NASDAQ:PPBI Pacific Premier Bancorp Q3 2023 Earnings Report $20.60 -0.64 (-3.01%) Closing price 04/25/2025 04:00 PM EasternExtended Trading$20.58 -0.02 (-0.10%) As of 04/25/2025 05:20 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Pacific Premier Bancorp EPS ResultsActual EPS$0.48Consensus EPS $0.55Beat/MissMissed by -$0.07One Year Ago EPS$0.77Pacific Premier Bancorp Revenue ResultsActual Revenue$168.10 millionExpected Revenue$174.90 millionBeat/MissMissed by -$6.80 millionYoY Revenue GrowthN/APacific Premier Bancorp Announcement DetailsQuarterQ3 2023Date10/24/2023TimeBefore Market OpensConference Call DateTuesday, October 24, 2023Conference Call Time12:00PM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Pacific Premier Bancorp Q3 2023 Earnings Call TranscriptProvided by QuartrOctober 24, 2023 ShareLink copied to clipboard.There are 7 speakers on the call. Operator00:00:00Day, everyone, and welcome to the Pacific Premier Bancorp Third Quarter 2023 Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Steve Gardner, Chairman and CEO. Operator00:00:31Please go ahead, sir. Speaker 100:00:33Good morning, everyone. I appreciate you joining us today. As you're all aware, we released our earnings report for the Q3 of 2023 earlier this morning. We have also published an updated investor presentation with additional information and disclosures on our financial results. If you have not done so already, we encourage you to visit our Investor Relations website to download a copy of the presentation and related materials. Speaker 100:01:01I 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 Q3 performance. Ron Nicholas, our CFO, will also review a few of the details surrounding our financial results, and then we will open up the call to questions. Over the past 18 months, We have been very strategic and cautionary in terms of accelerating capital accumulation, moderating balance sheet growth and maintaining a commitment to disciplined, prudent liquidity and risk management. Speaker 100:01:47As a result, We have been able to maintain a level of flexibility and organizational nimbleness that allows us to act quickly and opportunistically as we navigate a challenging environment. And as I've indicated before, our teams have been highly effective and playing both offense and defense simultaneously. Looking at our results for the quarter, we generated a return on average assets 0.88 percent and a return on average tangible common equity of 10.08%. As we noted in this morning's earnings release, we had a non relationship Shared National Credit placed on non accrual status That resulted in a $1,700,000 interest accrual reversal and a $3,200,000 charge off in the 3rd quarter. As a reminder, in early 2022, at the onset of the rising interest rate environment, We intentionally curtailed loan production in certain business lines through pricing increases and tightening our underwriting standards. Speaker 100:02:57Additionally, we were proactive on the liability side of the balance sheet as we opportunistically accessed Wholesale funding sources to enhance our liquidity levels at the front end of the current rate cycle. Our available liquidity at the end of the 3rd Quarter totaled approximately $11,400,000,000 consisting of $1,400,000,000 in cash and $10,000,000,000 of additional borrowing capacity. Pressures on non maturity deposit balances Eased considerably compared to the 1st 2 quarters of 2023, as non interest bearing deposits ended the quarter at 36.1 percent of total deposits. Our high quality client relationships and disciplined pricing practices resulted in only a modest increase in the cost of non maturity deposits to 89 basis points. Notably, we were able to reduce broker deposits by $490,000,000 in the quarter because of our bankers' efforts To reinforce and deepen existing client relationships and attract new clients to the franchise. Speaker 100:04:12Even with these successes, we are seeing some customers continue to pursue high yield non bank alternatives such as direct U. S. Treasury Purchases and Money Market Mutual Funds. Reflecting our emphasis on capital accumulation, Our 3rd quarter tangible common equity ratio increased to 9.87 percent and our 3rd quarter CET1 And total risk based capital ratios increased 53 basis points and 50 basis points to 14.87% and 17.74%, respectively. On a year over year basis, our total risk based capital And CET1 ratios each increased more than 2 50 basis points and rank among the strongest capital levels in the industry. Speaker 100:05:04Contraction in our overall loan portfolio balances slowed considerably in the 3rd quarter, and we believe we could be approaching inflection point in the coming quarters. Prepaying activity slowed in the quarter, although we continue to see some businesses and real estate investor clients Utilizing excess cash reserves to reduce outstanding debt. We will continue to take a thoughtful approach towards loan origination activity, maintaining our focus on bringing in high quality banking relationships into the organization that meet our risk adjusted return requirements. Given where we are in the credit cycle, There's a significant amount of uncertainty around Commercial Real Estate performance. With that in mind, I'd like to spend a minute discussing Our credit risk management philosophy, which has served us well throughout a variety of cycles. Speaker 100:06:02We remain committed to our long standing approach to disciplined underwriting standards, which historically has resulted in superior long term performance across our loan portfolios. We extend credit to businesses and real estate investors that have a well established operating history and a documented track record of positive cash flow. We underwrite loans based on actual rather than projected borrower cash flows. We generally require personal guarantees on the vast majority of our loans from guarantors who typically have ample sources of liquidity and other available assets. We have a granular customer base, consisting mainly of small and middle market businesses along with seasoned real estate operators, which is reflected in our relatively low average loan size. Speaker 100:06:56Our loan to values are conservative, while our debt coverage ratios are strong. Our loan portfolio is structured with a balance of hybrid adjustable and fixed rate loans with de minimis loan maturities over the next 10 to 12 quarters. Our portfolio managers are proactive in monitoring for any change in borrower financial performance, which enables them to quickly detect trends that could impact our portfolio. Additionally, CRE concentrations are stress tested semiannually and continue to move lower as we accumulate capital and moderate new origination activity. Overall, our loan portfolio is well managed across the organization. Speaker 100:07:42We expect it to perform well throughout the cycle. Our 3rd quarter asset quality results were solid As total delinquency decreased to 0.08 percent of total loans and non performing assets were just 0.13 percent of total assets. As I mentioned earlier, through the shared national credit review process, We had a non relationship participation placed on non accrual status. The Shared National Credit Portfolio, Which is a legacy OPUS line of business that was discontinued, totals 22 loans for $201,000,000 in outstanding balances or 1.5 percent of total loans at September 30. With that, I'll turn the call over to Ron to provide a few more details on our Q3 financial results. Speaker 200:08:39Thanks, Steve, and good morning. For comparison purposes, my comments today are on a linked quarter basis unless otherwise noted. Let's start with the quarter's results. 