Q4 2023 Pacific Premier Bancorp Inc Earnings Call
Good morning, and welcome to the Pacific Premier Bancorp fourth quarter 2023 conference call.
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I would now like to turn the conference over to Steve Gardner Chairman and CEO. Please go ahead.
Steven R. Gardner: Thank you Gary and good morning, everyone. I appreciate you joining us today.
Steven R. Gardner: As you're all aware, we released our earnings report for the fourth quarter of 2023 earlier this morning.
Steven R. Gardner: We have also published an updated investor presentation with additional information and disclosures on our financial results.
Steven R. Gardner: If you've not done so already we encourage you to visit our Investor relations website to download a copy of the presentation and related materials.
Steven R. Gardner: I note that our earnings release and Investor presentation include a safe Harbor statement relative to the forward looking comments I encourage each of you to carefully read that statement.
Steven R. Gardner: On today's call I'll walk through some of the notable items related to our fourth quarter performance Ron Nicolas Our CFO will also review a few of the details surrounding our financial results and then we'll open up the call to questions.
Steven R. Gardner: Our team delivered another solid quarter to close out 2023, which was an extraordinary year for the banking industry.
Steven R. Gardner: Rapidly rising interest rates high profile bank failures in rapid succession.
Steven R. Gardner: And heightened regulatory expectations brought challenging dynamics to the market.
Steven R. Gardner: Throughout it all we maintained our focus on prudent and proactive capital liquidity and credit risk management.
Steven R. Gardner: We have built our organization to be dynamic and adaptable to various operating environments. This served us and our stakeholders extremely well in 2023.
Steven R. Gardner: For example, our bankers responded quickly to the industry challenges throughout the year collaborating across business lines to meet clients' needs and to reinforce the strength of our franchise.
Steven R. Gardner: This responsive deaths and engagement deepened existing relationships and led to new business development opportunities for our teams.
Steven R. Gardner: During the fourth quarter, we leveraged the strength of our balance sheet and strong capital levels to proactively reposition our securities portfolio.
Steven R. Gardner: This transaction enhanced our future earnings profile provided additional liquidity and is reflective of the Optionality, we have created within the franchise.
Steven R. Gardner: The securities repositioning produced immediate results expanding our net interest margin by 16 basis points.
I'd like to highlight a few key areas as many of the trends were similar to what we observed in the third quarter.
Steven R. Gardner: Although we reported a quarterly net loss of $1 44 per share excluding the one time effects of the FDIC special assessment and our securities portfolio repositioning our operating earnings per share was 51 cents.
Steven R. Gardner: We saw some nice lift from our fee based businesses as well as a reduction in noninterest expense compared to the third quarter, excluding the FDIC special assessment.
Steven R. Gardner: Our commitment to capital accumulation in the current environment continues to drive our strong capital ratios, which remain top tier among our peers.
Steven R. Gardner: Even after layering in the impact of the loss on the securities portfolio sale.
Steven R. Gardner: In the fourth quarter, our TCE ratio increased 85 basis points to 10.72%.
Steven R. Gardner: And our tangible book value per share increased 33 cents to $20.22.
Steven R. Gardner: Our CET one ratio came in at 14.32% and our total risk based capital ratio was a healthy 17.29%.
Steven R. Gardner: Our ability to deepen our relationships with existing customers and attract new clients to the bank generated meaningful growth in new deposit account openings, while maintaining pricing discipline.
Steven R. Gardner: The new account opening activity, coupled with our ability to opportunistically deploy liquidity generated from the security sale supported the favorable remix of the balance sheet.
Steven R. Gardner: We redeployed a portion of the proceeds from the securities portfolio into cash and U S. Treasuries, while also reducing our higher cost broker deposits by $617 million and prepaying $200 million of FH L. B term advances.
Steven R. Gardner: Our available liquidity at the end of the fourth quarter totaled approximately $9.9 billion.
Steven R. Gardner: We did see some customer deposit outflows and mix shift during the fourth quarter, which included seasonal outflows related to business tax payments nuts.
Not surprisingly some clients continue to pursue higher yielding nonbank alternatives.
