Q2 2024 Pacific Premier Bancorp Inc Earnings Call

Good day and welcome to the Pacific Premier Bancorp 2024 second quarter conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Operator: 34, Second quarter conference call. All participants will be in listen-only mode. Should you need assistance? Please signal a conference specialist by pressing the star key followed by zero.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on the touch-tone phone. To withdraw your question, please press star, then two.

After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on the touch-tone phone. To withdraw your question, please press star, then 2. Please note, this event is being recorded.

Operator: Please note, this event is being recorded.

Operator: I would now like to turn the conference over to Steve Gardner, chairman and CEO. Please go ahead.

Operator: All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on the touch-tone phone. To withdraw your question, please press star, then two. Please note that this event is being recorded. I would now like to turn the conference over to Steve Gardner, Chairman and CEO. Please go ahead.

I would now like to turn the conference over to Steve Gardner, Chairman and CEO . Please go ahead.

Steven R. Gardner: Very good. Thank you, Nick. Good morning, everyone.

Steve Gardner: Very good. Thank you, Nick.

Steve Gardner: Good morning, everyone. I appreciate you joining us today. As you were all aware, we released our earnings report for the second quarter of 2024 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. 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: Very good. Thank you, Nick. Good morning, everyone. I appreciate you joining us today. As you are all aware, we released our earnings report for the second quarter of 2024 earlier this morning.

Steven R. Gardner: I appreciate you joining us today. As you are all aware, we released our earnings report for the second quarter of 2024 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. I note that our earnings release and investor presentation include a Safe Harbor statement relative to the forward-looking common. I encourage each of you to carefully read that statement.

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.

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.

Steve Gardner: On today's call, I'll walk through some of the notable items related to our second quarter performance.

Steven R. Gardner: On today's call, I'll walk through some of the notable items related to our second quarter performance. Ron Nicolas, our CFO, will also review a few of the details surrounding our financial results. And then we will open up the call to questions.

Steven R. Gardner: On today's call, I'll walk through some of the notable items related to our second quarter performance. Ron Nicolas, our CFO , will also review a few of the details surrounding our financial results, and then we will open up the call to questions.

Steve Gardner: 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. During the second quarter, our team delivered consistent results as we navigate a challenging operating environment marked by prolonged elevated interest rates, competitive loan and deposit pricing dynamics, and heightened regulatory expectations. Our second quarter results reflect Pacific Premier's ongoing support of our small and medium-sized business clients, along with our commitment to expanding existing relationships and driving new customers to the bank. Looking now at the results for the second quarter, we generated earnings for share of 43 cents, a return on average assets of 90 basis points, and a return on tangible common equity of 8.9%.

Steven R. Gardner: During the second quarter, our team delivered consistent results as we navigate a challenging operating environment marked by prolonged elevated interest rates, competitive loan and deposit pricing dynamics, and heightened regulatory expectations. Our second quarter results reflect Pacific Premier's ongoing support of our small and medium-sized business clients, along with our commitment to expanding existing relationships and driving new customers to the bank. Looking now at the results for the second quarter, we generated earnings per share of $0.43, a return on average assets of 90 basis points, and a return on tangible common equity of 8.9%.

Steven R. Gardner: During the second quarter, our team delivered consistent results as we navigated challenging operating environment marked by prolonged elevated interest rates, competitive loan and deposit pricing dynamics, and heightened regulatory expectations.

Steven R. Gardner: Our second quarter results reflect Pacific Premier's ongoing support of our small and medium-sized business clients, along with our commitment to expanding existing relationships and driving new customers to the bank.

Steven R. Gardner: Looking now at the results for the second quarter, we generated earnings per share of 43 cents, a return on average assets of 90 basis points, and a return on tangible common equity of 8.9%.

Steve Gardner: The prolonged higher interest rate environment continue to impact our cost of deposits, which increased 14 basis points to 1.73%. Though our funding costs remain low on a relative basis compared to our peers, loan production increased 100 to 151 million, but was offset by higher loan payoffs as our clients utilized excess liquidity to reduce debt. This dynamic that has impacted both sides of the balance sheet for the past few quarters in part reflects the high quality nature of the businesses we attract to the franchise. Based on client communications, we expect loan and deposit levels to stabilize as we move through the second half of the year.

Steven R. Gardner: The prolonged higher interest rate environment continued to impact our cost of deposits, which increased 14 basis points to 1.73%, though our funding costs remain low on a relative basis compared to our peers. Loan production increased to $151 million, but was offset by higher loan payoffs as our clients utilized excess liquidity to reduce debt. This dynamic, which has impacted both sides of the balance sheet for the past few quarters, in part reflects the high quality nature of the businesses we attract to the franchise.

Steven R. Gardner: The prolonged higher interest rate environment continued to impact our cost of deposits, which increased 14 basis points to 1.73%, though our funding costs remain low on a relative basis compared to our peers.

Steven R. Gardner: Loan production increased to $151 million, but was offset by higher loan payoffs as our clients utilized excess liquidity to reduce debt.

Steven R. Gardner: This dynamic that has impacted both sides of the balance sheet for the past few quarters, in part, reflects the high-quality nature of the businesses we attract to the franchise.

Steven R. Gardner: Based on client communications, we expect loan and deposit levels to stabilize as we move through the second half of the year. Our capital ratios rank among the strongest in the industry. In the second quarter, our TCE ratio increased 44 basis points to 11.41%, and our tangible book value per share increased to $20.58.

Steven R. Gardner: Based on client communications, we expect loan and deposit levels to stabilize as we move through the second half of the year.

Steve Gardner: Our capital ratios rank among the strongest in the industry. In the second quarter, our TCE ratio increased 44 basis points to 11.41%. And our tangible book value per share increased to $20.58. Our CET-1 ratio came in at 15.89%, and our total risk-based capital ratio was a robust 19.01%. These capital levels provide us with significant optionality, and we are considering a number of strategic options, including balance sheet repositioning that could drive earnings higher in future periods. Our total liquidity position of approximately $9.8 billion was double the level of our uninsured deposits at June 30th. This consisted of $1.2 billion of cash and unpleached short-term treasuries, as well as $8.6 billion of unused borrowing capacity.

Steven R. Gardner: Our capital ratios rank among the strongest in the industry. In the second quarter, our TCE ratio increased 44 basis points to 11.41%.

Steven R. Gardner: and our tangible book value per share increased to $20.58.

Steven R. Gardner: Our CET1 ratio came in at 15.89%, and our total risk-based capital ratio was a robust 19.01%. These capital levels provide us with significant optionality, and we are considering a number of strategic options, including balance sheet repositioning that could drive earnings higher in future periods. Our total liquidity position of approximately $9.8 billion was double the level of our uninsured deposits at June 30th. This consisted of $1.2 billion of cash and unpledged short-term treasury, as well as $8.6 billion of unused borrowing capacity.

Steven R. Gardner: Our CET1 ratio came in at 15.89% and our total risk-based capital ratio was a robust 19.01%.

Steven R. Gardner: These capital levels provide us with significant optionality, and we are considering a number of strategic options.

Steven R. Gardner: including balance sheet repositioning that could drive earnings higher in future periods.

Steven R. Gardner: Our total liquidity position of approximately $9.8 billion was double the level of our uninsured deposits at June 30.

Steven R. Gardner: This consisted of 1.2 billion dollars of cash and unpledged short-term treasuries, as well as 8.6 billion dollars of unused borrowing capacity.

Steve Gardner: As you were aware, we have placed a strong emphasis on capital accumulation and proactive liquidity management over the past several quarters, for good reason. We are well positioned to pursue organic and strategic growth opportunities, especially once risk-adjusted spreads on new loans normalize relative to those currently available in today's market. As noted on last quarter's call, the anticipated decline in deposit balances was concentrated in the early part of the quarter due to seasonality around tax payments and distributions. Additionally, clients are using deposits to pay down and pay off loans, and to a lesser extent, seeking higher returns for excess liquidity.

Steven R. Gardner: As you are aware, we have placed a strong emphasis on capital accumulation and proactive liquidity management over the past several quarters for good reason. We are well-positioned to pursue organic and strategic growth opportunities, especially once risk-adjusted spreads on new loans normalize relative to those currently available in today's market. As noted on last quarter's call, the anticipated decline in deposit balances was concentrated in the early part of the quarter due to seasonality around tax payments and distribution.

Steven R. Gardner: As you are aware, we have placed a strong emphasis on capital accumulation and proactive liquidity management over the past several quarters, for good reason.

Steven R. Gardner: We are well positioned to pursue organic and strategic growth opportunities, especially once risk-adjusted spreads on new loans normalize relative to those currently available in today's market.

Steven R. Gardner: As noted on last quarter's call, the anticipated decline in deposit balances was concentrated in the early part of the quarter due to seasonality around tax payments and distributions.

Steven R. Gardner: Additionally, clients are using deposits to pay down and pay off loans, and to a lesser extent, seeking higher returns on excess liquidity. Our relationship managers continue to bring in new relationships, and in particular, our teams at Pacific Premier Trust and Community Association Bankering are delivering solid results. That said, the current deposit-gathering environment remains highly competitive. Throughout this rate cycle, we have maintained our disciplined deposit pricing practices due to the quality of our client relationships and their trust in our organization. As a proof point, our average cost on non-maturity deposits was 117 basis points in the second quarter.

Steven R. Gardner: Additionally, clients are using deposits to pay down and pay off loans and to a lesser extent seeking higher returns for excess liquidity.

Steve Gardner: Our relationship managers continue to bring in new relationships, and in particular, our teams at Pacific Premier Trust and Community Association Banking are delivering solid results. That said, the current deposit gathering environment remains highly competitive. Throughout this rate cycle, we have maintained our disciplined deposit pricing practices due to the quality of our client relationships and their trust in our organization. As a proof point, our average cost on non-matured deposits was 117 basis points for the second quarter. As of June 30th, non-interest bearing deposits comprised 32% of total deposits, which compares favorably to our peers. Our relationship-based business model is also reflected in our long-tenured client base.

