to continue to monitor. I think when I commented around you know the potential for moderation in new loan activity, I just think about it that if you know rates have moved as much as they have and that we have that that has the potential to moderate activity. It would be great if it doesn't, and the economy continues to expand at the pace that it did. We're very well positioned to take advantage of that. It would seem to me that with this kind of higher rates that we're looking at, that that's got to put a damper on at least maybe the refinance activity that takes place. We're seeing that to an extent in the slowdown of the prepayments and the payoff rates in the portfolio. That's really helpful. I appreciate it. If I can move over to Ron, the core NIM guidance for the Q2, I think it was 3.25%-3.30%, excluding the potential benefit of the swaps. How many rate hikes do you have embedded within that core NIM guidance, if any? For right now, we've got the two rate hikes that are projected here in May and June, in there. Of course, the addition again of the full quarter impact of the FHLB, which is about six basis points, on a linked quarter basis, to the core NIM. You've got the two hikes in there, one in May and one in June. Those are partial benefits with the full quarter impact of the fixed-term FHLB. Yeah. Okay, just to clarify, the FHLB was fixed rate? Yes. Yes. Yes. That is correct. 2.15%. Okay. It was layered over a one- Right. 2, and 3 period. Yep. Okay. Perfect. Thank you both for taking my questions. You're welcome. Our next question comes from Gary Tenner with D.A. Davidson. Please go ahead. Thanks. Good morning. Steve, you talked about kind of, you know, the liquidity build in the quarter, you know, ending the quarter cash and cash equivalents a little over $800 million, you know, and total securities were down, you know, combined AFS and held to maturity. How are you thinking about kind of cash flows off the securities portfolio from here, in terms of kind of, you know, building a little more liquidity, or would you expect to reinvest those cash flows? I think we'd expect to begin to reinvest those cash flows, Gary, but we are thinking about how things are going to play out, not only as the Fed raises rates, as they do, and as Ron said, we have this meeting coming up here in early May, another meeting in June and July. Simultaneously with that, they begin to contract the balance sheet. I think from our standpoint, we're thinking about how does this play out? How does it impact the industry? How does the industry respond? In turn, you know, how does that impact us and our clients and the like? At some point we're certainly gonna. We're looking at it, you know, as we speak, but I think that as you can hear in our voice and as we've talked about it, there is a level of uncertainty and we think it's prudent to be maintaining higher levels of liquidity, capital and the like, and reserves in this environment until we get a little bit better clarity here. That's how we're thinking about it. Yeah. Got it. Makes sense for sure. In terms of the quarterly cash flows off the portfolio, Ron, can you give us a sense of kinda where the expected magnitude of that is the next quarter or two? The portfolio cash flow is probably in the neighborhood of about $80 million-$100 million, a little over $100 million a quarter of the securities portfolio. I'm sorry, per quarter or. That's it. Per quarter. Per quarter. Okay. Thank you. Just a follow-up. On the swaps, was the entire $1.2 billion added here in the Q1? Or was there any portion of that that was already outstanding at your end? No. That was, Gary, that was layered in the last six months of 2012 Okay In three different tranches, if you will, back in July, again in October and again in December. That's also on a laddered basis as well. You know, we feel we're in a very good position there. Just to clarify, that's 2021. I think s- Yeah. I think I may have heard 2012. Oh, I'm sorry. 2021. Okay. That's all. Thank you. Yep. This concludes the question and answer session. I would like to turn the conference back over to Steve Gardner for any closing remarks. Very good. Thank you. Before I end the call here, we'd also like to note that we recently published our inaugural corporate social responsibility report to highlight the impact that our teams are having in so many different areas. That report is available on our website. Thank you again all for joining us. We look forward to talking to you at the end of the Q2. The conference has now concluded. Thank you for attending today's presentation. 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