Steven R. Gardner: Ultimately, we saw non maturity deposits increased to 84, 7% of total deposits.
Steven R. Gardner: Our constant our constant emphasis on cultivating a high quality client relationships and disciplined deposit pricing resulted in a well controlled cost of non maturity deposits of 102 basis points.
Steven R. Gardner: On the asset side of the balance sheet, we saw slight growth in our overall loan portfolio balances due to increased line utilization from commercial borrowers.
Steven R. Gardner: [noise] prepayment activity was similar to the third quarter as business and commercial real estate clients continue to deploy excess cash reserves to pay down debt.
Steven R. Gardner: Our bankers remain focused on generating high quality relationships that meet our risk adjusted return requirements.
Steven R. Gardner: As always we are proactive in terms of portfolio management and credit monitoring.
Steven R. Gardner: We have ongoing communication with our clients relative to market trends in their businesses and industries.
Steven R. Gardner: These updates on our clients' financial performance liquidity and collateral values inform our approach to managing individual credits.
Steven R. Gardner: Our year end asset quality metrics remained solid as delinquencies were 0.08% of total loans and nonperforming assets were 0.13% of total assets.
Steven R. Gardner: We are closely monitoring the trends in commercial real estate markets and proactively identifying and managing potentially weaker credits.
Steven R. Gardner: Overall, our loan portfolio is well managed and all facets across the organization.
Steven R. Gardner: With that I will turn the call over to Ron to provide a few more details on our fourth quarter financial results.
Ronald J. Nicolas: Thanks, Steve and good morning.
Ronald J. Nicolas: For comparison purposes. My comments today are on a linked quarter basis, unless otherwise noted.
Ronald J. Nicolas: Let's begin with the quarter's results.
Ronald J. Nicolas: For the fourth quarter, we recorded a net loss of $135 $4 million or $1 44 per share.
Our reported results included the impact from two nonrecurring items.
Ronald J. Nicolas: The 1.2 dollars 6 billion AFM security sale that add a net after tax loss of $182 $3 million.
And $2 1 million of additional noninterest expense due to the special FDIC assessment.
Ronald J. Nicolas: Excluding these two items.
Ronald J. Nicolas: Our operating results were net income of $48 $4 million or <unk> 51 per diluted share.
Ronald J. Nicolas: Which yielded a return on average assets a point, 99% and a return on average tangible common equity of 11, one 9%.
Ronald J. Nicolas: Our operating efficiency ratio came in at 58, 8% and our adjusted pre provision net revenue as a percentage of average assets was 1.34% for the quarter.
Please refer to our non-GAAP reconciliation in our Investor presentation and earnings release for more details.
Ronald J. Nicolas: Taking a closer look at the income statement.
Ronald J. Nicolas: Net interest income of $146 $8 million was negatively impacted by lower average, earning asset levels parse.
Partially offset by a favorable mix shift toward higher yielding earning assets as a result of the securities repositioning and the reduction of higher cost wholesale funding sources.
Ronald J. Nicolas: Our actions led.
Ronald J. Nicolas: To 16 basis points of net interest margin expansion to 3.28%.
Due to an increase of 38 basis points on the investment securities for the quarter as well as eight basis points of higher loan yields.
Ronald J. Nicolas: On a spot basis, excluding fees and discounts the weighted average rate on our loan portfolio increased 11 basis points to 4.87%.
Ronald J. Nicolas: Reflecting higher lines of credit draws for the quarter.
Ronald J. Nicolas: Overall cost of funds was up only two basis points to 169%.
Ronald J. Nicolas: Reflecting the favorable mix change from paying down higher cost wholesale funding.
And our non maturity deposits increased to 84, 7% of total deposits.
Ronald J. Nicolas: While cost.
Ronald J. Nicolas: Were well controlled at 1.0% to 2% with our cumulative total deposit beta of 29% illustrating our disciplined pricing actions throughout this rate cycle.
Notably our spot deposit cost for 1.55% and ended the quarter one basis point lower than the average total deposit costs for the quarter of 1.56%.
