Q2 2022 Banc of California Inc Earnings Call
Hello, and welcome to Banc of California's second quarter earnings Conference call.
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Today's presentation will also include non-GAAP measures. The reconciliation for these and additional required information is available in the earnings press release, which is available on the company's Investor Relations website.
The reference presentation is also available on the company's Investor Relations website.
Before we begin we would like to direct everyone to the company's Safe Harbor statement on forward looking statements included in both the earnings release and the earnings presentation.
I would like to now turn the conference call over to Mr. Jared Wolff Banc of California's President and Chief Executive Officer. Please go ahead.
Good morning, and welcome to Banc of California's second quarter earnings call.
Joining me on today's call is Lynn Hopkins, our Chief Financial Officer, who will talk in more detail about our quarterly results.
Our performance in the second quarter was highlighted by a 7% increase in adjusted pretax pre provision income and a 10 basis point increase in adjusted pretax pre provision return on average assets.
The quarter was a good representation of the strong commercial banking franchise that we've built over the past three years.
25% annualized commercial loan growth, excluding warehouse in PPP loans funded with a low cost deposit base.
Disciplined expense control.
And solid asset quality, and our conservatively underwritten well secured loan portfolio.
We are proud of our continued sequential growth in earnings per share excluding the legal settlement that positively impacted our results in the prior quarter.
Our tangible book value per share also remained flat despite an increase in negative OCI and the repurchase of $38 9 million of our common stock during the quarter, which represented approximately three 5% of our outstanding shares.
There is uncertainty in the operating environment due to the macro headwinds of inflation higher interest rates supply chain disruption and labor shortages.
Nevertheless, the economy in southern California, and the other California markets, where we operate continues to show resilience.
We are also benefiting from our focus on loan verticals, which aren't supply chain dependent and were inflationary pressures don't impact demand for services as much as another industries.
While we remain selective the commercial real estate market continues to be active and we continue to see quality lending opportunities. We do expect some moderation in activity. However from the most recent increase in rates as buyers and sellers adjust to the economic impact.
With the highly productive banking teams we have built.
We are effectively capitalizing on the economic strength in loan demand seen in our markets to add new clients and expand existing relationships.
This resulted in 1.2 billion in loan fundings during the second quarter, which was our highest level of fundings since I joined the bank in 2019.
Importantly, we continue to drive growth in our targeted areas of the portfolio, most notably commercial loans, excluding warehouse commercial real estate loans and multifamily loans, all of which increased at double digit annualized rates during the second quarter.
In addition, we continue to make key hires in new vertical that we believe will enhance franchise value and earnings such as the payments space that will touch on more towards the end of our prepared remarks.
We are pleased that Jack deep soda has joined us as EVP and Chief payments Officer, which we announced in a press release earlier this month.
During the second quarter, a drop in the demand for refinancings reduced our warehouse line utilization, which we were able to partially offset with purchases of high quality <unk> loans through relationships with our warehouse clients.
This helped us to mitigate the impact of the decline in warehouse balances on our overall loan growth.
As we previously indicated.
We expected our other portfolios to grow and warehouse to become a relatively smaller portion of our portfolio.
While not affecting our earnings and growth.
This quarter reflected that balance as we expanded earnings even as our warehouse balances decline.
A portion of our loan fundings in the second quarter were loans that were priced prior to the recent rate increases. So we have not yet seen the full impact of higher rates on our average loan yields or the benefit to our net interest margin.
Our loan pipeline remains strong and relatively consistent with the level. We saw at the end of the first quarter, while being at higher average rates than the production we had in the second quarter.
On the liability side.
Since the increase in rates the behavior of our depositors has generally been in line with our expectations.
Institutional clients, which usually are the first to move have asked to receive some contribution for increase in rates well some commercial depositors, who have built up balances in their operating accounts over the past couple of years have shifted some of those funds into interest bearing accounts.
Lower warehouse line utilization drove corresponding lower noninterest bearing deposit balances, but we offset some of this impact with our continued success in developing new deposit relationships and this helped to keep our average balance of noninterest bearing deposits consistent with the prior quarter.