3rd quarter net income totaled $46,000,000 or $0.48 per share And our return on average assets and average tangible common equity were 0.88% and 10.08 Percent, respectively. Total revenue was $168,100,000 And our non interest expense came in at $102,200,000 resulting in an efficiency ratio of 59% And pre provision net revenue as a percentage of average assets of 1.27 percent for the quarter. Speaker 200:09:33All of our regulatory capital ratios increased significantly and our TCE ratio grew to 9.87%. Taking a closer look at the income statement, net interest income decreased to $149,500,000 primarily as a result of higher cost of funds as well as a smaller balance sheet, reflecting our strategy to moderate new loan origination activity in the current operating environment. On the funding side, both our deposit mix as well as our higher cost of funds impacted the net interest margin, which was 3.12% in the 3rd quarter. Our non maturity deposit costs were well controlled at 0.89% And our total deposit costs were 1.50%. On a cumulative total deposit beta of 20 8% reflects our disciplined pricing actions throughout this rate cycle. Speaker 200:10:38Earning asset yields were flat compared to the 2nd quarter, which included the impact of 4 basis points due to the reversal of 9 months of accrued interest on the Shared National Credit that Steve referenced earlier. Looking ahead, we would anticipate some net interest margin pressure from higher funding costs in the higher for longer interest rate environment. That being said, we intend to mitigate some of those pressures through continued balance sheet optimization by reducing cash on hand and higher cost wholesale funding. We began to execute this strategy during the quarter as we reduced our level of broker deposits by $490,000,000 compared to June 30. Also, in early October, we paid down $200,000,000 Of FHLB advances with a cost of 4.84 percent that were set to mature in May of 2024. Speaker 200:11:42Non interest income of $18,600,000 decreased $2,000,000 from the prior quarter, driven by a $1,800,000 of lower operating income. Both trust custodial account fees And escrow and exchange fees generated similar levels of non interest income compared to the prior quarter. For the Q4 of 2023, we expect our total non interest income to be in the range of $18,000,000 to $19,000,000 Non interest expense increased slightly to $102,200,000 mostly due to an Expected $1,600,000 increase in deposit expense related to higher earnings credit rates. Compensation and benefit expense increased $644,000 to $54,100,000 From a staffing perspective, we ended the quarter with a headcount of 1355 compared to 1383 as of June 30. As our staffing levels continue to fall commensurate with our smaller balance sheet. Speaker 200:12:56We remain focused on tightly managing our operating And we expect 4th quarter expenses to remain relatively flat in the range of $102,000,000 to $103,000,000 Provision for credit losses of $3,900,000 increased slightly from the prior quarter As our ACL coverage ratio increased 1 basis point to 1.42 percent commensurate with the relative size of our loan portfolio And our economic outlook. Turning now to the balance sheet. We finished the quarter At $20,300,000,000 in total assets as we saw less loan portfolio contraction compared to the prior quarter due to slower prepayment activity. Total loans held for investment declined $346,000,000 driven by prepayment sales and maturities of $371,000,000 partially offset by new loan commitments of $68,000,000 reflecting our disciplined underwriting and pricing standards. Total deposits ended the quarter at $16,000,000,000 Which represented a linked quarter decrease of $532,000,000 primarily due to a $490,000,000 decrease in higher cost brokered CDs. Speaker 200:14:20We continue to exercise deposit pricing discipline, Which has somewhat pressured non maturity deposit balances during 2023 and led some customers to redeploy their cash reserves into higher yielding alternatives. The securities portfolio decreased $97,000,000 to $3,700,000,000 And the average yield on our investment portfolio increased 6 basis points to 2.70%. Not surprising given the late quarter surge in interest rates, our pretax AOCI on the AFS portfolio increased to 296 $700,000 but still remain below our December 31, 2022 fair value mark. We anticipate approximately $100,000,000 in cash flow from the amortization and maturities of our investment portfolio over the remainder of the year, and reinvestment will be dependent upon deposit flows, funding mix and liquidity considerations. The combination of consistent profitability and a smaller balance sheet bolstered our risk based capital ratios this quarter with all ratios increasing significantly from June 30, 2023. Speaker 200:15:40In addition, Our tangible common equity ratio increased 28 basis points to 9.87 percent And our tangible book value per share increased $19.89 And lastly, from an asset quality standpoint, our asset quality remains solid across multiple measures. Non performing assets increased 5 basis points to 0.13%, a slight increase from the prior quarter. Additionally, total delinquency decreased to just 8 basis points, and our total classified loans ended the quarter at 1.12%. Our allowance for credit losses remained a healthy $188,100,000 And our coverage ratio increased to 1.42%. Our total loss absorption, which includes the fair value discount on loans acquired through acquisition, and finished the quarter at 1.76%. Speaker 200:16:43With that, I'll turn the call back to Steve. Speaker 100:16:47Great. Thanks, Ron. I'll wrap up with a few comments about our outlook. As we head into year end in 2024, we'll continue to take a thoughtful approach with respect to liquidity, balance sheet growth, risk management and building capital. We expect the environment to remain challenged for the foreseeable future as businesses and real estate investors adjust to the evolving economic and interest rate environment. Speaker 100:17:16At this point, we are prepared for the higher for longer interest rate scenario and the corresponding ramifications It may have on the broader industry. Our organization is well positioned to opportunistically diversify our business in a disciplined, prudent fashion through organic and strategic growth as a result of the disruptions taking place in our markets. In addition, we anticipate that the challenges our industry faces may intensify, which in turn could create Additional opportunities for us. In conclusion, we are entering the 4th quarter from a position of strength And our teams remain keenly focused on executing our business strategy to deliver long term value for our shareholders. That concludes our prepared remarks and we would be happy to answer any questions. Speaker 100:18:11Operator, please open up the call for questions. Operator00:18:15Thank you. We will now begin the question and answer session. Speaker 100:18:25Focusing Operator00:18:29the At this time, we will pause momentarily to assemble our roster. Our first question comes from David to Easter with Raymond James. Please go ahead. Speaker 300:18:44Hey, good morning everybody. Speaker 100:18:46Hi, David. Speaker 300:18:48Maybe just kind of following up on your Commentary, both you Steve and Ron. It seems like this higher for longer environment is probably the new normal. I'm just curious, You touched on it a bit. I was hoping we could dig into the balance sheet and margin trajectory in a higher for longer environment. You guys have been very Managing the balance sheet. Speaker 300:19:09But just how do you think about the margin trajectory in light of the moves that you've made, proactive liquidity management, reduction in some of the Sale funding. And then maybe just more broadly, Steve, to your point, just how do you think about the broader economy and the bank's performance in a higher for longer environment? Speaker 100:19:28Sure. Well, Ron, why don't I'll let Ron go ahead and David address The margin in our outlook and then I'm certainly happy to give you my perspective on the outlook for the economy. Speaker 200:19:45Sure. Thanks, Stephen. And David, so as we've indicated, we're going to be managing As much as we're able to, of course, depending on deposit flows, deposit mix, That cost of deposits, that's our primary focus. We're still originating, Albeit at lower levels, but the loans that we are bringing on the books, of course, are coming in at higher yields. So that should also add To the net interest margin, and as we move forward, I do anticipate, although the denominator effect Of the deposit beta, is going to because that's decelerating, it's going to give rise to a higher Beta on a quarterly basis, I do anticipate deposit pricing to start to decelerate as we move Into 2024, Annette. Speaker 200:20:49So, we do look for some level of stabilization. We're still getting a little bit of repricing as if there is another move on the asset side. So that should also help. There's a lot of moving parts to this. We'll see how it plays itself out, but we're very, very focused On that deposit cost and managing the balance sheet tightly in that respect. Speaker 100:21:18I think I'd certainly add, Ron, that as we highlighted, we've been Certainly, laser focused on reducing higher cost wholesale funding, which we took down starting in Early 2022. And we expect that to benefit us as we Move through the end of this year and into next year. As far as the economic outlook, So it's certainly an unusual