Ronald J. Nicolas: For the first quarter, we expect further balance sheet optimization through a combination of lower cash levels Andrew.
Ronald J. Nicolas: And a reduction in higher cost wholesale funding name.
Namely, we expect both broker deposits and <unk> advances to trend lower from year end levels. We believe the combination of these items will help partially mitigate net interest margin pressures in the first quarter.
Ronald J. Nicolas: Our core fee based businesses had a solid quarter excluding.
Ronald J. Nicolas: Excluding the security sale loss of 245 $54 $1 million.
Ronald J. Nicolas: Our noninterest income came in at $19 $9 million.
Our fundamental fee income trends were favorable as trust income came in at $9 $4 million in escrow and exchange fee income at $1 1 million, both up slightly over the prior quarter.
Ronald J. Nicolas: For the first quarter of 2024.
Ronald J. Nicolas: We expect our total noninterest income to be in the range of $20 million to $21 million with the benefit of P. P. Ts annual tax fees.
Ronald J. Nicolas: Yes.
Ronald J. Nicolas: Noninterest expense increased slightly to $102.8 million.
Ronald J. Nicolas: Compensations compensation and benefits expense decreased to $2 $2 million, reflecting the benefit from.
Ronald J. Nicolas: From the staff realignment across certain business lines during the quarter.
Ronald J. Nicolas: Yeah.
Ronald J. Nicolas: From a staffing perspective, we ended the quarter with headcount of <unk> hundred 45, compared to $13 55 as of September 30th.
Ronald J. Nicolas: As our staffing levels continue to track with the overall size of the balance sheet.
We remain focused on tightly managing our operating expenses and we expect first quarter expenses in the range of $102 million to $103 million with the anticipated higher first quarter payroll taxes.
Ronald J. Nicolas: Our provision for credit losses of $1 $7 million decreased from the prior quarter.
Ronald J. Nicolas: As our ACL coverage ratio increased three basis points to 1.45% consistent with the fourth quarter's loan composition.
Ronald J. Nicolas: Level of new loan commitment activity and our economic outlook.
Ronald J. Nicolas: Turning now to the balance sheet.
Ronald J. Nicolas: We finished the quarter at $19 billion in total assets with loans flat to the prior quarter.
Ronald J. Nicolas: As noted lower cash and securities enabled us to pay down higher cost wholesale funding in the form of brokered Cds and <unk> term borrowings.
Total loans held for investment increased $19 million.
Ronald J. Nicolas: Driven by net draws on existing lines of credit of $355 million in new commitments of $128 million offsetting prepayments sales and maturities of $455 million.
Ronald J. Nicolas: Total deposits ended the quarter at $15 billion.
Ronald J. Nicolas: Decrease of $1 billion, driven mostly by a $617 million reduction in broker deposits.
Ronald J. Nicolas: Other deposit categories fell $395 million as we continued to see clients redeploying funds into higher yielding alternatives prepaying loans as well as the impact of fourth quarter seasonal tax related outflows.
Ronald J. Nicolas: Even with the continued mixed shift or.
Ronald J. Nicolas: Our noninterest bearing deposits remain a robust 33% of total deposits, reflecting our strong client relation chip business model.
Ronald J. Nicolas: The.
Ronald J. Nicolas: Full execution of our deposit pricing strategies is evident as our non maturity deposits ended the year at 1.0% to 4%.
Ronald J. Nicolas: Only two basis points above the quarter's average of 1.02% generating positive momentum for us heading into the first quarter.
Ronald J. Nicolas: The securities portfolio decreased $783 million to $2 $9 billion and the average yield on our investment portfolio increased 38 basis points to 3.08% par.
Ronald J. Nicolas: Partially benefiting from the purchase of $539 million of short term U S treasuries.
We stand to benefit from a full quarter of the reinvested proceeds in the first quarter is the spot rate on our securities portfolio ended the year at 3.48%.
Ronald J. Nicolas: Not surprising given the rally in the yield curve late in 2023, and <unk> and combined with the security sold our pretax accumulated other comprehensive loss on the total <unk> portfolio improved to $36 million at December 31st.