Our total deposit costs increased during the second quarter consistent with our expectations, but the overall asset sensitivity of our balance sheet resulted in an increase in our net interest margin.
Even with most of the second quarter loan production not reflecting the higher rates that we now see in our loan pipeline.
Year to date, our balance sheet growth and strong cost controls are driving higher earnings and increased returns, while we continue to effectively manage risk and demonstrated our ability to execute and deliver in a variety of economic and interest rate environments.
Now I'll hand, it over to Lynn, who will provide more color on our financial performance and then I'll have some closing remarks before opening up the line for questions.
Lynn.
Thanks Jared.
First as mentioned please refer to our investor deck, which can be found on our investor Relations website.
Our second quarter performance.
I'll start by reviewing some of the highlights of our income statement and then we'll move onto our balance sheet trends.
Otherwise indicated all prior period comparisons are with the first quarter of 2022.
Our earnings release provides a great deal of information so I'll limit my comments to some of the areas where additional discussion is warranted.
Net income available to common stockholders for the second quarter was $26 7 million or 43 cents per diluted share.
When the first quarter legal recovery in preferred stock redemption charge are excluded I believe.
Earnings per share increased by three cents in the second quarter Alright.
Our adjusted diluted earnings per share until the 45 cents for the second quarter, when indemnified legal costs and net losses on investments in alternative energy partnerships are excluded.
Our net interest margin increased seven basis points to 3.58% during the quarter as our overall, earning asset yield increased by 17 basis points and our total cost of funds increased by 10 basis points.
Our interest, earning asset yield increased to 4.04% due to higher yields on both loans and securities during the second quarter.
Average loan yield increased nine basis points to 4.35% due primarily to higher average yields in our warehouse in S F. Our portfolios and the impact of higher market interest rates.
The average yield on securities increased 39 basis points to 268% due mostly to the CLO portfolio resetting with the interest rate increase that occurred in March.
The CLO portfolio resets during the first month of each quarter. So the 50 and 75 basis point increases in the federal funds rate that occurred in May and June have not yet impacted the yield on this portfolio.
Our average cost of funds increased 10 basis points to 49 basis points due mostly to our average cost of total deposits increasing by nine basis points to 17 basis points for the second quarter.
The increase in our average cost of deposits was primarily driven by rate increases in our money market and interest bearing checking accounts as well as the addition of some C. DS to help fund our strong loan production.
As part of our interest rate management strategy, we elected to lock in some longer term funding ahead of further increases in interest rates that are expected.
Our noninterest income increased by approximately 1 million from the prior quarter, which was attributable mostly to higher income from equity investments of $2 $1 million and an increase in our customer service fees compared to the prior quarter consistent with the growth in our client base.
This was partially offset by the first quarter, including a $771000 gain on the sale of a branch building.
There were no similar items in the second quarter.
In addition, the second quarter included 455000, and fair value write downs on loans held for sale.
Loans held for sale totaled $4 million and are included in other assets.
Our adjusted noninterest expense increased 570000 from the prior quarter with the largest contributor being higher professional fees, a portion of which related to the development of our payments business.
Also during the second quarter, we consolidated one branch as we continue to look at cost savings opportunities throughout the organization to help offset our investment in new banking talent and technology to support our future growth.
The effective tax rate for the second quarter was 27, 6% relatively consistent with the prior quarter and we continue to estimate our annual effective tax rate for 2022 at approximately 28%.
Turning to our balance sheet, our total assets decreased by $81.4 million in the second quarter to $9 5 billion and total equity decreased by $29 9 million.
The decrease in total equity was due mainly to higher net unrealized losses in the investment portfolio and capital actions, partially offset by our net earnings for the quarter.
Our capital actions included our common stock dividend and the repurchase of $39 million in common stock under the program, we announced in the first quarter of 2022.
At June 30, our tangible book value per common share was <unk> 14 O five.
Consistent with the end of the first quarter the.
The change in OCI, resulting from higher unrealized losses in the investment portfolio reduced our tangible book value per common share by 25 cents.
Our gross loans were essentially unchanged from the end of the first quarter as growth in C&I CRE multifamily and S. F. Our portfolios was offset by the decline in warehouse and the continued forgiveness of P. P. P loans.