Steven R. Gardner: Our relationship managers continue to bring in new relationships, and in particular our teams at Pacific Premier Trust and Community Association Bankering are delivering solid results. That said, the current deposit gathering environment remains highly competitive.

Steven R. Gardner: Throughout this rate cycle, we have maintained our disciplined deposit pricing practices due to the quality of our client relationships and their trust in our organization.

Steven R. Gardner: As a proof point, our average cost on non-maturity deposits was 117 basis points for the second quarter. As of June 30th, non-interest bearing deposits comprised 32% of total deposits, which compares favorably to our peers.

Steven R. Gardner: As of June 30th, non-interest-bearing deposits comprised 32% of total deposits, which compares favorably to our peers. Our relationship-based business model is also reflected in our long-tenured client base, as the length of our commercial and consumer banking relationships is on average 13.3 years. Nevertheless, tepid demand for CRE and multifamily loans, lower C&I loan utilization rates, in conjunction with our disciplined approach to managing credit risk, contributed to our loan portfolio contracting during the quarter.

Steven R. Gardner: Our relationship based business model is also reflected in our long tenured client base as the length of our commercial and consumer banking relationships is on average 13.3 years.

Steve Gardner: As a length of our commercial and consumer banking relationships is on average 13.3 years. Tepid demand for CRE and multi-family loans, lower C&I loan utilization rates, in conjunction with our discipline to approach the managing credit risk, contributed to our loan portfolio contracting during the quarter. Across our footprint, competition persists in terms of structure, tenor, and credit spreads. Candidly, candidly, some of our competitors are originating loans that are not consistent with our approach to credit and pricing discipline. We remain focused on providing the highest level of service to our clients, while staying committed to originating loans that meet our risk-adjusted return thresholds.

Steven R. Gardner: Tepid demand for CRE and multifamily loans, lower C&I loan utilization rates, in conjunction with our disciplined approach to managing credit risk, contributed to our loan portfolio contracting during the quarter.

Steven R. Gardner: Across our footprint, competition persists in terms of structure, tenor, and credit spread. Candidly, some of our competitors are originating loans that are not consistent with our approach to credit and pricing discipline. We remain focused on providing the highest level of service to our clients, while staying committed to originating loans that meet our risk-adjusted return threshold. We appreciate that uncertainty persists within certain commercial real estate markets.

Steven R. Gardner: Across our footprint, competition persists in terms of structure, tenor, and credit spreads.

Steven R. Gardner: Candidly, some of our competitors are originating loans that are not consistent with our approach to credit and pricing discipline.

Steven R. Gardner: We remain focused on providing the highest level of service to our clients while staying committed to originating loans that meet our risk-adjusted return thresholds.

Steve Gardner: We appreciate that uncertainty persists within certain commercial real estate markets. Importantly, our CRE concentration has steadily decreased, with the portfolio continuing to perform well. And broadly speaking, we are not seeing an overall degradation in borrower cash flows within our loan portfolios. Our asset quality remains solid as non-performing loans decreased $11.7 million to $52.1 million from the prior quarter. Non-performing assets ended the quarter at 28 basis points of total assets; well classified assets decline 9 basis points to 1% of total assets. We have been transparent in our commitment to prudent and proactive credit risk management. We work quickly to identify and move problem credits off our balance sheet.

Steven R. Gardner: We appreciate that uncertainty persists within certain commercial real estate markets.

Steven R. Gardner: Importantly, our CRE concentration has steadily decreased, with the portfolio continuing to perform well. And, broadly speaking, we are not seeing an overall degradation in borrower cash flows within our loan portfolios. Our asset quality remains solid as non-performing loans decreased $11.7 million to $52.1 million from the prior quarter. Non-performing assets ended the quarter at 28 basis points of total assets, while classified assets declined 9 basis points to 1% of total assets. We have been transparent in our commitment to prudent and proactive credit risk management. We work quickly to identify and move problem credits off our balance sheet. We historically have done very few workouts or extensions.

Steven R. Gardner: Importantly, our CRE concentration has steadily decreased with the portfolio continuing to perform well. And broadly speaking, we are not seeing an overall degradation in borrower cash flows within our loan portfolios.

Steven R. Gardner: Our asset quality remains solid as non-performing loans decreased $11.7 million.

Steven R. Gardner: to $52.1 million from the prior quarter.

Steven R. Gardner: Non-performing assets ended the quarter at 28 basis points of total assets, while classified assets declined 9 basis points to 1% of total assets.

Steven R. Gardner: We have been transparent in our commitment to prudent and proactive credit risk management. We work quickly to identify and move problem credits off our balance sheet. We historically have done very few workouts or extensions.

Steve Gardner: We historically have done very few workouts or extensions. To be successful in our approach, we must maintain open lines of communication with our clients regarding their financial status, liquidity, and market dynamics, all of which inform our process for managing individual credits.

Steven R. Gardner: To be successful in our approach, we must maintain open lines of communication with our clients regarding their financial status, liquidity, and market dynamics, all of which inform our process for managing individual credit. Should demand for credit strengthen as the economy progresses through the cycle and borrowers gain more clarity following the November election, we are well positioned to add new loans and drive organic growth. With that, I'll turn the call over to Ron to provide a few more details on our second quarter financial results.

Steven R. Gardner: To be successful in our approach, we must maintain open lines of communication with our clients regarding their financial status, liquidity, and market dynamics, all of which inform our process for managing individual credits.

Steve Gardner: Should demand for credit strengthen as the economy progresses through the cycle, and borrowers gain more clarity following the November election, we are well positioned to add new loans and drive organic growth.

Steven R. Gardner: Should demand for credit strengthen as the economy progresses through the cycle and borrowers gain more clarity following the November election, we are well positioned to add new loans and drive organic growth.

Ronald Nicolas: With that, I'll turn the call over to Ron to provide a few more details on our second quarter financial results. Thanks, Steve, and good morning. For comparison purposes, the majority of my remarks are on a linked quarter basis. Let's start with the quarter's financial highlights. Second quarter net income totaled $41.9 million, or 43 cents per share, and our average return, our return on average assets and average tangible common equity, were 0.90% and 8.92%, respectively. Total revenue was $154.6 million, and non-interest expense decreased $5.1 million to $97.6 million, resulting in an efficiency ratio of 61.3% and a pre-provision net revenue as a percentage of average assets of 1.23% for the quarter.

Steven R. Gardner: With that, I'll turn the call over to Ron to provide a few more details on our second quarter financial results.

Ronald J. Nicolas: Thanks, Steve, and good morning. For comparison purposes, the majority of my remarks are on a linked quarter basis. Let's start with the quarter's financial highlights. Second quarter net income totaled $41.9 million, or 43 cents per share, and our average return on average assets and average tangible common equity were.90% and 8.92%, respectively. Total revenue was $154.6 million, and non-interest expense decreased $5.1 million to $97.6 million, resulting in an efficiency ratio of 61.3% and a preprovisioned net revenue as a percentage of average assets of 1.23% for the quarter. A closer look at the income statement.

Ronald J. Nicolas: Thanks, Steve, and good morning.

Ronald J. Nicolas: for comparison purposes.

Ronald J. Nicolas: The majority of my remarks are on a linked quarter basis.

Ronald J. Nicolas: Net interest income decreased to $136.4 million, primarily as a result of higher cost of funds as well as lower loan balances reflecting the impact of the prolonged higher interest rate environment and tepid loan demand on the funding side. The deposit mix shift also contributed to the increase in deposit costs impacting the second quarter net interest margin, which narrowed 13 basis points to 3.26 percent. Our average non-maturity deposit costs increased 11 basis points to 1.17%, and total deposit costs were 1.73%, reflecting the shift of interest-bearing to interest-bearing money market and retail CDs during the quarter.

Ronald J. Nicolas: Let's start with the quarter's financial highlights.

Ronald J. Nicolas: Second quarter net income totaled $41.9 million, or $0.43 per share.

Ronald J. Nicolas: And our return on average assets and average tangible common equity were 0.90% and 8.92% respectively.

Ronald J. Nicolas: Total revenue was $154.6 million, and non-interest expense decreased $5.1 million to $97.6 million.

Ronald J. Nicolas: resulting in an efficiency ratio of 61.3% and a pre-provisioned net revenue as a percentage of average assets of 1.23% for the quarter.

Ronald Nicolas: Taking a closer look at the income statement, net interest income decreased to $136.4 million, primarily as a result of higher cost of funds, as well as lower loan balances, reflecting the impact from the prolonged higher interest rate environment and tepid loan demand. On the funding side, the deposit mixtures also contributed to the increase in deposit costs, impacting the second quarter net interest margin, which narrowed 13 basis points to 3.26%. Our average non-maternity deposit costs increased 11 basis points to 1.17%, and total deposit costs were 1.73%, reflecting the shift. of interest-bearing to interest-bearing money market and retail CDs during the quarter.

Ronald J. Nicolas: Taking a closer look at the income statement.

Ronald J. Nicolas: Net interest income decreased to $136.4 million, primarily as a result of higher cost of funds, as well as lower loan balances, reflecting the impact from the prolonged higher interest rate environment and tepid loan demand.

Ronald J. Nicolas: On the funding side...

Ronald J. Nicolas: The deposit mix shift also contributed to the increase in deposit costs impacting the second quarter net interest margin, which narrowed 13 basis points to 3.26 percent.

Ronald J. Nicolas: Our average non-maturity deposit costs increased 11 basis points to 1.17%, and total deposit costs were 1.73%, reflecting the shift from 1.17% to 1.17%.

Ronald J. Nicolas: of interest-bearing to interest-bearing money market and retail CDs during the quarter.