Ronald J. Nicolas: Our capital ratios remain significantly higher than the required well capitalized thresholds.
Ronald J. Nicolas: With our CET, one and tier one capital ratios at 14.32% and our total risk based capital at $17 two 9%, we continue to rank in the top tier relative to our peers.
Ronald J. Nicolas: In addition, our tangible common equity ratio now stands at a very healthy 10 point, 72% and our tangible book value per share grew 33 to $20.22.
Ronald J. Nicolas: And lastly from an asset quality standpoint.
Ronald J. Nicolas: Asset quality across all measurable has remained solid.
Ronald J. Nicolas: Nonperforming assets were flat at one 3% and total delinquency was also flat compared to the prior quarter at just eight basis points.
Ronald J. Nicolas: Our total classified loans decreased five basis points to 1.07%.
Ronald J. Nicolas: And our allowance for credit losses finished the quarter at $192 $5 million with our coverage ratio increasing to 1.45%.
Ronald J. Nicolas: Our total loss absorption, which includes the fair value discount on acquired loans.
Ended the quarter up one basis point at 1.77%.
Ronald J. Nicolas: With that I'll turn the call back over to Steve.
Steve: Great. Thanks, Ron I'll conclude with a few comments about our outlook.
Steve: We believe the actions we have taken over the past two years to purposefully moderate growth rates and priorities capital and liquidity management have positioned us well.
Steve: We were encouraged by the stabilization in the loan portfolio at year end. However, we anticipate muted loan demand and what may be a lingering higher interest rate environment.
Steve: We will continue to monitor our loan portfolio closely and we are ready to respond decisively should we see elevated stresses.
Steve: For the near term pressure on deposit costs appear to have moderated feud.
Steve: Future rate cuts if they were to materialize in 2024 would aid our ability to push funding costs down.
Steve: Capital accumulation over balance sheet growth remains a priority.
However, as you saw with the securities repositioning transaction, we are regularly evaluating the opportunities to deploy capital and optimize the balance sheet to create long term value for shareholders.
Although challenges remain thanks to the strength and expertise of the entire Pacific Premier team. Some of the most talented in the industry. We remain in a position to act quickly to take advantage of opportunities if and when they arise.
Steve: In conclusion as an industry, we will continue to face a significant amount of uncertainty in 2024 on various fronts.
Steve: That said, we are optimistic and believe we are well positioned to leverage our organizational excellence and discipline to continue to deliver long term value for our shareholders clients employees and the communities we serve.
Steve: That concludes our prepared remarks, we'd be happy to answer any questions. Gary. Please open up the call for questions.
Gary: We will now begin the question and answer session.
Gary: To ask a question you May press Star then one on your telephone keypad. If you are using a speaker phone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Gary: Our first question is from David Feaster with Raymond James. Please go ahead.
Oh, Hey, good morning, everybody.
David Feaster: Morning, David.
David Feaster: Maybe.
David Feaster: Just wanted to start on the margin outlook you guys have been incredibly active managing the balance sheet. It sounds like there's more coming in the first quarter.
David Feaster: I'm curious how you think about the margin trajectory if I hear your comments Ron It sounds like maybe you know some modest compression in the first quarter might be comment, but just curious how you think about the margin trajectory going forward, especially considering potential rate cuts given that seems like to be the expectation near term.
Speaker Change: Ron I'm happy to take it or you can.
Speaker Change: Offer up some thoughts.
Speaker Change: Sure.
David I would tell you that you.
Ronald J. Nicolas: You know here in the first quarter, we don't anticipate we're not modeling ourselves internally here any rate cuts, but I will say.
David Feaster: We will see I mean, as evidenced here in the fourth quarter, we've done a pretty pretty good job at managing our deposit costs continue to to manage the balance sheet and that's going to be pretty much. The continuation I will I will highlight though that you know of course.
David Feaster: We saw a nice yield uptick and that was driven by you know very variable rate draws on lines of credit we will see how that plays itself out here as we move through the first quarter. So those are kind of my initial thoughts there Steve.
David Feaster: Yes.