Deposits increased 79 million during the quarter, primarily due to the continued inflows from new commercial relationships and the Cds that were added to support our strong loan production.
Our credit quality remains strong in the second quarter with nonperforming loans decreasing $10 1 million to $44 4 million at the end of the second quarter.
A little more than half of the decrease was the result of loans returning to accrual status.
With the rest attributable to payoffs paydowns and charge offs.
At June 30, 41% of nonperforming loans were either any current payment status, but were classified nonperforming for other reasons or SBA loans guaranteed through the seven day program.
We did not record a provision for credit losses in the second quarter, given the flat loan balances net recoveries and general improvement in asset quality.
Our allowance for credit losses at the end of the second quarter totaled $99 7 million and our allowance to total loans coverage ratio stood at 1.34%, which is a bit higher than the end of the prior quarter.
Excluding our P. P P loans and warehouse loans, both of which have lower relative risk levels in our reserve methodology.
The ACL coverage ratio stood at 1.54% at June 30.
Our ACL to nonperforming loan ratio remained healthy at 224%.
This time I'll turn the presentation back over to Jared.
Thank you Lynn.
I'll wrap up with a few comments about our outlook.
Through the first half of the year, we've executed well and generated the profitable growth that we're targeting.
We see many catalysts that should drive further increases in earnings per share.
Our loan pipeline remains strong.
And while higher rates may start to impact real estate loan demand in C&I loan demand to date, we have not seen any meaningful change.
Our deposit pipeline also remains strong.
Each will enable us to continue to fund our loan growth with low cost deposits.
Starting in the third quarter, we expect our new loan production to start to reflect the current rate environment.
Support further expansion of our net interest margin.
And we are effectively managing expenses, which should enable us to continue to expand operating leverage as we grow the balance sheet and generate higher revenue.
We've been able to manage our expense base, while also reinvesting strategically to support our continued growth.
Both in terms of new banking talent that we continue to add and the development of innovative products and services, most notably toward our payments business.
We are very pleased with the progress we have made in building. The foundation of what we believe will be a differentiated offering that reflects our forward thinking approach to technology.
We expect our payment solutions will provide a value added solutions for our clients.
Solidifying further their relationship with the bank, while also providing a meaningful source of fee income and improving our ability to attract new commercial relationships.
Core to our strategy is also the focus on continuing to grow our low cost deposit base.
I'm thrilled that Jag deep soda joined banc of California to lead our payments initiatives as well as Kelly Figaroa, who brings deep experience on the risk side of payments.
We look forward to providing more details on our payments initiatives as we begin to offer additional solutions to our clients in the coming months.
Although the operating environment over the rest of the year remains uncertain. We believe we are very well positioned to continue performing well.
We've built a relationship oriented commercial banking franchise that can deliver solid growth, while also effectively managing credit and interest rate risk.
If economic conditions and loan demand remained strong in our California markets. Then we would expect to participate in that growth be our loan and deposit portfolios.
If economic conditions deteriorate, then we continue to have the same characteristics that enabled us to effectively manage through the depths of the pandemic.
Most notably a conservatively underwritten loan portfolio with more than 64% of our loan secured by residential real estate and one of the strongest housing markets in the country.
As we navigate through the current environment, we believe that the franchise. We have built will enable us to continue to generate strong results for our shareholders.
I want to thank all of our colleagues at Banc of California for their contributions and dedication, which helped us to deliver a very solid quarter and continued to position us well to further enhance the value of our franchise going forward.
With that operator, let's go ahead now and open up the line for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
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To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And our first question will come from Timur Brasilia of Wells Fargo. Please go ahead.
Hi, good morning.
Good morning.
And then maybe just starting on the loan portfolio loan outlook.
I guess for warehouse is this a good level going forward do you foresee any incremental pressure out of that portfolio and then just your appetite to continue purchasing.
<unk> loans from your partners within there.
Thanks, sure well first of all.
You know on our overall loan portfolio and growth for the quarter. We were very pleased we saw very balanced growth across and diversified growth across all of our all of our lines outside of warehouse.