environment where we have from all indications preliminary estimates On GDP, very strong, 5% handle in the 3rd quarter. Employment Continues to be strong, low unemployment rate, 3.8%. But at the same time, we have some of these dynamics going on from the commercial real estate markets And as investors and businesses adjust to this rapid rise in interest rates, I think it remains uncertain how all of this plays out. Speaker 100:22:34And that's certainly informing our approach To managing the balance sheet and capital levels liquidity, as I highlighted, to ensure that we are in a position To take advantage of what we believe are going to be opportunities here as we move through 2024 To further grow and expand our franchise. Speaker 300:23:01Okay. And maybe to that point, You talked about in your prepared remarks, it sounds like we're closer to an inflection point on the loan portfolio. I'm just curious maybe if you could elaborate there. You talked about proactively slowing growth some time ago through pricing and just your discipline. I'm just curious, how is demand trending from your perspective? Speaker 300:23:21Dave, what's the pipeline look like and the composition of that? Where are you seeing good risk adjusted returns with origination rates over 8 And how do you think about loan growth? Speaker 100:23:34I think you're right as far as we are Approaching or it appears we're approaching an inflection point in the loan portfolio, at least the contraction that we've seen here over the last Year plus period of time or at least it could be because prepayments certainly slowed Substantively in the Q3. I suspect that's some lenders pulling back. Generally speaking, demand is Pretty muted right now. And I would say we're not seeing a lot Of strong opportunities to lend at the rates that make sense to us. I think as we underwrite credits and look at opportunities, it's predominantly on the business side, Where some businesses have very strong cash flows and see opportunities to expand their business And that makes sense. Speaker 100:24:39And then it's generally, as I said, pretty muted in other areas. And so we'll see how this dynamic plays out in the coming months and as we move into 2024. Speaker 300:24:53Okay. And last one for me, just touching on capital. Look, you've got an incredibly strong balance sheet. You've positioned the bank extremely well for a broader economic slowdown and a difficult operating environment. But look, we don't have a ton of need for capital for loan growth. Speaker 300:25:12You're continuing to grow capital And now shares are trading below tangible book value at this point. I'm just curious how you think about your capital priorities at this point. Is there any appetite for Share repurchases, given where the stock is or is capital preservation still paramount? Speaker 100:25:31Generally speaking, capital preservation is certainly one of the Primary considerations for the Board, we continue to look at optimizing our capital levels. And Certainly, we have an approved stock buyback, but we have not been active for some period of time, It's something that we are regularly considering and looking at the Board level. And that is the way that we'll approach it in the coming quarters. Speaker 300:26:11Okay. Appreciate everybody. Thank you. Operator00:26:18Your next question comes from Matthew Clark with Piper Sandler. Please go ahead. Speaker 400:26:26Hey, good morning. Thank you. Just along the lines of that capital related question, what's your But tied to restructure the securities portfolio given how much capital you have at this point? Speaker 100:26:39Yes. We've talked about it before, Matthew, it's something that we've looked at, at various points. We continue to consider it. And I think as the environment moves away from, call it, The disruptions that we saw earlier this year in March, April May, That approach may become more attractive. So we'll continue to assess That opportunity and how we're thinking about it, because as you point out, we do have Certainly, very strong capital levels today. Speaker 400:27:29Okay, great. And then just to the margin, Can you give us a sense for the timing of the runoff in the brokered CDs this quarter? Trying to get a sense for whether or not you saw that benefit Fully in 3Q. And then remind us how much you have coming due in 4Q. And then with the $200,000,000 runoff of FHLB October 6, it looks like that could benefit the NIM By about 5 basis points. Speaker 400:28:03What I'm trying to get at is, when you run through the numbers and you consider the spot rate on your deposits being pretty To the quarterly average and it looks like your NIM could actually be up a little bit here in 4Q. Speaker 100:28:16The $490,000,000 of broker deposits So we paid off was mainly matured towards the end of the quarter in September. Most of the broker deposits that we have, dollars 500,000,000 well, roughly about $600,000,000 this quarter, Most all of those mature towards the end of the quarter. And depending upon our cash levels, Deposit flows, loan activity, we'll look to pay down or potentially pay those off Towards the end of the quarter. Speaker 400:28:58Okay. And then maybe for Ron, the amount of The hedging gain, how much does that benefit NII this quarter in dollars or on the swaps? Speaker 500:29:10Yes. On the swaps, Amit, Speaker 200:29:13yes, the swaps we entered the quarter with about 1,400,000,000 It contributed just under $10,000,000 in interest. That was in the 20 High 28, 29 basis points. We've got about a third of that book that's going to be maturing, Although the bulk of it is late in the quarter, the good news is as we move into 2024, the silver lining on that Security is it's only about 20 percent little over 20% of the interest that it's generating today or that we saw in this quarter. So, we're still going to be pretty with $900,000,000 entering next year, we'll still be in a pretty good position as As far as a pretty good impact with that, and that's at the current level of sulfur, assuming no moves by the Fed. Speaker 400:30:14Okay. Thanks. And then just on expenses, headcount down 2%, but the run rate remaining relatively Flat in 4Q. I guess what's masking the potential savings there in comp? Speaker 200:30:27Yes. That's predominant We may see some additional attrition there, But we're going to be truing things up for the full year. We'll see how that plays itself out in terms of comp. And then The primary driver is the deposit expense and the earnings Credit that we saw ratchet up pretty good here in the Q3, and we're anticipating maybe not as much, but still an increase nonetheless. And I think that that's going to impact the Q4. Speaker 400:31:10Okay. And then last one for me, just on the SNC portfolio. Steve, a little surprised you kept that portfolio after you Bought Opus because we all know that you don't I'm sure you don't like that type of business. So I guess why not unwind that earlier and Or is there something about it you like? Speaker 100:31:31No, we had been, we had been, Matthew, unwinding It is it has performed well. It's adjustable rate credit. And Up to this point, we were fine with it. As we said, we've reduced it from where we were And we're comfortable with the portfolio where it stands at just 1.5% of the loan portfolio. And in particular, given The declines in contraction in the overall loan portfolio that we've seen over the last year. Speaker 400:32:08Okay. Makes sense. Thanks. Operator00:32:13Our next question comes from Chris McGratty with KBW. Please go ahead. Speaker 100:32:26Chris, are you there? Speaker 500:32:28Yes, there we go. There's a mute button. Steve, if we stay in this higher for longer environment as you described, I'm interested in what you might be able to do on the expense Beyond what you've done, I mean, do you feel like you have to do more on the expenses to protect profitability? Speaker 100:32:50I'd say, yes. I think that historically, we've always managed Expenses well and as the environment has evolved and our outlook It is what it is. I think there's room for us to take a look at expenses across the board, But that is frankly nothing new. Speaker 500:33:16Okay. And then maybe, Ron, coming back To comment on the margin, I'm looking at, I guess, Slide 12 just looks at the repricing schedule. I saw the dip in The loan yields in the quarter, I know part of that was the interest reversal. But I guess how should we think about the back book repricing in this environment if the Fed's done? I guess, it is more trying to get at when you think trough NII might happen. Speaker 500:33:48Yes. So