I don't know that I have much to add I think that covered it relatively well.
David Feaster: Okay.
Steve: And maybe just touching on on the look you've taken a pretty conservative standpoint for some time now right great to see an increase in loans curious do you think this marks an inflection point.
Steve: Yes.
Steve: If so what are you what are kind of some of the key drivers of what's giving you confidence here maybe.
Steve: Putting more capital to work in terms of loans, just kind of your thoughts on what you're seeing from a market dynamic and improving demand in those types of things.
Speaker Change: Sure well as I said, we at for.
Speaker Change: For the foreseeable future, we see pretty muted demand David.
Speaker Change: I think until we have better clarity and certainty.
Speaker Change: About the direction of rates.
Speaker Change: That's from from all indications that we have from all the clients that we're talking to whether it's small business or real estate investors.
Speaker Change: There remains to be a level of.
Speaker Change: Caution out there.
Speaker Change: So our expectation is muted demand.
Speaker Change: We're going to maintain our discipline on the quality of of credits and the relationships that we're bringing into the bank.
Speaker Change: But I think as you saw in the fourth quarter, we certainly benefited from some of those line draws that Ron just mentioned.
Speaker Change: The production picked up a little bit we will see how those what are those trends materialize here in the first half of the year.
Perfect and maybe last one for me nice to hear about some modest uptake in some benefits in the fee income lines I know that's been a big focus for you all just through some of the underlying from what you're seeing in mature stores and it sounds like some you know.
Speaker Change: Tax benefits there on what you're seeing in escrow side and then just on the.
Speaker Change: High level thoughts I know you guys have been investing a lot in technology curious, whether you're seeing any tangible benefits there and kind of your thoughts on on investment on that front.
Speaker Change: Sure.
Speaker Change: So there is a lot of subjects to cover their David that's all right.
Speaker Change: First as far as the trust team, we've invested pretty heavily in the trust team in and we were very pleased with the results.
Speaker Change: That they were able to put up last year in a number of different areas and I think we're finally approaching that operational excellence.
Speaker Change: That we expect and have had at the bank level for some time.
Speaker Change: And that is helping I think from the production side.
Speaker Change: With the team.
And their confidence level in speaking to clients and we have developed some great relationships with some of the largest.
Speaker Change: Wealth managers in the industry and and really as they get a better understand our capabilities and how that plays in to their business.
We've seen some some nice growth in new accounts and we expect that to continue here this year and an incremental improvement every month and every quarter.
Speaker Change: On the escrow business side.
Speaker Change: That frankly has really slowed down over the last couple of years.
Speaker Change: A reflection of much lower activity in the commercial real estate markets and transactions overall, I think that business until we get some movement in rates.
Speaker Change: And some better clarity on the commercial real estate markets more broadly.
Speaker Change: We'd expect that activity to be relatively.
Speaker Change: A relatively muted as well and then lastly from the technology side.
Speaker Change: We are always investing in the business and that's technology that's employees, we continue to improve.
Speaker Change: In those areas and I think as we move further away from some of the disruptions that occurred.
Speaker Change: In the first and second quarter.
Speaker Change: Last year end and have that stabilization.
Speaker Change: We'll be able to play a little bit more offense, and we certainly have the technology and resources there.
Speaker Change: That aid our teams throughout the throughout the organization.
Speaker Change: That's helpful. I know, it's a big question. Thank you.
Speaker Change: The next question is from Chris Mcgratty with K B W. Please go ahead.
Chris Mcgratty: Alright, great Yeah, good afternoon.
Brian maybe a question just on broader at net interest income given the actions you took in the benefit on the margin, but the smaller balance sheet.
Chris Mcgratty: Maybe your thoughts on trough of NII or if we're not there maybe one and also if we do stay in a higher for longer environment. You know, maybe how the balance sheet pro forma now react to higher for longer versus kind of the futures market, that's calling for more Pat. Thank you.
Chris Mcgratty: Yeah.
Speaker Change: You know I'll, just echo a little bit curious of what I, what I stated earlier.
Speaker Change: We did see a nice a nice expansion to 16 basis points.