Ronald Nicolas: On the earnings side, we saw higher yielding loans prepaid during the quarter, as well as lower CNI line utilization, keeping the average loan rate flat with the prior quarter. Assuming one rate cut in September, our current expectation is for the third quarter is modest net interest margin pressure from continuing higher funding costs. On a spot basis, our total cost of deposits was 1.81% at quarter-end. Lastly, we have 600 million of fixed-of-floating super-based swaps that are set to mature in a latter fashion beginning in September through year-end. For the third quarter, we expect a similar level of swap income as we saw in the second quarter, again, assuming we don't see any Fed moves before September.

Ronald J. Nicolas: On the earnings side, we saw higher yielding loans prepaid during the quarter as well as lower C&I line utilization, keeping the average loan rate flat with the prior quarter. Assuming one rate cut in September, our current expectation for the third quarter is modest net interest margin pressure from continuing higher funding costs. On a spot basis, our total cost of deposits was 1.81% at quarter end. Lastly, we have 600 million of fixed-to-floating SOFR-based swaps that are set to mature in a ladder fashion beginning in September through year-end. For the third quarter, we expect a similar level of swap income as we saw in the second quarter, again, assuming we don't see any Fed moves before September.

Ronald J. Nicolas: On the earnings side, we saw higher yielding loans prepaid during the quarter, as well as lower C&I line utilization, keeping the average loan rate flat with the prior quarter.

Ronald J. Nicolas: Assuming one rate cut in September , our current expectation is for the third quarter is modest net interest margin pressure from continuing higher funding costs.

Ronald J. Nicolas: On a spot basis, our total cost of deposits.

Ronald J. Nicolas: was 1.81% at quarter end.

Ronald J. Nicolas: Lastly, we have 600 million of fixed to floating SOFR-based swaps that are set to mature in a ladder fashion beginning in September through year-end.

Ronald J. Nicolas: For the third quarter, we expect a similar level of swap income as we saw in the second quarter, again, assuming we don't see any Fed moves before September .

Ronald Nicolas: Non-interesting income of $18.2 million decreased $7.6 million from the first quarter, driven by the prior quarter's $5.1 million debt extinguishment gain, and $1.7 million of lower trust income due to the seasonal timing of annual tax fees recognized in the first quarter. For the third quarter, we expect our total non-interest income to be in the range of $19 to $20 million. Non-interest expense came in better than expected at $97.6 million, representing a reduction of $5.1 million compared to the first quarter, primarily due to a non-recurring $4 million legal-related insurance claim. Compensation and benefits expense also decreased $1 million to $53.1 million, primarily reflecting lower payroll tax expense.

Ronald J. Nicolas: Non-interest income of $18.2 million decreased $7.6 million from the first quarter, driven by the prior quarter's $5.1 million debt extinguishment gain and $1.7 million of lower trust income due to the seasonal timing of annual tax fees recognized in the first quarter. For the third quarter, we expect our total non-interest income to be in the range of $19 to $20 million. Non-interest expense came in better than expected at $97.6 million, representing a reduction of $5.1 million compared to the first quarter, primarily due to a non-recurring $4 million legal-related insurance claim. Compensation and benefits expense also decreased $1 million to $53.1 million, primarily reflecting lower payroll tax expenses.

Ronald J. Nicolas: Non-interest income of $18.2 million decreased $7.6 million from the first quarter.

Ronald J. Nicolas: driven by the prior quarter's $5.1 million debt extinguishment gain and $1.7 million of lower trust income due to the seasonal timing of annual tax fees recognized in the first quarter.

Ronald J. Nicolas: For the third quarter, we expect our total non-interest income to be in the range of $19 to $20 million.

Ronald J. Nicolas: Non-interest expense came in better than expected at $97.6 million, representing a reduction of $5.1 million compared to the first quarter, primarily due to a non-recurring $4 million legal-related insurance claim.

Ronald J. Nicolas: Compensation and benefits expense also decreased $1 million to $53.1 million, primarily reflecting lower payroll tax expense.

Ronald Nicolas: From a staffing perspective, we ended the quarter relatively flat with a head count of 1,348 compared with 1,353 as of March 31st. We continue to manage expenses tightly, and our expectations for the third quarter for expenses to be in the range of approximately $101 to $102 million. Our provision for credit losses of $1.3 million decreased compared to the prior quarter, commensurate with the smaller loan portfolio and our current S-equality profile. While we have not seen any meaningful deterioration in S-equality, we continue to actively monitor our portfolio concentrations and performance of certain asset classes that are more sensitive to the higher-for-longer rate environment.

Ronald J. Nicolas: From a staffing perspective, we ended the quarter relatively flat with a head count of 1,348 compared with 1,353 as of March 31st. We continue to manage expenses tightly, and our expectations for the third quarter for expenses will be in the range of approximately $101 to $102 million. Our provision for credit losses of $1.3 million decreased compared to the prior quarter, commensurate with the smaller loan portfolio and our current asset quality profile. While we have not seen any meaningful deterioration in asset quality, we continue to actively monitor our portfolio concentrations and performance of certain asset classes that are more sensitive to the higher-for-longer rate environment.

Ronald J. Nicolas: From a staffing perspective, we ended the quarter relatively flat with a head count of 1,348 compared with 1,353 as of March 31st.

Ronald J. Nicolas: We continue to manage expenses tightly and our expense expectations for the third quarter for expenses

Ronald J. Nicolas: to be in the range of approximately $101 to $102 million.

Ronald J. Nicolas: Our provision for credit losses of $1.3 million decreased compared to the prior quarter. Commensurate with the smaller loan portfolio,

Ronald J. Nicolas: and our current asset quality profile.

Ronald J. Nicolas: While we have not seen any meaningful deterioration in asset quality, we continue to actively monitor our portfolio concentrations and performance of certain asset classes that are more sensitive to the higher-for-longer rate environment.

Ronald Nicolas: Turning now to the balance sheet, we finished the quarter at $18.3 billion in total assets, as lower deposit levels were matched by decreases in loans and lower cash balances, offset by increases in our AFS security portfolio. Total loans help for investment declined $522 million, driven by prepayments, paydowns, maturities, and lower C&I line utilization. The C&I spot utilization rate decreased to 41% from 48% at March 31st. Consistent with prior periods, we maintained a proven approach to balance sheet risk management, opting to prioritize capital accumulation and enhanced liquidity. As part of these ongoing efforts, we sold $35 million of adversely classified loans during the second quarter as part of our proactive credit risk management approach.

Ronald J. Nicolas: Turning now to the balance sheet, we finished the quarter at $18.3 billion in total assets as lower deposit levels were matched by decreases in loans and lower cash balances offset by increases in our AFS securities portfolio. Total loans held for investment declined $522 million, driven by prepayments, paydowns, maturities, and lower C&I line utilization. The C&I spot utilization rate decreased to 41% from 48% at March 31st.

Ronald J. Nicolas: Turning now to the balance sheet.

Ronald J. Nicolas: We finished the quarter at $18.3 billion in total assets as lower deposit levels were matched by decreases in loans and lower cash balances offset by increases in our AFS securities portfolio.

Ronald J. Nicolas: Total loans held for investment declined $522 million, driven by prepayments, paydowns, maturities, and lower C&I line utilization.

Ronald J. Nicolas: The C&I spot utilization rate decreased to 41% from 48% at March 31st.

Ronald J. Nicolas: Consistent with prior periods, we maintained a prudent approach to balance sheet risk management, opting to prioritize capital accumulation and enhanced liquidity. As part of these ongoing efforts, we sold $35 million of adversely classified loans during the second quarter as part of our proactive credit risk management approach. Total deposits ended the quarter at $14.6 billion, which represented a length quarter decrease of $560.2 million. The anticipated decrease was due to seasonality around tax payments and clients continuing to pay down loans and seeking higher returns on excess liquidity.

Ronald J. Nicolas: Consistent with prior periods, we maintained a prudent approach to balance sheet risk management, opting to prioritize capital accumulation and enhanced liquidity.

Ronald J. Nicolas: As part of these ongoing efforts, we sold $35 million of adversely classified loans during the second quarter as part of our proactive credit risk management approach.

Ronald Nicolas: Total deposits ended the quarter at $14.6 billion, which represented a linked quarter decrease of $560.2 million. The anticipated decrease was due to seasonality around tax payments and clients continuing to pay down loans and seeking higher returns for access liquidity. The securities portfolio increased $155.7 million to $3.1 billion, and the average yield on our investment portfolio was 3.62%. During the quarter, we purchased $443 million of shorter term US Treasuries with maturities predominantly 18 months or less at a weighted average yield of 5.08%. Our investment strategy continues to prioritize liquidity, providing us important balance sheet optionality. Our reinvestment levels will be dependent upon customer deposit flows as well as interest rate risk considerations.

Ronald J. Nicolas: Total deposits ended the quarter at $14.6 billion, which represented a length quarter decrease of $560.2 million.

Ronald J. Nicolas: The anticipated decrease was due to seasonality around tax payments and clients continuing to pay down loans and seeking higher returns for excess liquidity.

Ronald J. Nicolas: The securities portfolio increased $155.7 million to $3.1 billion, and the average yield on our investment portfolio was 3.62%. During the quarter, we purchased $443 million of shorter-term U.S. Treasuries with maturities predominantly 18 months or less at a weighted average yield of 5.08 percent. Our investment strategy continues to prioritize liquidity, providing us with important balance sheet optionality. Our reinvestment levels will be dependent upon customer deposit flows as well as interest rate risk considerations.

Ronald J. Nicolas: The securities portfolio increased $155.7 million to $3.1 billion and the average yield on our investment portfolio was 3.62 percent.

Ronald J. Nicolas: During the quarter, we purchased $443 million of shorter-term U.S. Treasuries with maturities predominantly 18 months or less at a weighted average yield of 5.08 percent.