And so we do see that continuing for now our pipelines are strong in.
On a quarter over quarter basis. It was just it was just very robust.
I am sure what the impact will be of rising rates, but we have not seen changes in behavior. Yet I think there was probably a little bit of a feast.
Head of rising rates for people to kind of get loans done and we saw a little bit of an uptick in multifamily I think for that reason, but that doesn't mean that loans are going to drop off a cliff.
Going forward and we don't see that.
As it relates to warehouse.
It's hard to know I mean originations right now are obviously down.
We see a lot of stability in the portfolio and our teams are working very well.
We probably will moderate our S F. Our purchases down the road eventually.
But as we keep the balance was relatively stable, but for now it seems it seems fine.
I don't know what the.
What the outlook will be for warehouse from a from an asset perspective in terms of the overall balances, but we see our loan portfolio growing overall.
And I just would expect that the contribution from warehouse would be less than what it has been in the past and that's that's what we said, we said that we would be able to grow through.
Warehouse it would become a smaller portion of our balance sheet.
And it wouldn't disrupt our earnings growth.
Okay. That's helpful and then.
I appreciate the color.
One other thing tumor before it before I before I.
I got to mention is just that you know our production yield.
On our on our new loans was pretty high I mean, we got a 50 basis point bump.
And yields on new loans, and so I expect that to kind of continue in a warehouse rates have moved up as well so even if the even if the averages are lower there is.
Theres a big contribution of rate that has gone up so that's going to help as well.
That's perfectly dovetails into my next question on what were the origination yields in the second quarter and as you look at the pipeline.
What are the pipeline yields look like today.
Yeah.
Lynn helped me out here, but I have our production yields overall.
50 basis points higher than the first quarter.
And you know one of the things that happens is there's a there's a tail effect right because we've committed to making loans in this environment.
That's likely to raise rates next week.
And so then there'll be a whole new series of loans that probably get done in the late third quarter early fourth quarter that will reflect those rates. So right now the loans are getting booked are reflecting the current rate environment and maybe a little bit of a tail from the prior rate environment for for stuff, that's kind of just finishing up.
Lynn do you have other data to sure yeah, no I agree for the rate on production in the second quarter I was able to step up 50 basis points as we I think moved through and anticipated the rising rate environment.
And.
The pricing up for the production actually in the second quarter, we should get the benefit in the in the third quarter and then I think with respect to the pipeline and I don't know that we're commenting specifically, but you know we are participating in the higher rate environment and there is an expectation that.
Our rate on production would continue to move upward.
Yeah.
Where I think I was going back through some notes from the first quarter and end at the end of the first quarter. We we obviously had a very large jump in our margin in Q1, and we did say that we didn't expect to see that that big a jump in Q2.
Did still expand our margin and I would expect our margin to continue to move up I hard to know at what level.
Since we don't manage to a margin and we're kind of managing to profitability and continuing to grow earnings.
But so.
So we but we do expect our loan yield to keep moving up.
Okay, and then if I just could ask one more question on the funding base.
First couple of quarters with the new and improved funding base under your belt happier to see that results are falling in line with your broader expectations.
As youre thinking about funding future loan growth.
How should we think about that I mean, you're you're under indexed.
Is that going to be a larger component of the overall funding story.
Or is there something else that you think there's going to be driving kind of.
Core either noninterest bearing savings other types of funding mechanisms.
Well, we have a lot of tools at our disposal.
And we did mention in our comments that we decided to lock in some fixed rate funding ahead of rising rates, which we've done selectively over time. We are you know we don't have a lot of Cds at all.
I'd say that my preference is to prioritize you know obviously, our priority is on operating accounts with businesses.
And thats checking accounts and low cost checking and in noninterest bearing checking and we work hard at that every single day and we continue to I, probably would prefer to have Cds over money markets and so I would I would expect to see our CD balances grow whether their broker or not.
Just to lock in funding in and do a little bit of match funding for some of the.
The loans that we that we put on were probably a little bit hot right now in terms of our loan to deposit ratio I would like to be lower I. Just think we wanted to bring the earnings for it and we had plenty of flexibility on the <unk>.
On the deposit and liquidity side.