Speaker Change: I wouldn't I wouldn't go far as far as to say that was the trough blood but.
Speaker Change: We've got some some favorable aspects going here you know obviously the reinvestment securities repositioning that's going to add some lift here in the first quarter as well.
Speaker Change: And some of the pay down on the wholesale side that we've been doing and looking to continue to do I think is going to offer up some additional benefits.
Speaker Change: The big wildcard of course is going to be the deposit cost and deposit flows in the mix.
Speaker Change: We continue to see.
Challenges the industry continues to see challenges across that aspect of it and despite the fact, we've done a really nice job managing our deposit costs again I wouldn't go so far as to say that we've we've conquered debt where.
Speaker Change: Our slate that dragging at this point in time, I think we'll still see some pressures in that are in that area.
Speaker Change: But we're cautiously optimistic on that front.
Speaker Change: Great. Thanks, Thanks, Brian and Steve maybe for you on capital you talked about the flexibility and the actions you've taken.
Speaker Change: Do you expect opportunities to arise in 2024 at the industry level, given give me some of the scrapping rate and maybe how you would maybe update us on your ranks of capital you were trying to wait for.
Speaker Change: Sure.
I would say, we do expect opportunities rise, but I thought that in 2023.
Speaker Change: As well.
Speaker Change: And so we'll just see how the year plays out here.
Speaker Change: I think as I mentioned.
Speaker Change: Given all the uncertainties in the environment, whether it's around the commercial real estate markets or.
Speaker Change: A variety of other areas and just how the economy develops.
Speaker Change: Even all of the geopolitical risks intentions out there.
Speaker Change: I think our approach is going to continue to be.
Speaker Change: But we're going to retain capital.
Speaker Change: Where we see opportunities to put it to work where it benefits the organization long term, we're going to do that but.
Speaker Change: But overall it remains hard there's a there's a level of uncertainty and we are very comfortable having strong levels of capital.
Speaker Change: Thank you.
Speaker Change: The next question is from Gary Tenner with D. A Davidson. Please go ahead.
Thanks, Good morning, guys.
Gary Peter Tenner: Good morning, Gary I'm going to ask about the fourth quarter noninterest bearing outflow.
Gary Peter Tenner: Could you parse maybe how much of that you would chalk up to tax payments seasonality.
Gary Peter Tenner: Versus kind of the ongoing shift in mix and a sense of timing of how rapidly the seasonality.
Speaker Change: Piece of it could come back on balance sheet.
Speaker Change: Yes.
Speaker Change: It's hard to put a specific <unk>.
Speaker Change: <unk> on it Gary as far as the from the tax payments and all of the movements that are going on as Rob mentioned, we're seeing clients continue to pay down or pay off loans and so that impacts both sides of the balance sheet naturally.
Certainly.
Speaker Change: In.
Speaker Change: 2023, and the state of California, We saw a later tax payments come out some of the impacts on commerce escrow.
Speaker Change: Our sense is though that the Dab magnitude.
Speaker Change: We don't expect to see that as.
Speaker Change: As we move through the year end and typically some of those funds begin to return in the first half of the year, how much will come back is uncertain again I think in part it has to deal with the yield curve how businesses are feeling about the <unk>.
Speaker Change: Overall in environment.
So we'll just we'll see how things play out here I think the one of the benefits. We have is just the number of new accounts that we've opened in 2023 and as those get fully implemented and on boarded.
Speaker Change: We may pick up some benefit there.
Speaker Change: I appreciate that.
Speaker Change: And bigger picture I guess on the funding side.
Speaker Change: No.
Speaker Change: Pandemic.
Speaker Change: Youll often operated the company.
Speaker Change: Or a ton slightly above 100% loan deposit ratio, even with the wholesale reductions in the fourth quarter and the net deposit.
Speaker Change: Moves there youre back up but only 89% so as you're thinking about the longer term management of the balance sheet. How are your thoughts on that today.
Speaker Change: Relative to where they were a few years ago.