Ronald J. Nicolas: Our investment strategy continues to prioritize liquidity, providing us important balance sheet optionality.

Ronald J. Nicolas: Our reinvestment levels will be dependent upon customer deposit flows as well as interest rate risk considerations.

Ronald Nicolas: The combination of solid earnings and a smaller balance sheet further strengthened our capital ratios this quarter, with all ratios increasing significantly from March 31st. In addition, our total common equity increased 44 basis points to 11.41%, and our tangible book value first share increased to $20.58. Lastly, from an asset quality standpoint, non-performing loans were 0.42% of total loans, seven basis points lower from the prior quarter, and our classified loans also fell to 1.47% from 1.57% in the first quarter. The length of the currency continues to run at low levels at 0.14%. During the second quarter of 2024, we had $10.3 million of net charge-offs, primarily related to the sale of two substandard loans, compared to $6.4 million of net charge-offs in the first quarter.

Ronald J. Nicolas: The combination of solid earnings and a smaller balance sheet further strengthened our capital ratios this quarter, with all ratios increasing significantly from March 31st. In addition, our total common equity increased 44 basis points to 11.41%, and our tangible book value per share increased to $20.58. And lastly, from an asset quality standpoint, non-performing loans were 0.42% of total loans, seven basis points lower from the prior quarter, and our classified loans also fell to 1.47% from 1.57% in the first quarter. Delinquency continues to run at low levels, at 0.14%.

Ronald J. Nicolas: The combination of solid earnings and a smaller balance sheet further strengthened our capital ratios this quarter, with all ratios increasing significantly from March 31st.

Ronald J. Nicolas: In addition, our total common equity increased 44 basis points to 11.41%, and our tangible book value per share increased to $20.58.

Ronald J. Nicolas: And lastly, from an asset quality standpoint,

Ronald J. Nicolas: Non-performing loans were 0.42% of total loans, seven basis points lower from the prior quarter, and our classified loans also fell to 1.47% from 1.57% in the first quarter.

Ronald J. Nicolas: Delinquency continues to run at low levels at 0.14 percent.

Ronald J. Nicolas: During the second quarter of 2024, we had $10.3 million of net charge-offs, primarily related to the sale of two substandard loans, compared to $6.4 million of net charge-offs in the first quarter. We remain very well-reserved across all loan segments, with our ACL at a healthy $183.8 million and our coverage ratio essentially flat at 1.47%. Our allowance reflects changes in economic and market forecasts, as well as changes in our asset quality profile and loan portfolio balances and composition. Finally, our total loss absorption, which includes the fair value discount on loans acquired through bank acquisitions, finished the quarter at 1.78 percent.

Ronald J. Nicolas: During the second quarter of 2024, we had $10.3 million of net charge-offs, primarily related to the sale of two substandard loans, compared to $6.4 million of net charge-offs in the first quarter.

Ronald Nicolas: We remained very well reserved across all loan segments, with our ACL at a healthy $183.8 million and our coverage ratio essentially flat at 1.47%. Our allowance reflects changes in the asset quality profile and loan portfolio balances and composition. Finally, our total loss absorption, which includes the fair value discount on loans acquired through bank acquisitions, finished the quarter at 1.78%.

Ronald J. Nicolas: We remain very well-reserved across all loan segments with our ACL at a healthy 183.8 million dollars and our coverage ratio essentially flat at 1.47 percent.

Ronald J. Nicolas: Our allowance reflects changes in the economic and market forecasts, as well as changes in our asset quality profile and loan portfolio balances and composition.

Ronald J. Nicolas: Finally, our total loss absorption, which includes the fair value discount on loans acquired through bank acquisitions, finished the quarter at 1.78 percent.

Steve Gardner: With that, I'll turn the call back to Steve. Thanks, Ron. I'll wrap up with a few comments about our outlook. We have spent several quarters building a war chest of capital and liquidity to position our institution to take advantage of organic and strategic opportunities. That align with our risk-adjusted return thresholds. In the near term, our priorities are unchanged as we expect to prioritize capital accumulation and maintaining ample sources of liquidity. We may be reaching a point in the credit cycle where loan demand accelerates. Should that materialize, we anticipate that we will be able to leverage our diverse client base and disciplined business development capabilities to grow loan and deposit balances.

Steven R. Gardner: With that, I'll turn the call back to Steve. Great. Thanks, Ron.

Steven R. Gardner: I'll wrap up with a few comments about our outlook. We have spent several quarters building a war chest of capital and liquidity to position our institution to take advantage of organic and strategic opportunities that align with our risk-adjusted return thresholds. In the near term, our priorities are unchanged, as we expect to prioritize capital accumulation and maintaining ample sources of liquidity. We may be reaching a point in the credit cycle where loan demand accelerates.

Speaker Change: With that, I'll turn the call back.

Speaker Change: to Steve. Great. Thanks, Ron.

Steven R. Gardner: I'll wrap up with a few comments about our outlook. We have spent several quarters building a war chest of capital and liquidity.

Steven R. Gardner: to position our institution to take advantage of organic and strategic opportunities that align with our risk-adjusted return thresholds. In the near term, our priorities are unchanged as we expect to prioritize capital accumulation and maintaining ample sources of liquidity.

Steven R. Gardner: We may be reaching a point in the credit cycle where loan demand accelerates. Should that materialize, we anticipate that we will be able to leverage our diverse client base and disciplined business development capabilities to grow loan and deposit balances.

Steven R. Gardner: Should that materialize, we anticipate that we will be able to leverage our diverse client base and disciplined business development capabilities to grow loan and deposit balances. In terms of capital allocation, we will maintain a prudent approach while staying flexible as potential opportunities arise to expand our business, better serve our clients, and maximize long-term shareholder value. Our executive management team, along with the board, continually evaluate a wide range of potential options for capital deployment, which could include transactions to reposition the balance sheet as we move through the remainder of this year.

Steve Gardner: In terms of capital allocation, we will maintain a prudent approach while staying flexible as potential opportunities arise to expand our business, better serve our clients, and maximize long-term shareholder value. Our executive management team, along with the board, continually evaluate a wide range of potential options for capital deployment, which could include transactions to reposition the balance sheet as we move through the remainder of this year. On the M&A front, the uncertain regulatory and operating environments dictate a discerning approach to strategic growth. We remain open to transactions that will diversify and complement our franchise while delivering long-term value to our shareholders.

Steven R. Gardner: In terms of capital allocation, we will maintain a prudent approach while staying flexible as potential opportunities arise to expand our business, better serve our clients, and maximize long-term shareholder value.

Steven R. Gardner: Our executive management team, along with the board, continually evaluate a wide range of potential options for capital deployment, which could include transactions to reposition the balance sheet as we move through the remainder of this year.

Steven R. Gardner: On the M&A front, the uncertain regulatory and operating environments dictate a cautious approach to strategic growth. We remain open to transactions that will diversify and complement our franchise while delivering long-term value to our shareholders. I want to thank all Pacific Premier team members for their exceptional contributions throughout the quarter. Additionally, I want to say thank you to all of our stakeholders for their ongoing support of our organization as we remain committed to creating sustainable long-term value. That concludes our prepared remarks, and we would be happy to answer any questions. Nick, please open the call to questions.

Steven R. Gardner: On the M&A front, the uncertain regulatory and operating environments dictate a discerning approach to strategic growth.

Steven R. Gardner: We remain open to transactions that will diversify and complement our franchise while delivering long-term value to our shareholders.

Steve Gardner: I want to thank all Pacific Premier team members for their exceptional contributions throughout the quarter. Additionally, I want to say thank you to all of our stakeholders for their ongoing support of our organization as we remain committed to creating sustainable long-term value.

Speaker Change: I want to thank all Pacific Premier team members for their exceptional contributions throughout the quarter. Additionally, I want to say thank you to all of our stakeholders for their ongoing support of our organization as we remain committed to creating sustainable long-term value.

Steve Gardner: That concludes our prepared remarks, and we would be happy to answer any questions.

Speaker Change: That concludes our prepared remarks and we would be happy to answer any questions. Nick, please open up the call for questions.

Operator: Nick, please open up the call for questions. Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two.

Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star and then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question comes from David Feaster with Raymond James. Please go ahead.

Speaker Change: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed, and you would like to withdraw your question, please press star, then two.

Operator: At this time, we will pause momentarily to assemble a roster.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

David Feaster: The first question comes from David Feister with Raymond James. Please go ahead.

Speaker Change: The first question comes from David Feaster with Raymond James. Please go ahead.

David Pipkin Feaster: All right, good morning, everybody. Hi David.

Operator: Hi. Good morning, everybody. Hi, David.

David Pipkin Feaster: I just wanted to, I was hoping you could elaborate on your commentary about loans and deposit balances stabilizing in the back half here and what gives you confidence in that. I mean, is it the prospect of rates going down or just business activity or your bankers maybe being more active? I'm just curious, what gives you confidence that loans and deposits are going

David Feaster: Good morning. I just wanted to open you could elaborate on your commentary about loans and deposit balances stabilizing in the back half here and what gives you confidence in that. I mean, is it the prospects of rates down, or just business activity, or your bankers maybe being more active?

David Pipkin Feaster: All right, good morning, everybody.

David Pipkin Feaster: I was hoping you could elaborate on your commentary about loan and deposit balances stabilizing in the back half here.

David Pipkin Feaster: And what gives you confidence in that? I mean is it the prospects of rates down or just business activity or your bankers maybe being more active? I'm just curious, what gives you confidence that loans and deposits are going to stabilize?

Steve Gardner: I'm just curious what gives you confidence that loans and deposits are going to stabilize? It's in part due to the conversations that we're hearing from the clients. Also, the fact that, as Ron had mentioned, we did see a bit of seasonality here in the deposit outflows. And in many ways we've matched the deposit outflows with contraction in the loan portfolio. It's also that some of the activity that we're seeing; we originated a larger amount of loans in the second quarter, although relatively modest from a historic perspective for the institution. And then also too, as you mentioned, potential around declining rates, having a positive impact, lastly.