we've got a little over probably Speaker 400:33:52somewhere in Speaker 200:33:53the neighborhood of about 33%, 34 And of pretty active repricing of the book, the portfolio with the benefit of the swaps. If the Fed is done, we'll still see a little bit more of that trickle in as we move Into the Q4, not all of it moves some of it moves over a couple of months time frame. And that, so we could see a little bit of lift there. There was some noise, of course, between the second and third Quarter on the loan yields, the interest accrual being one of them that we've already talked about, the reversal, I should say, of the interest On the SNC. And but for the most part, we'll probably pick Just incrementally on the new loans coming on the book and see where that goes if the Fed Pauses on a more permanent basis. Speaker 200:34:55We'll see how that that's why we're very focused on the deposit side and managing that deposit cost. Speaker 600:35:02Okay. And then maybe if Speaker 500:35:03I could on the net interest income, you're thinking about the trough. We've got moderating loan decline. Yes, the spot deposit rate was pretty unchanged to the quarter average. It feels like we got a couple more quarters, but is that something with kind of how you're thinking about dropping revenues? Speaker 100:35:22I mean, I'll jump in here. I mean, I think it's generally how we're thinking about it. Let's see how things play out, Whether it could be sooner or beyond that point, I think just There's a lot of different dynamics at play going on in the market and the economy and certainly on rates. And it's dependent upon the flows from both the deposit and loan side. So a lot of moving pieces, But I think it's reasonable to think in a quarter or 2. Speaker 500:36:02Okay. Thanks, Steve. And then, Ron, last one, tax rate, how should we think about Perspectively? Speaker 200:36:08It's right. We've been hovering right around that 26%. And I think that that's Pretty consistent, we'll finish here in the year. Speaker 600:36:20All right. Speaker 500:36:20Great. Thank you very much. Speaker 200:36:22You're welcome. Operator00:36:26Certainly. Our Our next question comes from Gary Denner with D. A. Davidson. Please go ahead. Speaker 600:36:36Thanks. Good morning. I wanted to revisit that loan yield discussion from a moment ago. 6 basis point contraction in loan yields, By my math, about 5 of that was interest reversal and maybe another couple of basis points from lower loan discount accretion. So that kind of gets you back to flat quarter over quarter. Speaker 600:36:53I'm just wondering, I mean, there was some mix shift within the portfolio, which is I would have anticipated maybe a bit more lift this quarter. So is there some other Kind of drivers or function that prevented that? Or is it just more of a timing issue? Speaker 200:37:12We had some loan sales last quarter that impacted this quarter. They were A little bit higher in terms of their yield. And that came into play probably another 5 or 4 basis points, 4 basis points, 5 basis points, let's say. And I think, Gary, to your point, that's why you didn't see as much lift as You would have anticipated. Speaker 600:37:41Okay. I appreciate that. And Steve, I'm curious, last Quarter, I Speaker 500:37:45think you made the comment that Speaker 600:37:47you were a bit more comfortable on lending from a credit perspective, but still not from a pricing perspective. Obviously, the new loan origination yields moved up quite a bit this Quarter, albeit on a kind of smallish dollar amount. I was just curious to what degree or how your view of the world maybe has changed from From a credit or risk perspective over the last, call it, 90 days? Speaker 100:38:08I don't think it hasn't changed materially. It's Part of it is, there is just not a lot of demand out there. And again, we're going to maintain our discipline around The pricing side, so I think it really gets back to that comment I made that I think that both business owners Real Estate Investors are all reassessing the current environment because rates Have impacts across the board on cap rates for real estate, Some of the expenses and inflation that's going on and impacting whether it's businesses or real estate operators From an expense side, I think that all of those dynamics Speaker 500:39:02have Speaker 100:39:04Investors, business owners, real estate investors, rethinking their outlook and so that's Camping down on demand, at least in our markets. Speaker 600:39:19Okay, great. And if I could ask one more, Ron, just To clarify your comments on the swaps a moment ago, so the roughly 1 third of the swaps that mature here over the course of the Q4 Only have about a 20% impact on Speaker 500:39:33the gains that you would be looking at or the benefit you'd Speaker 600:39:35be looking at for 2024? Speaker 200:39:37That's correct, Gary. Speaker 600:39:39Okay. Thanks very much. Speaker 200:39:41You're welcome. Speaker 100:39:50Operator, is there anyone else in the queue? Operator00:40:00Yes, I have David Chia Verini with Wedbush Securities. Please go ahead. Speaker 500:40:07Hi, thanks. So I wanted to ask about Credit quality. So Slide 18, you've got the classified loans and we saw an uptick there. I was curious for the loans that Have reached maturity in the Q3 or over the past couple of quarters for that matter. How many are struggling Come up with additional equity, particularly for those borrowers that you would consider re Spending a loan or putting out a new loan. Speaker 500:40:38Can you talk about how borrowers are handling the new environment as their loans mature? Speaker 100:40:47We haven't seen any pressure from our book on maturities. Classifieds are just that uptick is just part of our regular review process in analyzing Cash flows, no real impact that I can think of, David, from a maturity standpoint. Ron, is there anything that comes to your mind that from a maturity standpoint? Speaker 200:41:17No, Steve. No, no. I think You've got it correct. I mean, you see the fluctuations to your point on the classified. I think that's Just a normal or the typical fluctuations that we see. Speaker 200:41:34So no, David, we've not heard or seen anything like that just yet. Speaker 100:41:40And generally, as the I'm sorry, I was just going to add that we have the slide in the deck On the loan portfolio maturity and we have a relatively Low percentage of loans that mature over the next several quarters. Speaker 500:42:03Right. So the ones that and granted, it's a very small number, but the ones that are seeing maturities, you're not seeing those borrowers kind of Struggle or refinance to another lender? Speaker 100:42:16No. We're frankly, we're seeing them take Cash out of their accounts and paying us off or paying us down. On top of it, We're having we have very proactive portfolio management. So we're reaching out to those clients 9, 6 months before maturity talking to them about what their plans are And how we're looking at the world. So I think it's part of that proactive portfolio management That we benefit from as well. Speaker 100:43:09Operator, is there anyone else in the queue? Well, thank you all. We appreciate you joining us today and that concludes today's call.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallPacific Premier Bancorp Q3 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Pacific Premier Bancorp Earnings HeadlinesPacific Premier Bancorp (NASDAQ:PPBI) Sees Large Volume Increase Following Earnings BeatApril 25 at 1:55 AM | americanbankingnews.comQ1 2025 Columbia Banking System Inc Earnings Call & PPBI Acquisition Announcement CallApril 25 at 12:43 AM | finance.yahoo.comNow I look stupid. Real stupid... I thought what happened 25 years ago was a once- in-a-lifetime event… but how wrong I was. Because here we are, a quarter of a century later, almost to the exact day, and it’s happening again. April 26, 2025 | Porter & Company (Ad)Pacific Premier price target lowered to $14.50 from $15.50 at Keefe BruyetteApril 24 at 7:41 PM | markets.businessinsider.comSHAREHOLDER ALERT: The M&A Class Action Firm Investigates the Merger of Pacific Premier Bancorp, Inc. - PPBIApril 24 at 3:58 PM | prnewswire.comSHAREHOLDER ALERT: Rigrodsky Law, P.A. Is Investigating Pacific Premier Bancorp, Inc. BuyoutApril 24 at 11:54 AM | investing.comSee More Pacific Premier Bancorp Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Pacific Premier Bancorp? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Pacific Premier Bancorp and other key companies, straight to your email. Email Address About Pacific Premier BancorpPacific Premier Bancorp (NASDAQ:PPBI) operates as the bank holding company for Pacific Premier Bank that provides various banking products and services in the United States. The company accepts deposit products, which includes checking, money market, savings accounts, and certificates of deposit. Its loan portfolio includes commercial real estate owner and non-owner-occupied, multifamily, construction and land, franchise real estate secured, and small business administration (SBA); revolving lines of credit, term loans, seasonal loans, and loans secured by liquid collateral; one-to-four family and home equity lines of credit loans; and small balance personal unsecured loans and savings account secured loans. It also offers cash management, online and mobile banking, and treasury management services, as well as payment processing, remote capture, and automated clearing house payment capabilities. In addition, it operates as a custodian for alternative assets held in qualified self-directed IRA accounts, including investments in private equity, real estate, notes, cash, and other non-exchange traded assets; and provides real-property and non-real property escrow services. The company serves small and middle-market businesses, corporations, professionals, real estate investors, non-profit organizations, and consumers. The company was founded in 1983 and is headquartered in Irvine, California.View Pacific Premier Bancorp ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Markets Think Robinhood Earnings Could Send the Stock UpIs the Floor in for Lam Research After Bullish Earnings?Market Anticipation Builds: Joby Stock Climbs Ahead of EarningsIs Intuitive Surgical a Buy After Volatile Reaction to Earnings?Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket Lab Lands New Contract, Builds Momentum Ahead of EarningsAmazon's Earnings Could Fuel a Rapid Breakout Upcoming Earnings Cadence Design Systems (4/28/2025)Welltower (4/28/2025)Waste Management (4/28/2025)AstraZeneca (4/29/2025)Mondelez International (4/29/2025)PayPal (4/29/2025)Starbucks (4/29/2025)DoorDash (4/29/2025)Honeywell International (4/29/2025)Regeneron Pharmaceuticals (4/29/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 7 speakers on the call. Operator00:00:00Day, everyone, and welcome to the Pacific Premier Bancorp Third Quarter 2023 Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Steve Gardner, Chairman and CEO. Operator00:00:31Please go ahead, sir. Speaker 100:00:33Good morning, everyone. I appreciate you joining us today. As you're all aware, we released our earnings report for the Q3 of 2023 earlier this morning. We have also published an updated investor presentation with additional information and disclosures on our financial results. If you have not done so already, we encourage you to visit our Investor Relations website to download a copy of the presentation and related materials. Speaker 100:01:01I 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 Q3 performance. Ron Nicholas, our CFO, will also review a few of the details surrounding our financial results, and then we will open up the call to questions. Over the past 18 months, We have been very strategic and cautionary in terms of accelerating capital accumulation, moderating balance sheet growth and maintaining a commitment to disciplined, prudent liquidity and risk management. Speaker 100:01:47As a result, We have been able to maintain a level of flexibility and organizational nimbleness that allows us to act quickly and opportunistically as we navigate a challenging environment. And as I've indicated before, our teams have been highly effective and playing both offense and defense simultaneously. Looking at our results for the quarter, we generated a return on average assets 0.88 percent and a return on average tangible common equity of 10.08%. As we noted in this morning's earnings release, we had a non relationship Shared National Credit placed on non accrual status That resulted in a $1,700,000 interest accrual reversal and a $3,200,000 charge off in the 3rd quarter. As a reminder, in early 2022, at the onset of the rising interest rate environment, We intentionally curtailed loan production in certain business lines through pricing increases and tightening our underwriting standards. Speaker 100:02:57Additionally, we were proactive on the liability side of the balance sheet as we opportunistically accessed Wholesale funding sources to enhance our liquidity levels at the front end of the current rate cycle. Our available liquidity at the end of the 3rd Quarter totaled approximately $11,400,000,000 consisting of $1,400,000,000 in cash and $10,000,000,000 of additional borrowing capacity. Pressures on non maturity deposit balances Eased considerably compared to the 1st 2 quarters of 2023, as non interest bearing deposits ended the quarter at 36.1 percent of total deposits. Our high quality client relationships and disciplined pricing practices resulted in only a modest increase in the cost of non maturity deposits to 89 basis points. Notably, we were able to reduce broker deposits by $490,000,000 in the quarter because of our bankers' efforts To reinforce and deepen existing client relationships and attract new clients to the franchise. Speaker 100:04:12Even with these successes, we are seeing some customers continue to pursue high yield non bank alternatives such as direct U. S. Treasury Purchases and Money Market Mutual Funds. Reflecting our emphasis on capital accumulation, Our 3rd quarter tangible common equity ratio increased to 9.87 percent and our 3rd quarter CET1 And total risk based capital ratios increased 53 basis points and 50 basis points to 14.87% and 17.74%, respectively. On a year over year basis, our total risk based capital And CET1 ratios each increased more than 2 50 basis points and rank among the strongest capital levels in the industry. Speaker 100:05:04Contraction in our overall loan portfolio balances slowed considerably in the 3rd quarter, and we believe we could be approaching inflection point in the coming quarters. Prepaying activity slowed in the quarter, although we continue to see some businesses and real estate investor clients Utilizing excess cash reserves to reduce outstanding debt. We will continue to take a thoughtful approach towards loan origination activity, maintaining our focus on bringing in high quality banking relationships into the organization that meet our risk adjusted return requirements. Given where we are in the credit cycle, There's a significant amount of uncertainty around Commercial Real Estate performance. With that in mind, I'd like to spend a minute discussing Our credit risk management philosophy, which has served us well throughout a variety of cycles. Speaker 100:06:02We remain committed to our long standing approach to disciplined underwriting standards, which historically has resulted in superior long term performance across our loan portfolios. We extend credit to businesses and real estate investors that have a well established operating history and a documented track record of positive cash flow. We underwrite loans based on actual rather than projected borrower cash flows. We generally require personal guarantees on the vast majority of our loans from guarantors who typically have ample sources of liquidity and other available assets. We have a granular customer base, consisting mainly of small and middle market businesses along with seasoned real estate operators, which is reflected in our relatively low average loan size. Speaker 100:06:56Our loan to values are conservative, while our debt coverage ratios are strong. Our loan portfolio is structured with a balance of hybrid adjustable and fixed rate loans with de minimis loan maturities over the next 10 to 12 quarters. Our portfolio managers are proactive in monitoring for any change in borrower financial performance, which enables them to quickly detect trends that could impact our portfolio. Additionally, CRE concentrations are stress tested semiannually and continue to move lower as we accumulate capital and moderate new origination activity. Overall, our loan portfolio is well managed across the organization. Speaker 100:07:42We expect it to perform well throughout the cycle. Our 3rd quarter asset quality results were solid As total delinquency decreased to 0.08 percent of total loans and non performing assets were just 0.13 percent of total assets. As I mentioned earlier, through the shared national credit review process, We had a non relationship participation placed on non accrual status. The Shared National Credit Portfolio, Which is a legacy OPUS line of business that was discontinued, totals 22 loans for $201,000,000 in outstanding balances or 1.5 percent of total loans at September 30. With that, I'll turn the call over to Ron to provide a few more details on our Q3 financial results. Speaker 200:08:39Thanks, Steve, and good morning. For comparison purposes, my comments today are on a linked quarter basis unless otherwise noted. Let's start with the quarter's results. 