Yeah, I think that when you think about it pre pandemic. We were also quite a bit smaller in total assets I don't see us running the business. We don't think it would be prudent debt, a 100% loan to deposit ratio, but we could certainly see in the low to mid 90% range.
Speaker Change: Certainly we'd like to get there by boat by growing both sides of the balance sheet, both the loans and deposit side too to increase that over time prudently.
I appreciate that.
Speaker Change: One last question for me, if I could run in terms of the.
Speaker Change: The hedges I know you had added some in the third quarter. It doesn't look like you added any here in the fourth quarter, but can you just remind us kind of what the maturity schedule is.
Speaker Change: Of those those swaps sure Gary we've got about $1 billion three in totality in the swap book.
And approximately half of those hedges will mature by the end of the.
Gary Peter Tenner: Of this year and then we've got another tranche if you will another 25% early in in 2025.
Speaker Change: And then the rest are just.
Speaker Change: Ladder it out just a little bit longer.
Speaker Change: Thanks, very much Youre welcome.
Speaker Change: Again, if you have a question. Please press Star then one.
Speaker Change: The next question is from Andrew <unk> with Stephens. Please go ahead.
Andrew: Hey, good morning.
Andrew: Good morning.
Andrew: First question Ron can you just remind us the $600 million of termed FHA advances you've got an outstanding right now what's the maturity schedule looks like for those.
Andrew: Well, we've got it we've got a third of that tranche maturing this quarter.
Andrew: So we'll see that come off and then I think we've got another.
Andrew: Tranche a late in the year and then next year.
Andrew: Yeah.
Andrew: Yeah.
Speaker Change: Got it okay.
Speaker Change: Hum.
Speaker Change: And then can you just talk to us overall about the I guess I'm trying to figure out what kind of the right cash position is on the balance sheet.
Speaker Change: And then how you pair that against I would assume that you use cash to pay down some of the.
Speaker Change: The term FHL beta matures this quarter potentially some more broker can you just talk to is kind of about the cash balance where you'd like to see it sat and then what the what the uses of that cash would be.
Speaker Change: Sure.
Speaker Change: So so obviously you know the.
Speaker Change: Coming out of the post pandemic and and given the rapid rate rise.
Speaker Change: US and many in the industry want are much more heavily into the cash I would say end of our normal operating levels, we're probably in the four or $500 million range were more than double that today.
Speaker Change: And so you know I could see us over time, depending upon deposit flows.
Speaker Change: You know loan growth is we've talked a little bit about we could see that that coming back down to those normal levels as we move throughout.
Speaker Change: The remainder of 2024 of course.
Speaker Change: Notwithstanding any any other challenges that come about from a macro standpoint.
Okay.
Speaker Change: Got it and then on the Securities portfolio do you have just what the spot yield was on the Securities book at 12 31, Yeah.
334, 8%.
Speaker Change: Hum.
Speaker Change: And then one more question on the margin I think in the third quarter there was an interest.
Speaker Change: Interest accrual that was a headwind in the third quarter or so.
Speaker Change: All else equal that was.
Speaker Change: If I recall for six basis points positive to <unk> loan yields just the falling off of that.
Speaker Change: I guess the question is about kind of loan yields going into 2024, and just on a quarterly or annual basis, just as loans are coming up for renewal one type of what type of loan yield improvement you would expect kind of throughout the year, just as our adjustable rate loans repriced or the lower yielding fixed rate fixed rate loans come.
Speaker Change: Yeah.
There's a lot there's a lot of moving pieces there Andrew to to come off line.
Speaker Change: We don't have an estimate out there that we've stated publicly but obviously a lot of moving parts about how much of the maturing loans, we ended up retaining.
Speaker Change: What the <unk>.
Speaker Change: How borrowers what their decisions are rounded loans that are adjusting frankly hamzah.
Speaker Change: The higher yielding stuff is paying off faster.
Speaker Change: Did some of the lower yielding loans high certainly what is the the rate and volume of do production certainly we like the yield of new loans that we're putting on today theyre pretty attractive from a risk adjusted basis, but as I mentioned demand is pretty muted Ron.
Ronald J. Nicolas: What do you have anything to add there in particular no.