Steven R. Gardner: It's in part due to the conversations that we're hearing from the clients, but also the fact that, as Ron mentioned, we did see a bit of seasonality here in the deposit outflows, and in many ways, we've matched the deposit outflows with contraction in the loan portfolio. It's also that some of the activity that we're seeing; we originated a larger amount of loans in the second quarter, although relatively modest from a historical perspective for the institution.

Speaker Change: It's in part due to the conversations that we're hearing from the clients.

Speaker Change: Also, the fact that, as Ron had mentioned, we did see a bit of seasonality here in the deposit outflows, and in many ways we've matched the deposit outflows with contraction.

Ronald J. Nicolas: in the loan portfolio.

Speaker Change: It's also that some of the activity that we're seeing, we originated a larger amount of loans in the second quarter, although relatively modest from a historic perspective for the institution.

Steven R. Gardner: And then also, as you mentioned, the potential around declining rates having a positive impact. Lastly, the certainty that I think we will all gain as the election approaches, and then we've got a determination there. So I think it's a combination of factors, David, as we look out here and move through the remaining part of the year.

Speaker Change: And then also, too, as you mentioned, potential around declining rates, having a positive impact. Lastly,

Steve Gardner: The certainty that I think we will all gain as the election approaches, and then we've got a determination there. I think it's a combination of factors, David, as we look out here and move through the remaining part of the year.

Speaker Change: the certainty that I think we will all gain.

Speaker Change: as the election approaches and then we've got a determination there. So I think it's a combination of factors, David, that as we look out here and move through the remaining part of the year.

Steven R. Gardner: Where are you seeing activity? It's encouraging to see the increase in C&I originations in the quarter. I'm just curious, in the conversations that you're having with clients, where are you seeing potential activity? Where are you having success, and what could get things to stabilize or start increasing? With the C&I improvement, is that part two what's giving you confidence on the deposit front?

David Feaster: Okay. And where are you seeing activity? I mean, it's encouraging to see the increase in CNI originations in the quarter.

David Pipkin Feaster: Got it.

David Pipkin Feaster: And where are you seeing activity? It's encouraging to see the increase in C&I originations in the quarter. I'm just curious, in the conversations that you're having with clients, where are you seeing...

Steve Gardner: I'm just curious, you know, in the conversations that you're having with clients, where are you seeing potential activity, where are you having success and what could, you know, get things to stabilize or start increasing and, you know, with the CNI improvement, is that in part two what's giving you confidence on the deposit front? I think so, to an extent. You know, on the deposit front, the reality is that with our business model, that we've historically banked very strong businesses that had carried quite a bit of excess liquidity. And as that is being redeployed, either through the paydown and payoff of loans and/or redeployed into higher yielding alternatives.

David Pipkin Feaster: potential activity, where are you having success, and what could, you know, get things to stabilize or start increasing, and, you know, with the C&I improvement, is that, in part, too, what's giving you confidence on the deposit front?

Steven R. Gardner: I think so to an extent. On the deposit front, the reality is that, with our business model, we've historically banked very strong businesses that have carried quite a bit of excess liquidity, and as that is being redeployed, either through the pay down and payoff of loans or redeployed into higher yielding alternatives, and again, some of the seasonality factors in the second quarter. Put all those pieces together, and we think that we potentially start to reach that stabilization here, maybe before the end of the year. That is kind of our expectation right now.

Speaker Change: I think so to an extent. You know, on the deposit front,

Speaker Change: The reality is, is that with our business model, that we've historically banked very strong businesses that had carried

Speaker Change: quite a bit of excess liquidity. And as that is being redeployed, either through the pay down and pay off of loans and or redeployed into higher yielding alternatives.

Steve Gardner: And again, some of the seasonality factors in the second quarter, you put all those pieces together and we think that we potentially start to reach that stabilization here, you know, maybe before the end of the year, is kind of as our expectation right now. We are seeing pretty good origination on the CNI side, you know, a little bit modest pick up in some of the construction lending, at least what's in the pipeline. So we'll see how all of this materializes here in the coming quarters. Okay.

Speaker Change: and again, some of the seasonality factors in the second quarter.

Speaker Change: You put all those pieces together and we think that we potentially start to reach that.

Speaker Change: Stabilization here, you know, maybe before the end of the year is kind of is our expectation.

Steven R. Gardner: We are seeing pretty good origination on the CNI side, and we've seen a little bit of a modest pickup in some of the construction lending, at least what's in the pipeline. So we'll see how all of this materializes here in the coming quarters.

Speaker Change: right now. We are seeing pretty good origination on the CNI side, seen a little bit modest pickup in some of the construction lending at least.

Speaker Change: what's in the pipeline. So we'll see how all of this materializes here in the coming quarters.

David Pipkin Feaster: Okay. And then, just last one for me, you talked about a war chest of capital and liquidity, and just as you kind of concluded your prepared remarks, it kind of sounds like you maybe have a bit more appetite to deploy some of that today. I'm just curious, you know, what you're interested in. It sounds like maybe some M&A, but also some balance sheet repositioning opportunities. Would you be interested in potential loan pool purchases or another securities repositioning, or primarily focused on M&A broadly?

Steve Gardner: And then just last one for me, you know, you talked about a war chest of capital and liquidity, and just as you kind of concluded your prepared remarks, it kind of sounds like you maybe have a bit more appetite to deploy some of that today. I'm just curious; you know, what's you're interested in? You know, it sounds like maybe some M&A, but also some balance sheet repositioning opportunities. Would you be interested in potential loan pool purchases or other securities repositioning, or primarily focused on M&A broadly? I think the answer to the question, David, is we're considering all of the options and thinking them through, analyzing and assessing each one, and will be very thorough and thoughtful on what we do.

Speaker Change: Okay.

Speaker Change: And then just last one for me, you know, you talked about a war chest of capital and liquidity, and just as you kind of concluded your prepared remarks, it kind of sounds like you maybe have a bit more appetite to deploy some of that today.

Speaker Change: I'm just curious, you know, what you're interested in, you know, it sounds like maybe some M&A but also some...

Speaker Change: balance sheet repositioning opportunities. Would you be interested in potential loan pool purchases or another securities repositioning or primarily focused on M&A broadly?

Steven R. Gardner: I think the answer to the question, David, is we're considering all of the options and thinking them through, analyzing and assessing each one. And we'll be very thorough and thoughtful in what we do.

Speaker Change: I think the answer to the question, David, is we're considering all of the options.

Speaker Change: and thinking them through, analyzing and assessing each one.

Speaker Change: will be very thorough and thoughtful on on what we do.

Steve Gardner: But I think we are thinking about all of the options. As I mentioned in the prepared remarks from the M&A front, there's, you know, uncertainty on the regulatory front and the operating environment, I think, has held back activity. We did see a couple of sizable transactions get announced earlier in the quarter, and we'll see how those play out. We're certainly hopeful there, as I'm sure every investment banker is in the country. So we'll see how all of these factors play, but we are considering all of the options and are going to be thoughtful and analytical in our approach.

David Pipkin Feaster: But I think we are thinking about all of the options. As I mentioned in the prepared remarks on the M&A front, there's uncertainty on the regulatory front, and the operating environment, I think, has held back activity. We did see a couple of sizable transactions get announced earlier in the quarter, and we'll see how those play out. We're certainly hopeful there, as I'm sure every investment banker is in the country. So we'll see how all of these factors play out, but we are considering all of the options and are going to be thoughtful and analytical in our approach. Okay, that's helpful.

Speaker Change: But I think we are thinking about all of the options, as I mentioned.

Speaker Change: In the prepared remarks from the M&A front, there's uncertainty on the regulatory front.

Speaker Change: and the operating environment, I think, has held back.

Speaker Change: We did see a couple of

Speaker Change: sizable transactions get announced earlier in the quarter and we'll see how those play out. We're certainly hopeful there as I'm sure every investment banker is in the country.

Speaker Change: So we'll see how all of these factors play, but we are considering all of the options, but are going to be thoughtful and analytical in our approach.

David Pipkin Feaster: Okay, that's helpful. Thanks, everybody.

David Feaster: That's helpful. Thanks, everybody.

Speaker Change: Okay, that's helpful. Thanks everybody.

Matthew Clark: The next question comes from Matthew Clark with Piper Sandler. Please go ahead. Thank you very much, everyone. Thanks for the questions.

Operator: The next question comes from Matthew Clark with Piper Sandler. Please go ahead.

Speaker Change: The next question comes from Matthew Clark with Piper Sandler. Please go ahead.

Matthew Timothy Clark: Hey, good morning, everyone. Thanks for the questions. First one, the swap revenue this quarter, Ron, how much was that in interest income?

Matthew Clark: First one, the swap revenue, this quarter, Ron, how much was that in an interest income? In net interest was about 16 basis points, about 22 to loans. And again, we expect consistent here in the third quarter, assuming just one Fed move in September. Okay.

Matthew Timothy Clark: First one, the swap revenue this quarter. Ron, how much was that in interest income?

Ronald J. Nicolas: [inaudible] In net interest, it was about 16 basis points, about 22 to loan. And again, we expect consistent growth here in the third quarter, assuming just one Fed move in September.

Ronald J. Nicolas: In net interest, it was about 16 basis points, about 22 to loans.

Speaker Change: and again we expect consistent here in the third quarter assuming just one Fed move in September .

Ronald Nicolas: And then, if you had it, the average name in the month of June. I'll take a look at that, Matt, and get back with you on that.

Speaker Change: Okay.

Matthew Timothy Clark: And then, if you had it, what was the average name in the month of June?