3rd quarter net income totaled $46,000,000 or $0.48 per share And our return on average assets and average tangible common equity were 0.88% and 10.08 Percent, respectively. Total revenue was $168,100,000 And our non interest expense came in at $102,200,000 resulting in an efficiency ratio of 59% And pre provision net revenue as a percentage of average assets of 1.27 percent for the quarter. Speaker 200:09:33All of our regulatory capital ratios increased significantly and our TCE ratio grew to 9.87%. Taking a closer look at the income statement, net interest income decreased to $149,500,000 primarily as a result of higher cost of funds as well as a smaller balance sheet, reflecting our strategy to moderate new loan origination activity in the current operating environment. On the funding side, both our deposit mix as well as our higher cost of funds impacted the net interest margin, which was 3.12% in the 3rd quarter. Our non maturity deposit costs were well controlled at 0.89% And our total deposit costs were 1.50%. On a cumulative total deposit beta of 20 8% reflects our disciplined pricing actions throughout this rate cycle. Speaker 200:10:38Earning asset yields were flat compared to the 2nd quarter, which included the impact of 4 basis points due to the reversal of 9 months of accrued interest on the Shared National Credit that Steve referenced earlier. Looking ahead, we would anticipate some net interest margin pressure from higher funding costs in the higher for longer interest rate environment. That being said, we intend to mitigate some of those pressures through continued balance sheet optimization by reducing cash on hand and higher cost wholesale funding. We began to execute this strategy during the quarter as we reduced our level of broker deposits by $490,000,000 compared to June 30. Also, in early October, we paid down $200,000,000 Of FHLB advances with a cost of 4.84 percent that were set to mature in May of 2024. Speaker 200:11:42Non interest income of $18,600,000 decreased $2,000,000 from the prior quarter, driven by a $1,800,000 of lower operating income. Both trust custodial account fees And escrow and exchange fees generated similar levels of non interest income compared to the prior quarter. For the Q4 of 2023, we expect our total non interest income to be in the range of $18,000,000 to $19,000,000 Non interest expense increased slightly to $102,200,000 mostly due to an Expected $1,600,000 increase in deposit expense related to higher earnings credit rates. Compensation and benefit expense increased $644,000 to $54,100,000 From a staffing perspective, we ended the quarter with a headcount of 1355 compared to 1383 as of June 30. As our staffing levels continue to fall commensurate with our smaller balance sheet. Speaker 200:12:56We remain focused on tightly managing our operating And we expect 4th quarter expenses to remain relatively flat in the range of $102,000,000 to $103,000,000 Provision for credit losses of $3,900,000 increased slightly from the prior quarter As our ACL coverage ratio increased 1 basis point to 1.42 percent commensurate with the relative size of our loan portfolio And our economic outlook. Turning now to the balance sheet. We finished the quarter At $20,300,000,000 in total assets as we saw less loan portfolio contraction compared to the prior quarter due to slower prepayment activity. Total loans held for investment declined $346,000,000 driven by prepayment sales and maturities of $371,000,000 partially offset by new loan commitments of $68,000,000 reflecting our disciplined underwriting and pricing standards. Total deposits ended the quarter at $16,000,000,000 Which represented a linked quarter decrease of $532,000,000 primarily due to a $490,000,000 decrease in higher cost brokered CDs. Speaker 200:14:20We continue to exercise deposit pricing discipline, Which has somewhat pressured non maturity deposit balances during 2023 and led some customers to redeploy their cash reserves into higher yielding alternatives. The securities portfolio decreased $97,000,000 to $3,700,000,000 And the average yield on our investment portfolio increased 6 basis points to 2.70%. Not surprising given the late quarter surge in interest rates, our pretax AOCI on the AFS portfolio increased to 296 $700,000 but still remain below our December 31, 2022 fair value mark. We anticipate approximately $100,000,000 in cash flow from the amortization and maturities of our investment portfolio over the remainder of the year, and reinvestment will be dependent upon deposit flows, funding mix and liquidity considerations. The combination of consistent profitability and a smaller balance sheet bolstered our risk based capital ratios this quarter with all ratios increasing significantly from June 30, 2023. Speaker 200:15:40In addition, Our tangible common equity ratio increased 28 basis points to 9.87 percent And our tangible book value per share increased $19.89 And lastly, from an asset quality standpoint, our asset quality remains solid across multiple measures. Non performing assets increased 5 basis points to 0.13%, a slight increase from the prior quarter. Additionally, total delinquency decreased to just 8 basis points, and our total classified loans ended the quarter at 1.12%. Our allowance for credit losses remained a healthy $188,100,000 And our coverage ratio increased to 1.42%. Our total loss absorption, which includes the fair value discount on loans acquired through acquisition, and finished the quarter at 1.76%. Speaker 200:16:43With that, I'll turn the call back to Steve. Speaker 100:16:47Great. Thanks, Ron. I'll wrap up with a few comments about our outlook. As we head into year end in 2024, we'll continue to take a thoughtful approach with respect to liquidity, balance sheet growth, risk management and building capital. We expect the environment to remain challenged for the foreseeable future as businesses and real estate investors adjust to the evolving economic and interest rate environment. Speaker 100:17:16At this point, we are prepared for the higher for longer interest rate scenario and the corresponding ramifications It may have on the broader industry. Our organization is well positioned to opportunistically diversify our business in a disciplined, prudent fashion through organic and strategic growth as a result of the disruptions taking place in our markets. In addition, we anticipate that the challenges our industry faces may intensify, which in turn could create Additional opportunities for us. In conclusion, we are entering the 4th quarter from a position of strength And our teams remain keenly focused on executing our business strategy to deliver long term value for our shareholders. That concludes our prepared remarks and we would be happy to answer any questions. Speaker 100:18:11Operator, please open up the call for questions. Operator00:18:15Thank you. We will now begin the question and answer session. Speaker 100:18:25Focusing Operator00:18:29the At this time, we will pause momentarily to assemble our roster. Our first question comes from David to Easter with Raymond James. Please go ahead. Speaker 300:18:44Hey, good morning everybody. Speaker 100:18:46Hi, David. Speaker 300:18:48Maybe just kind of following up on your Commentary, both you Steve and Ron. It seems like this higher for longer environment is probably the new normal. I'm just curious, You touched on it a bit. I was hoping we could dig into the balance sheet and margin trajectory in a higher for longer environment. You guys have been very Managing the balance sheet. Speaker 300:19:09But just how do you think about the margin trajectory in light of the moves that you've made, proactive liquidity management, reduction in some of the Sale funding. And then maybe just more broadly, Steve, to your point, just how do you think about the broader economy and the bank's performance in a higher for longer environment? Speaker 100:19:28Sure. Well, Ron, why don't I'll let Ron go ahead and David address The margin in our outlook and then I'm certainly happy to give you my perspective on the outlook for the economy. Speaker 200:19:45Sure. Thanks, Stephen. And