I can see us kind of tempering that with some longer term funding if we need to learn anything.
<unk> do you agree with that.
And no. We don't have people know we don't we don't strip. These comments so when might disagree with.
And now I and I agree with that and how you prioritize that as well are in our noninterest bearing deposits, we were able to average 38% during the quarter, which I think supported our net interest margin and we do focus on that and expect that to continue to have.
<unk> success and participate I do think we have a lot of flexibility on the funding side. Our wholesale funding ratio is fairly low and yeah. There's some good opportunities out there should we need to fund strong loan growth and then again preference maybe over some Cds over money Mart.
<unk>.
But there's a opportunity there there's still a lot of liquidity in the marketplace.
Got it thank you for the color.
Thanks Timur.
The next question comes from David Feaster of Raymond James. Please go ahead.
Hey, good morning, everybody good morning.
Hey, David.
Just wanted to follow up kind of on the.
The loan growth side, you know just looking at the you know one of your slides at payoffs and Paydowns just seem to be offsetting.
To offset your acceleration and the fundings, but if I think about the outlook kind of taken a lot of your commentary together, even if we do see it.
Somewhat of a slowdown in and maybe that there was a pull forward into the multifamily is slowdown in CRE. It still feels like your core commercial loan growth outlook is I mean, we should still see pretty solid growth in the back half of the year and into 'twenty three is that.
Fair.
Yes.
I mean is how would you characterize it like when we look at your pipeline, where do you see the drivers I know you guys have invested a lot in CRE and some are excuse me CNI and somebody in the new niches I guess, if if we are if I had to you know.
Get some expectations on where you're seeing the most opportunities where are you seeing what segments did you are you expecting to drive your growth.
Well I'd say, it's pretty broad based and diversified as it was this quarter I mean, our core C&I business, which excludes warehouses is going very very well that's owner occupied real estate. It's it's health care It's entertainment.
We're doing obviously, we've expanded that that group and our team is doing very well. These are things that are not affected by supply chains, there, they're not as much affected by labor.
And you know if they have less inflationary pressure and it seem to be doing very very well and so there's a lot of a lot of opportunity in those and then on the CRE business.
We're not in office lender, but we're lending on bridge bridge real estate for generally it's for multifamily that has being rehabbed in our markets and buildings that are being.
Being fixed up and improved for housing and that business is going very very well on them and then we saw an uptick in construction construction balances were drawing a little bit we're very selective on construction, we're only lending to very deep pocketed developers.
Tight infill markets with good projects and that's working well as well so it's been pretty broad based.
Okay, that's great and maybe just at a high level on overall asset quality I'd just be curious your high level thoughts obviously, the economic outlooks increasingly uncertain, but you know as we look at the credit outlook from your perspective, I mean, where are there any segments that you may be a bit more cautious on you touched on on construct.
And being selective there.
Is there I know you guys always have tight underwriting standards, but is there any segments that you might be tightening standards on and just is it you know.
Overall.
Our appetite for credit here, just given the economic environment.
So.
Of course, we feel like we're always.
We're always strict we're always.
Well controlled and our underwriting.
Made this comment last time and I still believe it's true that but to the extent that there are businesses that I'd be more concerned about right now.
It would be businesses that are in the manufacturing and distribution space, where they have you know the trifecta of problems with supply chain challenges.
Higher interest rates, and then labor seems to be a continuing challenge for for those sorts of businesses and so look at what happened to Tesla in terms of their manufacturing issues that drew down their quarter and I think that that's just a that's representative of what's going on in those businesses to the extent that were in traditional core C&I like that.
I I think we would rely on our ABL to make sure that it's kind of lending against.
Good receivables and things like that unless against inventory.
So we're.
Being cautious but.
Fundamentally David I don't see a major change in our behavior because that's the way that we've been anyway, we don't have a large base of installed base of manufacturing and distribution.
Growing clients.
And we haven't seen a lot of demand in terms of what we focus on that's not to say we don't have any we just don't have a huge installed base of them.
Okay that makes all the sense in the world.
And then just you know you've had a lot of success, attracting new talent over the past year year, and a half or so called it a talent magnet.