Speaker Change: And then, if you had it, the average name in the month of June ?

Ronald J. Nicolas: I'll take a look at that, Matt, and get back with you on that.

Speaker Change: I'll take a look at that, Matt, and get back with you on that.

Matthew Timothy Clark: Okay, and then just thinking through deposit..., costs from here. You gave us a spot rate, which is a little higher. I guess, how do you plan to approach rate cuts, assuming we get one in September and December? I mean, should we assume the peak in deposit costs is in the third quarter and starts to decline from there? Do you feel like there might be some delay in that or even just stability?

Matthew Clark: Okay. And then just thinking through deposit costs from here, you gave us a spot rate, which is up a little further. But I guess, how do you plan to approach rate cuts, assuming we get one in September and December? I mean, should we assume the peak in deposit costs is in the third quarter and starts to decline from there? Do you feel like there might be some delay in that, or even just stability in the fourth quarter? I would say that, you know, we think about probably some stability. It's also as well on the flows here.

Matt: Okay and then just thinking through deposit costs from here you gave us a spot rate which is up a little further but I guess how do you plan to

Matt: to approach

Speaker Change: rate cuts assuming we get one in September and December I mean should we assume the peak in deposit cost is in the third the third quarter and starts to decline from there do you feel like

Speaker Change: There might be some delay in that or even just stability in the fourth quarter.

Ronald J. Nicolas: I would say that, you know, we think about probably some stability. It's also as well on the flows here. I think they're interrelated to an extent.

Speaker Change: I would say that, you know, we think about probably some stability. It's also as well on the flows here. I think they're interrelated to an extent.

Ronald Nicolas: I think they're interrelated to an extent. Yeah.

Ronald J. Nicolas: I would also add, Matt, if we see the rate cut and maybe one coming about in the fourth quarter, obviously, when we price, we price based on competition as well and what we're seeing and how we're managing it. But at the end of the day, I would suggest that we probably see pricing actions on our part for sure. That's just the way we approach it.

Ronald Nicolas: I would also add, Matt, if we see the rate cut and maybe one coming about in the fourth quarter, obviously when we price, we price based on competition as well. And what we're seeing and what we're, you know, how we're managing it. But at the end of the day, I would suggest that we probably see pricing actions on our part, for sure. That's just the way we approach it. But at the same time, what we can't predict is what we've seen: the shifts in the deposit mix. The industry has seen movement out of the net interest bearing into interest bearing money markets and time deposits in that.

Speaker Change: I would also add, Matt, if we see the rate cut and maybe one coming about in the fourth quarter, obviously we'll...

Matt: When we price, we price based on competition as well and what we're seeing and what we're

Matt: You know how we're managing it, so I but

Matt: But at the end of the day, I would suggest that we probably see pricing actions on our part, for sure. That's just the way we approach it. But at the same time, what we can't predict is what we've seen is the shifts in the deposit mix.

Ronald J. Nicolas: But at the same time, what we can't predict is what we've seen is the shifts in the deposit mix. The industry has seen movement out of net interest-bearing deposits into interest-bearing money markets and time deposits in that. We obviously saw that as well this past quarter. So that's a little less predictable.

Matt: The industry has seen, you know, movement out of the net interest-bearing into interest-bearing money markets and time deposits in that. We obviously saw that as well this past quarter.

Ronald Nicolas: We obviously saw that as well this past quarter. So that's a little less predictable. Now some of that could subside, but let's face it, a 25 basis point cut. Maybe that's psychologically a big move, but it's certainly not going to be a material move from a pricing standpoint. So we probably see continued movement just by the momentum that's currently in place today with the shifts and with the pricing that's out in the marketplace.

Ronald J. Nicolas: Now some of that could subside, but let's face it, a 25 basis point cut. Maybe that's a psychologically big move, but it's certainly not going to be a material move from a pricing standpoint. So we probably will see continued movement just by the momentum that's currently in place today with the shifts and with the pricing that's out in the marketplace. And I'd add, although it's not going to move the number substantively, we do have about 180 million broker deposits that mature this quarter that, in all likelihood, we won't pay off and not replace. And those carry a pretty high cost.

Matt: So that's a little less predictable. Now, some of that could subside, but, you know, let's face it, a 25-basis point cut...

Matt: Maybe that's psychologically a big move, but it's certainly not going to be a material move from a pricing standpoint.

Matt: We probably see, you know, continued movement just by the momentum that's currently in place today with, you know, with the shifts and with the pricing that's out in the marketplace.

Ronald Nicolas: Yeah, and I'd add, although it's not going to move the number substantially, we do have about 180 million of broker deposits that mature this quarter that are not likely. We won't pay off and not replace. So in those carry pretty high costs. Yeah, okay.

Speaker Change: Yeah, and I'd add, although it's not going to move the number substantively, we do have about $180 million of broker deposits that mature this quarter that in all likelihood we won't, will pay off and not replace.

Speaker Change: and those carry pretty high cost.

Matthew Timothy Clark: Yep. Okay. And then what are the plans for the $200 million in FHLB that you still have?

Ronald Nicolas: And then what are the plans for the 200 million of FHLB that you still have left? Yeah, they mature in northern order. Yeah, yeah, we'll pay those off. Yeah, just let that mature. Yeah, yeah, okay.

Speaker Change: Okay. And then what are the plans for the $200 million of FHLB that you still have left?

Ronald J. Nicolas: They mature in November. Yeah, we'll pay those off. Yeah, just let that mature without renewal.

Speaker Change: They mature in November . Yeah, we'll pay those off. Yeah, just let that mature.

Ronald J. Nicolas: In the fourth quarter? Yes. Yes.

Speaker Change: without renewal. In fourth quarter, yes, yeah, okay.

Matthew Timothy Clark: Yeah. Okay. All right.

Ronald Nicolas: I think overall, our belief is that, you know, in this business, you, you utilize wholesale advances at a period of time, but historically we utilize them very little. And I see no reason. They add no value to have wholesale advances, whether it's broker deposits or FHLB borrowings. And so our intent is to pay those down and off over time. Okay.

Steven R. Gardner: Look, I think overall, our belief is that in this business, you utilize wholesale advances at periods of time, but historically, we've utilized them very little, and I see no reason they add no value to have wholesale advances, whether it's broker deposits or FHLB borrowings, and so our intent is to pay those down and off over time.

Speaker Change: Look, I think overall, our belief is that in this business, you utilize wholesale.

Speaker Change: advances.

Speaker Change: at periods of time, but historically, we've

Speaker Change: We utilize them very little and I see no reason, they add no value to have wholesale advances, whether it's broker deposits or FHLB borrowings, and so our intent is to pay those down and off over time.

Matthew Clark: And then just on a potential securities. Lost trade.

Matthew Timothy Clark: Okay. And then just on a potential security... Lost Trade. Should we assume you're considering the rest of the AFS book that you didn't restructure last year, or would you consider restructuring the HTM portfolio too?

Speaker Change: Okay, and then just on a potential securities...

Matthew Clark: Should we assume you're considering the rest of the AFS book that you didn't restructure last year, or would you consider restructuring the HTML portfolio too? I think we're, we're looking at all options. Okay. And then just on that would consider, you know, you look at, you look at the, the loan portfolio for low yielding credits there. We certainly have a CRE concentration. It's been well managed. It's performed exceedingly well, but we are all well aware of the big focus of that area from, you know, either investors and or regulators in this environment. So, you know, as I said, we're looking at all options.

Speaker Change: lost trade. Should we assume you're considering the rest of the AFS book that you didn't restructure last year or would you consider restructuring the the HTM portfolio too?

Ronald J. Nicolas: I think we're looking at all of them.

Speaker Change: I think we're looking at all options.

Steven R. Gardner: And I would consider, if you look at the loan portfolio for low-yielding credits there, we certainly have a CRE concentration. It's been well-managed. It's performed exceedingly well, but we are all well aware of the big focus of that area from either investors or regulators in this environment. So, you know, as I said, we're looking at all options. The great thing is we have the capital to be in a position to do that and to take actions that, maybe, in the immediate term, may have a negative impact but would drive earnings higher, potentially, in the longer term.

Speaker Change: Okay.

Speaker Change: And that would consider, you know, you look at the loan portfolio for low-yielding credits there. We certainly have a CRE concentration. It's been well-managed. It's performed exceedingly well, but we are all well aware of the big focus.

Speaker Change: of that area from, you know, either investors and or regulators in this environment. So, you know, as I said, we're looking at all options. The great thing is

Ronald Nicolas: The great thing is we have the capital to be in a position to do that and to take actions that maybe in the immediate term may have a negative impact, but would drive earnings higher potentially in the longer term. So we're looking at all of these options.

Speaker Change: We have the capital to be in a position to do that and to take actions that may be

Speaker Change: And the immediate term may have a negative impact, but would drive earnings higher, potentially, in the longer term. So we're looking at all of these options.

Steven R. Gardner: So we're looking at all of these options. Okay, and then just on capital, what's your, what do you view as your most constraining ratio, and and what's the minimum level you would be willing to operate on just trying to guesstimate your excess capital?

Ronald Nicolas: Okay. And then just on capital, what's your, what do you view as your most constraining ratio? And, and what's the minimum level you would be willing to operate on just trying to guesstimate your access capital?

Speaker Change: Okay and then just on capital what's your what do you view as your most constraining ratio and and what's the minimum level you would be willing to operate on just trying to guesstimate your excess capital?

Ronald Nicolas: Yeah, but our most restraining is the fact that we've got a lot of it. Look, we have internal targets, but they're in part based off of the risks that we see in the broader economy, the risks that we see in our own balance sheet, and various outlooks. So, you know, they remain flexible to, to an extent. Okay.

Steven R. Gardner: Yeah, our biggest restraining factor is the fact that we've got a lot of it. Look, we have internal targets, but they're in part based on the risks that we see in the broader economy, the risks that we see in our own balance sheet and various outlooks, so they remain flexible to an extent.