David, so as we've indicated, we're going to be managing As much as we're able to, of course, depending on deposit flows, deposit mix, That cost of deposits, that's our primary focus. We're still originating, Albeit at lower levels, but the loans that we are bringing on the books, of course, are coming in at higher yields. So that should also add To the net interest margin, and as we move forward, I do anticipate, although the denominator effect Of the deposit beta, is going to because that's decelerating, it's going to give rise to a higher Beta on a quarterly basis, I do anticipate deposit pricing to start to decelerate as we move Into 2024, Annette. Speaker 200:20:49So, we do look for some level of stabilization. We're still getting a little bit of repricing as if there is another move on the asset side. So that should also help. There's a lot of moving parts to this. We'll see how it plays itself out, but we're very, very focused On that deposit cost and managing the balance sheet tightly in that respect. Speaker 100:21:18I think I'd certainly add, Ron, that as we highlighted, we've been Certainly, laser focused on reducing higher cost wholesale funding, which we took down starting in Early 2022. And we expect that to benefit us as we Move through the end of this year and into next year. As far as the economic outlook, So it's certainly an unusual environment where we have from all indications preliminary estimates On GDP, very strong, 5% handle in the 3rd quarter. Employment Continues to be strong, low unemployment rate, 3.8%. But at the same time, we have some of these dynamics going on from the commercial real estate markets And as investors and businesses adjust to this rapid rise in interest rates, I think it remains uncertain how all of this plays out. Speaker 100:22:34And that's certainly informing our approach To managing the balance sheet and capital levels liquidity, as I highlighted, to ensure that we are in a position To take advantage of what we believe are going to be opportunities here as we move through 2024 To further grow and expand our franchise. Speaker 300:23:01Okay. And maybe to that point, You talked about in your prepared remarks, it sounds like we're closer to an inflection point on the loan portfolio. I'm just curious maybe if you could elaborate there. You talked about proactively slowing growth some time ago through pricing and just your discipline. I'm just curious, how is demand trending from your perspective? Speaker 300:23:21Dave, what's the pipeline look like and the composition of that? Where are you seeing good risk adjusted returns with origination rates over 8 And how do you think about loan growth? Speaker 100:23:34I think you're right as far as we are Approaching or it appears we're approaching an inflection point in the loan portfolio, at least the contraction that we've seen here over the last Year plus period of time or at least it could be because prepayments certainly slowed Substantively in the Q3. I suspect that's some lenders pulling back. Generally speaking, demand is Pretty muted right now. And I would say we're not seeing a lot Of strong opportunities to lend at the rates that make sense to us. I think as we underwrite credits and look at opportunities, it's predominantly on the business side, Where some businesses have very strong cash flows and see opportunities to expand their business And that makes sense. Speaker 100:24:39And then it's generally, as I said, pretty muted in other areas. And so we'll see how this dynamic plays out in the coming months and as we move into 2024. Speaker 300:24:53Okay. And last one for me, just touching on capital. Look, you've got an incredibly strong balance sheet. You've positioned the bank extremely well for a broader economic slowdown and a difficult operating environment. But look, we don't have a ton of need for capital for loan growth. Speaker 300:25:12You're continuing to grow capital And now shares are trading below tangible book value at this point. I'm just curious how you think about your capital priorities at this point. Is there any appetite for Share repurchases, given where the stock is or is capital preservation still paramount? Speaker 100:25:31Generally speaking, capital preservation is certainly one of the Primary considerations for the Board, we continue to look at optimizing our capital levels. And Certainly, we have an approved stock buyback, but we have not been active for some period of time, It's something that we are regularly considering and looking at the Board level. And that is the way that we'll approach it in the coming quarters. Speaker 300:26:11Okay. Appreciate everybody. Thank you. Operator00:26:18Your next question comes from Matthew Clark with Piper Sandler. Please go ahead. Speaker 400:26:26Hey, good morning. Thank you. Just along the lines of that capital related question, what's your But tied to restructure the securities portfolio given how much capital you have at this point? Speaker 100:26:39Yes. We've talked about it before, Matthew, it's something that we've looked at, at various points. We continue to consider it. And I think as the environment moves away from, call it, The disruptions that we saw earlier this year in March, April May, That approach may become more attractive. So we'll continue to assess That opportunity and how we're thinking about it, because as you point out, we do have Certainly, very strong capital levels today. Speaker 400:27:29Okay, great. And then just to the margin, Can you give us a sense for the timing of the runoff in the brokered CDs this quarter? Trying to get a sense for whether or not you saw that benefit Fully in 3Q. And then remind us how much you have coming due in 4Q. And then with the $200,000,000 runoff of FHLB October 6, it looks like that could benefit the NIM By about 5 basis points. Speaker 400:28:03What I'm trying to get at is, when you run through the numbers and you consider the spot rate on your deposits being pretty To the quarterly average and it looks like your NIM could actually be up a little bit here in 4Q. Speaker 100:28:16The $490,000,000 of broker deposits So we paid off was mainly matured towards the end of the quarter in September. Most of the broker deposits that we have, dollars 500,000,000 well, roughly about $600,000,000 this quarter, Most all of those mature towards the end of the quarter. And depending upon our cash levels, Deposit flows, loan activity, we'll look to pay down or potentially pay those off Towards the end of the quarter. Speaker 400:28:58Okay. And then maybe for Ron, the amount of The hedging gain, how much does that benefit NII this quarter in dollars or on the swaps? Speaker 500:29:10Yes. On the swaps, Amit, Speaker 200:29:13yes, the swaps we entered the quarter with about 1,400,000,000 It contributed just under $10,000,000 in interest. That was in the 20 High 28, 29 basis points. We've got about a third of that book that's going to be maturing, Although the bulk of it is late in the quarter, the good news is as we move into 2024, the silver lining on that Security is it's only about 20 percent little over 20% of the interest that it's generating today or that we saw in this quarter. So, we're still going to be pretty with $900,000,000 entering next year, we'll still be in a pretty good position as As far as a pretty good impact with that, and that's at the current level of sulfur, assuming no moves by the Fed. Speaker 400:30:14Okay. Thanks. And then just on expenses, headcount down 2%, but the run rate remaining relatively Flat in 4Q. I guess what's masking the potential savings there in comp? Speaker 200:30:27Yes. That's predominant We may see some additional attrition there, But we're going to be truing things up for the full year. We'll see how that plays itself out in terms of comp. And then The primary driver is the deposit expense and the earnings Credit that we saw ratchet up pretty good here in the Q3, and we're anticipating maybe not as much, but still an increase nonetheless. And I think that that's going to impact the Q4. Speaker 400:31:10Okay. And then last one for me, just on the SNC portfolio. Steve, a little surprised you kept that portfolio after you Bought Opus because we all know that you don't I'm sure you don't like that type of business. So I guess why not unwind that earlier and Or is there something about it you like? Speaker 100:31:31No, we had been, we had been, Matthew, unwinding It is it has performed well. It's adjustable rate credit. And Up to this point, we were fine with it. As we said, we've reduced it from where we were And we're comfortable with the