Just curious how hirings trended of late whether you're still having as much success and maybe just your appetite for new hires obviously.
Increasingly competitive and cost of new hires is expensive just curious.
Your thoughts on the hiring side.
I think the market has actually gotten a little bit easier.
For some reason we haven't had a problem attracting talent and we haven't had a turnover problem either so we've been growing.
And we've been growing selectively in key areas.
The two people that we announced.
This quarter, where two of many talented people that we brought to the bank.
I think this is becoming a place that.
That people want to be and they want to work around other talented people and we have great benefits and a great culture and we have an event this afternoon.
Focused on senior women and I think in California, and our women in leadership and just a lot of great things are going on here. So.
It just hasn't it just hasn't been an issue.
Great.
Thanks, everybody.
Thanks, David.
The next question comes from Matthew Clark of Piper Sandler. Please go ahead every line of business.
Hey, good morning.
Morning, Matthew.
And he learned maybe any update on your run rate guide for expenses.
Relative to what you provided last time.
Okay.
Oh, no I'm not I don't think I don't know that there's really any update.
I think that we've kind of talked about I think 45 to 47 and a half I'm kind of I think what we've been chatting about I think in the current quarter. We did have some uptick in some of our professional service fees.
I think as we're investing in some of our corporate initiatives. So I think might even expect those to come down a little bit so kind of at the higher end of the range, but I think that's more of a reflection of us investing in ourselves and are still being able to.
Grow earnings at the same time, so I think we're still on track.
Okay, Great and then maybe.
Jerry just maybe speak to the payments opportunity can you just maybe.
Size up the revenue opportunity that you have a line of line of sight on and the related expense needs just trying to get a sense for the magnitude that we could see next year from a revenue and expense perspective, and how quickly it could become profitable.
Matthew I I I know why you're asking and I. Appreciate you asking we're just not prepared to give those numbers yet I think when we will have a later announcement with <unk>.
More detail hopefully around that and to give people more clarity so sorry for not trying to be opaque we just.
I wanted to make that announcement and in the kind of a different context.
Yeah.
Did we lose you Matthew.
Slower March prepared remarks, Matthew <unk>.
Yeah. Thank you sorry, Jackie just go into Q&A right now.
Oh, sorry to hear that okay, I know I know.
As it is right now.
Yeah, well look I think.
The business is going to be important to us this quarter, we showed really strong core.
Just just franchise metrics and we obviously continue to grow our topline and creating operating leverage in <unk>.
We're not we're not.
Taking our eye off the ball of our core franchise, which is very strong.
And we've just had consistent stable fundamentals for for several quarters in a row I mean going back I don't know a year and a half now I mean, it's been it's been fantastic and in a variety of different environments. We do believe however that what we're building.
On the payment side will be a real differentiator, we obviously have the talent.
That people can read about are here to support it and when we roll out and announce exactly how we're going to compete.
Compete in that space I think it'll be evident how differentiated it is but it's not to take the ball eye off the ball of our core franchising and what we've been doing here, which has been just I'm really proud of our team how stable and strong it's been.
Okay, great. Thanks.
Thank you.
The next question comes from Kelly Motta of <unk>. Please go ahead.
Hi, Thanks for the question I saw that you were really active with the buyback last quarter and continued to be active active quarter to date I'm. Just wondering wondering about your appetite there, particularly as.
Maybe top line loan growth may be slowing with warehouse, becoming a smaller part for now.
Yes, I think we've used up almost two thirds of what we've announced from a buyback perspective.
Lynn.
How do you see that playing out.
Yeah no. Thanks for the question Kelly you know I think yeah, we've taken down about two thirds of that I think we viewed our stock is a good opportunity based on where it's been priced relative to the market and our tangible.
Book value you know I think we've.
Done a great job of being able to keep it relatively flat despite a pretty volatile market place them between our capital action and I think just you know modest loss and a OCI in the quarter offset by earnings. So I think we'll look at the opportunity for what's left off.
On the stock buyback and compare it against other opportunities. So well, we will take a look at it but I don't know that it's necessarily driven off of them kind of loan growth next quarter I think there's other things that we can evaluate.