Speaker Change: Yeah, our most restraining is the fact that we've got a lot of it. Look, we have internal targets, but they're, in part,

Speaker Change: based off of the risks that we see in the broader economy, the risks that we see in our own balance sheet and various outlooks, so they remain flexible to an extent.

Steven R. Gardner: And the last one for me, just on the substandard loans that were sold, how much of the net charge-offs were related to those in this quarter of the ten-year period?

Ronald Nicolas: And then last one for me, just on the substandard loans that were sold, how much of the net charge-offs were related to that? This quarter of the 10 million? You know the Nine. I mean, a good portion of it. Just about all of it. Yeah, just about pretty close. Yeah, it was just about all of it. In fact, all but, yeah, a few pennies.

Speaker Change: Okay, and then last one for me, just on the substandard loans that were sold, how much of the net charge-offs were related to that, this quarter, of the $10 million?

Ronald J. Nicolas: You know the number off the top of your head, I mean a good portion of it. Just about all of it. Yeah, pretty close to all of it. Yeah, it was just about all of it, in fact, all but a few pennies. Okay, thank you.

Speaker Change: You know the number off the top of your head, I mean a good portion of it. Just about all of it. Yeah, just about, pretty close to all of it. Yeah, it was just about all of it. In fact, all but a few pennies, yeah.

Matthew Clark: Okay, thank you.

Speaker Change: Okay, thank you.

Christopher McGratty: Next question comes from Chris McGratty with KBW.

Operator: The next question comes from Chris McGratty with KBW. Please go ahead.

Speaker Change: The next question comes from Chris McGratty with KBW. Please go ahead.

Christopher McGratty: Please go ahead. Hey, good morning.

Steve Gardner: Good morning. Steven, the comments on the swap roll-off and the balancer restructuring, if I just kind of zoom out, if that had went in that opportunity, kind of, we'll push together, is the net result that you think NII can begin to grow into next year. I mean, I'm just trying to think there's probably a downward revision after the quarter because the balance is size, but if you put those two together, can NII begin to grow? Yes, that would certainly be the objective. That's why we're analyzing all of the various options, but that would be, you know, if we're going to add heat on something, that's a big driver of it is future earnings.

Christopher Edward McGratty: Steve and Ron, the comments on the swap roll-off and the balance sheet restructuring, if I could kind of zoom out, if that headwind and that opportunity kind of were pushed together, what is the net result that you think NII can begin to grow into next year? I mean, I'm just trying to think. There's probably a downward reversion.

Christopher Edward McGratty: Hey, good morning. Good morning.

Speaker Change: Steve and Ron, the comments on the swap roll-off and the balance sheet restructuring, if I just kind of zoom out, if that headwind and that opportunity kind of were pushed together, is...

Speaker Change: Is the net result that you think NII can begin to grow into next year? I mean, I'm just trying to think. There's probably a downward revision after the quarter because of the balance sheet size. But if you put those two together, can NII begin to grow?

Steven R. Gardner: That would certainly be the objective, yeah, right, right. That's why we're analyzing all of the various...

Speaker Change: Yes.

Speaker Change: That would certainly be the objective, yeah. Right, right. That's why we're analyzing all of the various options. But that would be, you know, if we're going to execute on something, that's a big driver of it is future earnings.

Steve Gardner: Okay, and then Steve, you mentioned in your remarks a couple of times, just the investor and regulatory focus on CRA. Has there been any change in your conversations with respect to concentration risk? You've always been above 300. It's never been an issue for you, but it's obviously a tone shift at the top of the industry. Has there been any change specifically that you've noticed? Yes. Have you seen any of the reports out there, Chris, on Bloomberg, CNBC, the Journal, and comments from the regulators? Being facetious here, but yes, there's clearly a tone shift. I mean, and look, I think it started, you know, maybe even before the Silicon Valley Signature, First Republic failures, and Silver Gates liquidation, and then some of the issues of the big East Coast multi-family landers faced earlier this year.

Christopher Edward McGratty: And then, Steve, you mentioned in your remarks a couple of times just the investor and regulatory focus on CRE. Has there been any change in your conversations with respect to concentration risk?

Speaker Change: Okay.

Speaker Change: And then Steve, you mentioned in your remarks a couple times just the investor and regulatory focus on CRE. Has there been any change in your conversations?

Steven R. Gardner: You've always been above 300. It's never been an issue for you, but there's obviously a tone shift at the top of the industry. Has there been any change, specifically, that you've noticed?

Speaker Change: With respect to concentration risk, you've always been above 300. It's never been an issue for you, but there's obviously a tone shift at the top of the industry. Has there been any change specifically that you've noticed?

Steven R. Gardner: Have you seen any of the reports out there, Chris, on Bloomberg, CNBC, the Journal, and, you know, comments from the regulators being facetious here? But yes, there's clearly a tone shift. I mean, and, and look, I think it started, you know, with maybe even before the Silicon Valley signature, First Republic failures and Silvergate's liquidation, and then some of the issues that the big East Coast multifamily lenders faced earlier this year. The regulators have been very clear that this is an ongoing concern. And, you know, we take those cues seriously.

Speaker Change: Yes.

Speaker Change: Have you seen any of the reports out there, Chris, on Bloomberg, CNBC, the Journal, and, you know, comments from the regulators?

Christopher Edward McGratty: I'm being facetious here, but yes, there's clearly a tone shift. I mean, and look, I think it started, you know, maybe even before.

Speaker Change: the Silicon Valley Signature, First Republic, Failures, and Silver Gates.

Speaker Change: liquidation, and then some of the issues of the big East Coast multifamily lenders faced earlier this year. The regulators have been very clear that it is an ongoing concern.

Steve Gardner: The regulators have been very clear that it is an ongoing concern, and you know, we take those cues seriously.

Speaker Change: And, you know, we take those cues seriously.

Steve Gardner: Okay, and then maybe the last one. This is more of a technical. The security structure that might be contemplated, do you have to be a little bit careful on the timing given when you did the last one, and just in terms of dividend capacity and being in an operating loss position? I think that's a great question. There are a multitude of factors that one has to take into consideration. They're all important, and that's, you know, we do thorough analysis. We try to make sure that we run all the traps. We get feedback and perspective from a number of advisors along the way, and that's exactly what we would do if that is something that the management and board think is the right thing to do, so we'll consider all of them.

Christopher Edward McGratty: Okay, and then maybe the last one that's more of a technical question. The security restructuring that might be contemplated, does it, do you have to be a little bit careful on the timing given when you did the last one and just in terms of dividend capacity and being in an operating loss? I think that's a great question.

Speaker Change: Okay, and then maybe the last and this is more of a technical, the...

Speaker Change: The securities restructuring that might be contemplated, do you have to be a little bit careful on the timing given when you did the last one in terms of dividend capacity and being in an operating loss position?

Steven R. Gardner: I think that's a great question. There are a multitude of factors that one has to take into consideration. They're all important, and that's why we do thorough analysis. We try to make sure that we run all the traps. We get feedback and perspective from a number of advisors along the way, and that's exactly what we would do if that is something that the management and board think is the right thing to do. So we'll consider all of them. It's a very good question. Thanks.

Speaker Change: I think that's a great question. There are a multitude of factors that one has to take into consideration. They're all important and that's, we, you know,

Speaker Change: You know, we do thorough analysis.

Speaker Change: We try to make sure that we run all the traps we get.

Speaker Change: feedback and perspective from a number of advisors along the way, and that's exactly what we would do if that is something that

Speaker Change: that the management and board think is the right thing to do. So we'll consider all of them. It's a very good question.

Steve Gardner: It's a very good question.

Sid: Thanks. Thanks, Sid.

Gary Tenner: The next question comes from Gary Tenner, with DA Davidson. Please go ahead.

Operator: The next question comes from Gary Tenner with D.A. Davidson. Please go ahead.

Speaker Change: The next question comes from Gary Tenner with DA Davidson. Please go ahead.

Gary Tenner: Thanks, good morning. So, at risk of getting a dead horse on a bond transaction question, I'm going to ask one more. You know, with the amount of C-2-1 that you've created the last year, I look for kind of a flatish loan portfolio. Let's say for the rest of the year, and that C-2-1 is going to continue to create higher.

Gary Peter Tenner: Good morning. So, at the risk of getting a dead horse on a bond transaction question, I'm going to ask one more. You know, with the amount of C21 you've accreted in the last year, I'll look for kind of a flattish loan portfolio, let's say, for the rest of the year. You know, and that C21 is going to continue to accrete higher. What would the argument be against a bond repositioning? I mean, you talk about considering all the options, and then you just answered a question about the dividend, of course. What would be the argument against it?

Gary Peter Tenner: Thanks. Good morning.

Gary Peter Tenner: So, at risk of beating a dead horse on the bond transaction question,

Gary Peter Tenner: I'm going to ask one more.

Gary Peter Tenner: C21 you've accreted the last year. I'll look for kind of a flattish loan portfolio, let's say, for the rest of the year. You know, that C21 is going to continue to create higher. What would the argument be against a bond repositioning? I mean, you talk about you considering all the options, and you just answered a question about the dividend, of course, but what would be the argument against it?

Steve Gardner: What would the argument be against a bond rebreather position? Am you talking about you considering all the options? And then you just answered a question about the dividend, of course. But what would be the argument against it? Well, look at that. That would be depending upon the size that you did. That's a pretty sizeable hit to earnings and capital, although I think most investors probably back out in their own minds. The fair value of those securities, anyway. But that's a pretty sizeable hit to earnings, which would be impacting tangible book value. You have to think about what's the outlook in the interest rate environment and how does that play into it?