Ronald J. Nicolas: I think that's good Steve I was just going to confirm that.
Ronald J. Nicolas: The impact last quarter was that four basis points on that non accrual.
Ronald J. Nicolas: <unk>.
Ronald J. Nicolas: So it was so we didn't get get some lift from from that item alone, but that's I agree with what you just stated.
Steve: Okay perfect.
Speaker Change: Perfect I appreciate it.
Speaker Change: Last one out of question, but Steve I got a Linkedin notification. This morning, reminding me to congratulate you on 24 years at Pacific Premier.
I'm not sure what what exactly the bank looks like in 2000, but I know theres been a lot of progress made since then so congratulations.
Steve: Thank you it's a team effort.
Steve: Once again, if you have a question. Please press Star then one.
Steve: The next question is a follow up from Gary Tenner with D. A Davidson. Please go ahead.
Gary Peter Tenner: Thanks, just a quick question on credit.
Gary Peter Tenner: In your slide deck, where you have the ACO kind of.
Gary Peter Tenner: Waterfall.
Gary Peter Tenner: You're talking about adding $20 million related to the economic forecast and other updates.
Gary Peter Tenner: If my math is right.
Your ACL or the allowance on the unfunded for unfunded commitments came down.
Gary Peter Tenner: Rather my math is correct. So I'm curious about the kind of be.
Gary Peter Tenner: Dynamics, there of increasing the Hcl on the funded piece and maybe bring it down the unfunded unless it was just a function of commitment levels.
Gary Peter Tenner: Yes.
Speaker Change: You you've nailed it Gary there at the end with your last comment is the unfunded did come down I think four or $5 million and that was directly a function of lower commitment levels.
Speaker Change: We saw again with $355 million of new draws.
Speaker Change: It effectively shifted that 355 from the unfunded bucket, if you will to the to the funded bucket. So that that was the if you will that kind of the the shift between those two elements of the ACL.
Okay. So some of those were seasonal kind of.
Speaker Change: Just temporary over temporarily over here and you might just see that swing back the other direction.
Speaker Change: Yeah, I mean on the funding side, yes. It is.
That's a possibility.
Speaker Change: Okay.
Thank you.
Speaker Change: Youre welcome.
Speaker Change: The next question is from Adam Butler with Piper Sandler. Please go ahead.
Adam Butler: Hey, everybody does that.
Adam Butler: I'm on for Matthew Clark.
Adam Butler: I'm not I'm not sure. If this was touched on but in terms of the <unk>.
Nation rates on.
Adam Butler: New new loans this quarter.
Adam Butler: Is there a reason why there was a step down.
Speaker Change: Some of it was the the mix we did.
Speaker Change: For various existing clients some some multifamily.
Speaker Change: And that had an impact on the yield.
Speaker Change: Okay I appreciate the color on that and then it was nice to see.
Speaker Change: Capital increased TCE.
Speaker Change: Quarter over quarter in terms of.
Our outside supporting organic growth and loan growth if that doesn't shape out your expectations do you have any excess capital deployment initiatives outside of that thanks.
Speaker Change: No no not specific.
Speaker Change: We obviously pay a very healthy dividend.
Speaker Change: And although we have a stock buyback plan in place we haven't exercised it for a couple of years and really owing to the uncertain environment.
Speaker Change: I'm like everything that changes over time, we'll see how things play out but right now we continue.
Speaker Change: Continue to retain higher levels of.
Speaker Change: <unk> capital, given the environment, but where we see opportunities such as the securities repositioning transaction.
Speaker Change: In large measure given our high levels of capital, we were able to to do a rather significant transaction there that over the long term will benefit.
Speaker Change: Shareholders and Thats going to continue to be our approach here for the foreseeable future.
Speaker Change: Okay, great. Thank you.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Steven Gardner for any closing remarks.
Steven R. Gardner: Thanks, again, Gary and thank you all for joining us today have a nice afternoon.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Steven R. Gardner: [music].
Steven R. Gardner: Yeah.
Steven R. Gardner: Yeah.
Steven R. Gardner: [music].