Awesome. Thank you. Thank you Lynne.
And then turning to the deposit base you add.
About $130 million of runoff of noninterest bearing them do you have a sense of how much of that migrated to some other higher cost categories and is that.
Do you expect a similar amount of deposit outflows or migration.
This quarter with rates.
Expectations, where they are.
Thanks, Thanks Kelly.
I don't I don't think we're going to expect that you know we should see the same level of outflow the outflow that we saw.
And then B was.
It was pretty discrete there were a couple of things going on one we've got a client that got acquired we had some associated with warehouse that balances were down and then the other was just you know.
General balances I mean, I think from what I've read a lot of banks have been down on the deposit side and I think.
We held up pretty well.
Right now I'm seeing actually inflow of noninterest bearing.
And I actually you know from it from a pure account perspective, we actually grew our accounts and relationships last quarter.
Pretty meaningfully I, just don't know if we give out that specific data, but I have data about the number of new relationships, we brought to the bank and.
And so average balances I think were just down a little bit plus the factors that I mentioned.
But I expect it to continue to grow and while we can't control it completely I'm pleased that in a quarter, where it looked like a lot was down our average niv stayed flat and hopefully will grow from here on out I know how much work, we're putting on it.
Awesome. Thanks, Thanks for the color last question from me.
There was another bank that saw some deterioration from a credit perspective on their mortgage warehouse.
I know, it's generally been a very safe category just wondering if he is.
You've seen that at all with your relationships.
So.
We absolutely have seen some mortgage warehouse borrowers.
Oh.
But the way that we're set up and designed we don't have any exposure. We don't believe we have any exposure for ourselves and it's been it's been something that we've been able to manage through that.
I think the the business overall went through a pretty quick disruption with the change in rates.
We think are the ones that we work with are.
Well controlled and well managed and we have visibility into how the lines and how the.
The loans are moving off the lines, we look at <unk>, we look at loans that might've been originated at lower rates, how they could be moved most of our borrowers if not.
Say, the vast majority of our borrowers hedge their loans, either directly or with Ford Takeouts, and so that protects and insulates them from.
Some of the volatility in the market and then the ones that don't we look at very very carefully. So we don't see any exposure for us, but that doesn't mean that some of.
The underlying borrowers might their businesses my shrink or even move out.
Thanks, that's helpful. I'll step back thanks, a lot for the time appreciate it.
Of course, thank you Kelly.
The next question comes from Gary Tenner of D. A Davidson. Please go ahead.
Thanks, Good morning.
Gary.
Hey, so taking my questions.
<unk> payments announcements and expenses were asked but just as it relates to the payments side I don't know youre not going into detail here at all but.
Is there a deposit play.
As part of that business or is it do you view it.
Exclusively as a fee opportunity.
Thank you for the question.
We view the deposit opportunity is as is very significant and that's one of the reasons that we're pursuing this what we're focused on is designing solutions for clients.
They can have payments being embedded part of their financial services ecosystem. As we've said we want to be the hub of that financial services ecosystem and provide solutions that help clients. We see this both as a ability for us to attract new clients.
As well as a way to provide additional services to existing clients.
The income will be a benefit it will be a benefit that we get.
And we think there is a substantial opportunity there, but the deposits are equally as large and when you can marry payments.
And merchant processing together with a bank account.
You all of a sudden half things that clients don't have today like real time visibility into into.
Into their into their into their payments.
And you think about businesses, where they might accept payments via credit card most of those businesses don't see their payments in real time, they have to wait several days.
If their bank is tied to how they see those payments they might be able to have real time visibility. So we think all of those things make for a pretty attractive opportunity on the deposit side and obviously, that's a tidbit of things, we're working on but theres more to come.
I appreciate the color and then just in terms of the brokered money that was added during the quarter or is that a 12 month.
Is money win or is it watered out further than that.
I think it's a little bit further than that and then the average maybe around 12 months I think there are some short term and then a little bit to your money in there.
Alright, thank you.
Thanks, Gary.
This concludes our question and answer session. The conference has now also concluded. Thank you for attending today's presentation and you may now disconnect.
Okay.
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