Steven R. Gardner: Well, depending upon the size that you did, that's a pretty sizable hit to earnings and capital, although I think most investors probably back out in their own minds the fair value of those securities anyway. But that's a pretty sizable hit to earnings, which would be impacting tangible book value. You have to think about what the outlook is in the interest rate environment, and how does that play into it?

Speaker Change: Well, look, that would be depending upon the size that you did. That's a pretty sizable hit to earnings.

Speaker Change: and Capital, although I think most investors probably back out in their own minds.

Speaker Change: the fair value of those securities anyway.

Speaker Change: But, you know, that's a pretty sizable hit to earnings, which would be impacting tangible book value. You've got—you have to think about what's the outlook in the interest rate environment and how does that—

Steve Gardner: Where do you redeploy that cash? Look, it's a multi-dimensional question, if you will. And I don't think there's ever any simple or easy answers. One has to make sure that you think about this from all differing perspectives.

Steven R. Gardner: Where do you redeploy that cash? Look, it's a multidimensional question, if you will, and I don't think there are ever any... simple or easy answers. One has to make sure that you think about this from all different perspectives, and that's how we approach any big decision that we make, and that's how we're going to continue to analyze the various options that we have out there.

Speaker Change: play into it, where do you redeploy that cash? Look, it's a multidimensional question, if you will, and I don't think there's ever any.

Speaker Change: simple or easy answers. One has to make sure that you think about this.

Steve Gardner: And that's how we approach any big decision that we do, and that's how we're going to continue to analyze the various options that we have out there.

Speaker Change: from all differing perspectives.

Speaker Change: And that's how we approach any.

Speaker Change: big decision that we do, and that's how we're going to continue to analyze the various options that we have out there.

Gary Tenner: All right, appreciate thoughts on that.

Gary Peter Tenner: I appreciate your thoughts on that. And then there is a follow-up question on deposits. I know that there's a question asked about the kind of near-term reaction of deposits to, say, a September cut. And it seems like it would be 2025, maybe until we start seeing some materially lower deposit costs, depending on what the rate environment looks like on a go-forward basis. But as you think of an easing cycle and kind of where your beta was in this tightening cycle, do you think you could match that on the way down? Or do you think the dynamics around deposit pricing have changed on a more permanent basis? It's hard to say. I think that's a really good question as well, Gary.

Gary Tenner: And then I follow a question on deposits.

Speaker Change: I appreciate your thoughts on that. And then a follow-up question on deposits. I know that

Gary Tenner: I know that there's a question asked about kind of the near-term reaction of deposits to say a September cut. And it seems like it would be 2025. Maybe until we start seeing some, you know, materially lowered deposit costs, depending on what the rate environment looks like on a go forward basis.

Speaker Change: There's a question asked about the near-term reaction of deposits to, say, a September cut.

Speaker Change: And it seems like it would be 2025, maybe, until we start seeing some materially lower deposit costs, depending on what the rate environment looks like on a go-forward basis. But as you think of an easing cycle and kind of where your beta was,

Steve Gardner: But as you think of an using cycle and kind of where your beta was in this tightening cycle, do you think you could match that on the way down, or do you think the dynamics around deposit pricing has changed on a more permanent basis? It's hard to say. I think that's a really good question as well, Gary. It's hard to say in this environment, but I think I'd go back to what the core of our business model is and in our clients. They do business with us because of our relationship bankers and the trust they have in our organization and how we deliver service for them.

Speaker Change: In this tightening cycle, do you think you could match that on the way down, or do you think the dynamics around deposit pricing have changed on a more permanent basis?

Steven R. Gardner: It's hard to say. I think that's a really good question as well, Gary.

Speaker Change: It's hard to say. I think that's a really good question as well, Gary.

Steven R. Gardner: It's hard to say in this environment, but I think I'd go back to what the core of our business model is and our clients. They do business with us because of our relationship with our bankers and the trust that they have in our organization and how we deliver services for them. It's never been about the price we pay on deposits. We probably, in all likelihood, could have retained a lot of deposits that have left the institution or paid down loans, but that would have been at the risk of repricing a good many of the deposits we have in clients and, frankly, would have been sending the wrong message to our clients about what we do and the reason that they bank with us.

Gary Peter Tenner: It's hard to say in this environment, but I think I'd go back to what the core of our business model is.

Speaker Change: and our clients, they do business with us because of our relationship, bankers, and the trust that they have in our organization and how we deliver service for them. It's never been about what the price.

Steve Gardner: It's never been about what the price we pay on deposits. We probably, in all likelihood, could have retained a lot of deposits that have left the institution or paid down loans. But that would have been at the risk of repricing a good many of the deposits we have in the clients. And frankly, would have been sending the wrong message to our clients about what we do and the reason that they bank with us.

Speaker Change: We pay on deposits. We probably, in all likelihood, could have retained.

Speaker Change: a lot of deposits that have

Speaker Change: left the institution or paid down loans, but that would have been at the risk of repricing a good many

Speaker Change: of the deposits we have in the clients, and frankly, would have been sending the wrong message to our clients about what we do and the reason that they bank with us.

Gary Tenner: Thanks.

Gary Tenner: Sure, Gary.

Speaker Change: Thank you.

Andrew Terrell: The next question comes from Andrew Terrell with Stevens.

Operator: The next question comes from Andrew Terrell with Stevens.

Andrew Terrell: Please go ahead. Hey, good morning.

Speaker Change: The next question comes from Andrew Terrell with Stevens. Please go ahead.

Andrew Terrell: Good morning. Probably really risking beating a dead horse here, but I wanted to go back to some of the questions coming around Capitol. If I look back at mid-late 2022, you are around 13% of the CET-1 ratio. We've seen the balance sheet compress significantly, but your CET-1 and your capital is called 300 basis points higher now.

Andrew Terrell: Good morning. Hi Andrew.

Andrew Terrell: I'm probably really risking beating a dead horse here, but I wanted to go back to some of the questions kind of around capital. If I look back at kind of mid-late 2022, you were around 13% of the CET1 ratio. We've seen the balance sheet compress pretty significantly, but your CET1 and your capital are about 300 basis points higher now. Would you be willing to take capital back down to the 13% level from the CEP1?

Andrew Terrell: Hey, good morning. Good morning.

Andrew Terrell: I'm probably really risking beating a dead horse here, but I wanted to go back to some of the questions kind of around capital.

Andrew Terrell: If I look back at mid-late 2022, you were around 13% of the CET1 ratio. We've seen the balance sheet compress pretty significantly, but your CET1 and your capitals caught 300 basis points higher now.

Steve Gardner: Would you be willing to take capital back down to the 13% level from the CET-1? Again, I think that you have to look at all of the dynamics going on in the economy, the outlook, the risks that we're seeing in our portfolio. But, you know, 13% is a pretty healthy level in and of itself. So, you know, there's what they get about all of those. Look, the reality is that we are sitting on very high levels of capital. In fact, once all the data comes out, I suspect of the KRX, we are the highest capitalized bank on virtually every capital measure, including TCE; we're going to be the highest.

Speaker Change: Would you be willing to take capital back down to the 13% level from the C81?

Steven R. Gardner: I think, again, you have to look at all of the dynamics going on in the economy, the outlook, the risks that we're seeing in our portfolio. But 13% is a pretty healthy level in and of itself.

Speaker Change: I think, again, I think that you have to look at all of the dynamics going on.

Speaker Change: in the economy, the outlook.

Speaker Change: the risks that we're seeing in our portfolio. But, you know, 13% is a pretty healthy level in and of itself.

Steven R. Gardner: So we're thinking about all of those. The reality is, we are sitting on very high levels of capital. In fact, once all the data comes out, I suspect of KRX, we are the highest capitalized bank on virtually every capital measure, including TCE. We're going to be the highest.

Speaker Change: So, you know, we're thinking about all of those. Look, the reality is we are sitting on very high levels of capital. In fact, once all the data comes out, I suspect of the KRX,

Speaker Change: We are the highest capitalized bank on virtually...

Speaker Change: every capital measure, including TCE, we're going to be the highest. So it just gives us a lot of...

Steven R. Gardner: So it just gives us a lot of flexibility and optionality. And I know, to an extent, investors might like to see us, you know, deploying this capital more rapidly. And we understand that. We think through all of these dynamics. We have discussions at the board. There are important questions. And we're going to continue to take, you know, a very thorough approach and think through all of the dynamics here. You know, if we, whatever direction we happen to take.

Steve Gardner: So, it just gives us a lot of flexibility and optionality. And I know, you know, to an extent, investors might like to see us, you know, deploying this capital more rapidly. And we understand that. We think through all of these dynamics; we have the discussions at the board. There are important questions.

Speaker Change: flexibility and optionality. And I know, you know, to an extent, investors might like to see us, you know, deploying this capital more rapidly. And we understand that. We think through all of these dynamics. We have the discussions at the board. They're important questions.

Steve Gardner: And we're going to continue to take, you know, a very thorough approach and think through all of the dynamics here of, you know, whatever direction we happen to take.

Speaker Change: And we're going to continue to take, you know, a very thorough approach and think through all of the dynamics here of, you know, if we, whatever direction we happen to take.

Andrew Terrell: Okay. Understood.

Andrew Terrell: Okay, understood. That was it for me. I appreciate you taking the question.

Andrew Terrell: That was it for me. I appreciate you taking the question.

Speaker Change: Okay, understood. That was it for me. I appreciate taking the question.

Operator: Anytime. Glutes are question and answer session.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Steve Gardner for any closing remarks.

Steve Gardner: I would like to turn the conference back over to Steve Gardner for any closing remarks. Thank you all for joining us today. Have a nice week.

Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Steve Gardner for any closing remarks.

Steven R. Gardner: Thank you all for joining us today. Have a nice week.

Steven R. Gardner: Thank you all for joining us today. Have a nice week.

Operator: The conference is now concluded. Thank you for attending today's presentation.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: You may now disconnect. Thank you.