portfolio where it stands at just 1.5% of the loan portfolio. And in particular, given The declines in contraction in the overall loan portfolio that we've seen over the last year. Speaker 400:32:08Okay. Makes sense. Thanks. Operator00:32:13Our next question comes from Chris McGratty with KBW. Please go ahead. Speaker 100:32:26Chris, are you there? Speaker 500:32:28Yes, there we go. There's a mute button. Steve, if we stay in this higher for longer environment as you described, I'm interested in what you might be able to do on the expense Beyond what you've done, I mean, do you feel like you have to do more on the expenses to protect profitability? Speaker 100:32:50I'd say, yes. I think that historically, we've always managed Expenses well and as the environment has evolved and our outlook It is what it is. I think there's room for us to take a look at expenses across the board, But that is frankly nothing new. Speaker 500:33:16Okay. And then maybe, Ron, coming back To comment on the margin, I'm looking at, I guess, Slide 12 just looks at the repricing schedule. I saw the dip in The loan yields in the quarter, I know part of that was the interest reversal. But I guess how should we think about the back book repricing in this environment if the Fed's done? I guess, it is more trying to get at when you think trough NII might happen. Speaker 500:33:48Yes. So we've got a little over probably Speaker 400:33:52somewhere in Speaker 200:33:53the neighborhood of about 33%, 34 And of pretty active repricing of the book, the portfolio with the benefit of the swaps. If the Fed is done, we'll still see a little bit more of that trickle in as we move Into the Q4, not all of it moves some of it moves over a couple of months time frame. And that, so we could see a little bit of lift there. There was some noise, of course, between the second and third Quarter on the loan yields, the interest accrual being one of them that we've already talked about, the reversal, I should say, of the interest On the SNC. And but for the most part, we'll probably pick Just incrementally on the new loans coming on the book and see where that goes if the Fed Pauses on a more permanent basis. Speaker 200:34:55We'll see how that that's why we're very focused on the deposit side and managing that deposit cost. Speaker 600:35:02Okay. And then maybe if Speaker 500:35:03I could on the net interest income, you're thinking about the trough. We've got moderating loan decline. Yes, the spot deposit rate was pretty unchanged to the quarter average. It feels like we got a couple more quarters, but is that something with kind of how you're thinking about dropping revenues? Speaker 100:35:22I mean, I'll jump in here. I mean, I think it's generally how we're thinking about it. Let's see how things play out, Whether it could be sooner or beyond that point, I think just There's a lot of different dynamics at play going on in the market and the economy and certainly on rates. And it's dependent upon the flows from both the deposit and loan side. So a lot of moving pieces, But I think it's reasonable to think in a quarter or 2. Speaker 500:36:02Okay. Thanks, Steve. And then, Ron, last one, tax rate, how should we think about Perspectively? Speaker 200:36:08It's right. We've been hovering right around that 26%. And I think that that's Pretty consistent, we'll finish here in the year. Speaker 600:36:20All right. Speaker 500:36:20Great. Thank you very much. Speaker 200:36:22You're welcome. Operator00:36:26Certainly. Our Our next question comes from Gary Denner with D. A. Davidson. Please go ahead. Speaker 600:36:36Thanks. Good morning. I wanted to revisit that loan yield discussion from a moment ago. 6 basis point contraction in loan yields, By my math, about 5 of that was interest reversal and maybe another couple of basis points from lower loan discount accretion. So that kind of gets you back to flat quarter over quarter. Speaker 600:36:53I'm just wondering, I mean, there was some mix shift within the portfolio, which is I would have anticipated maybe a bit more lift this quarter. So is there some other Kind of drivers or function that prevented that? Or is it just more of a timing issue? Speaker 200:37:12We had some loan sales last quarter that impacted this quarter. They were A little bit higher in terms of their yield. And that came into play probably another 5 or 4 basis points, 4 basis points, 5 basis points, let's say. And I think, Gary, to your point, that's why you didn't see as much lift as You would have anticipated. Speaker 600:37:41Okay. I appreciate that. And Steve, I'm curious, last Quarter, I Speaker 500:37:45think you made the comment that Speaker 600:37:47you were a bit more comfortable on lending from a credit perspective, but still not from a pricing perspective. Obviously, the new loan origination yields moved up quite a bit this Quarter, albeit on a kind of smallish dollar amount. I was just curious to what degree or how your view of the world maybe has changed from From a credit or risk perspective over the last, call it, 90 days? Speaker 100:38:08I don't think it hasn't changed materially. It's Part of it is, there is just not a lot of demand out there. And again, we're going to maintain our discipline around The pricing side, so I think it really gets back to that comment I made that I think that both business owners Real Estate Investors are all reassessing the current environment because rates Have impacts across the board on cap rates for real estate, Some of the expenses and inflation that's going on and impacting whether it's businesses or real estate operators From an expense side, I think that all of those dynamics Speaker 500:39:02have Speaker 100:39:04Investors, business owners, real estate investors, rethinking their outlook and so that's Camping down on demand, at least in our markets. Speaker 600:39:19Okay, great. And if I could ask one more, Ron, just To clarify your comments on the swaps a moment ago, so the roughly 1 third of the swaps that mature here over the course of the Q4 Only have about a 20% impact on Speaker 500:39:33the gains that you would be looking at or the benefit you'd Speaker 600:39:35be looking at for 2024? Speaker 200:39:37That's correct, Gary. Speaker 600:39:39Okay. Thanks very much. Speaker 200:39:41You're welcome. Speaker 100:39:50Operator, is there anyone else in the queue? Operator00:40:00Yes, I have David Chia Verini with Wedbush Securities. Please go ahead. Speaker 500:40:07Hi, thanks. So I wanted to ask about Credit quality. So Slide 18, you've got the classified loans and we saw an uptick there. I was curious for the loans that Have reached maturity in the Q3 or over the past couple of quarters for that matter. How many are struggling Come up with additional equity, particularly for those borrowers that you would consider re Spending a loan or putting out a new loan. Speaker 500:40:38Can you talk about how borrowers are handling the new environment as their loans mature? Speaker 100:40:47We haven't seen any pressure from our book on maturities. Classifieds are just that uptick is just part of our regular review process in analyzing Cash flows, no real impact that I can think of, David, from a maturity standpoint. Ron, is there anything that comes to your mind that from a maturity standpoint? Speaker 200:41:17No, Steve. No, no. I think You've got it correct. I mean, you see the fluctuations to your point on the classified. I think that's Just a normal or the typical fluctuations that we see. Speaker 200:41:34So no, David, we've not heard or seen anything like that just yet. Speaker 100:41:40And generally, as the I'm sorry, I was just going to add that we have the slide in the deck On the loan portfolio maturity and we have a relatively Low percentage of loans that mature over the next several quarters. Speaker 500:42:03Right. So the ones that and granted, it's a very small number, but the ones that are seeing maturities, you're not seeing those borrowers kind of Struggle or refinance to another lender? Speaker 100:42:16No. We're frankly, we're seeing them take Cash out of their accounts and paying us off or paying us down. On top of it, We're having we have very proactive portfolio management. So we're reaching out to those clients 9, 6 months before maturity talking to them about what their plans are And how we're looking at the world. So I think it's part of that proactive portfolio management That we benefit from as well. Speaker 100:43:09Operator, is there anyone else in the queue? Well, thank you all. We appreciate you joining us today and that concludes today's call.Read morePowered by