Q4 2024 Pacific Premier Bancorp Inc Earnings Call
Good day and welcome to the Pacific Premier Bancorp fourth quarter, 'twenty 'twenty four earnings conference call.
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Please note this event is being recorded.
I would now like to turn the conference over to Steve Gardner Chairman and CEO. Please go ahead.
Steve Gardner: Great. Thank you Gary Good morning, everyone. I appreciate you joining us today.
Steve Gardner: You're all aware, we released our earnings report for the fourth quarter of 2024 earlier this morning.
Steve Gardner: We have also published an updated investor presentation with additional information and disclosures on our financial results.
Steve Gardner: If you've not done so already we encourage you to visit our Investor relations website to download a copy of the presentation and related materials.
Steve Gardner: I note that our earnings release and Investor presentation include a safe Harbor statement relative to 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 fourth quarter performance.
Speaker Change: 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.
Speaker Change: I want to take a moment to discuss the events currently unfolding here in southern California.
Speaker Change: Our hearts go out to everyone affected by the devastating, California, wildfires, including our colleagues clients and neighbors in the Los Angeles area.
Speaker Change: We stand ready to support our communities needs. During this challenging time, and then future rebuilding efforts.
Speaker Change: As always we remain committed to serving as both a financial partner and a source of strength for the communities we proudly call.
Speaker Change: In response Pacific Premier will launch several initiatives in consumer and commercial lending with expanded products and services to support the displaced homeowners and businesses.
Speaker Change: With these enhanced product offerings. Our goal is to create an efficient streamlined process for those affected with the intention to provide the necessary financial support as soon as possible.
Speaker Change: Our restoration efforts begin.
Speaker Change: We will be there as a primary capital provider to the builders contractors and related businesses as part of our rebuild L. A initiatives.
Speaker Change: Our teams are continuing to assess the direct and indirect impact of the wildfires on our clients' residents as well as their business.
Speaker Change: Of those clients personally affected by the fires the preliminary indications are that approximately four loans totaling $8 million have sustained some level of damage.
Speaker Change: However of those loans 5 million reflects a single credit that is well collateralized and secured by multiple properties.
Speaker Change: We are closely monitoring the ongoing situation and corresponding impacts on our clients and we stand ready to work with those in need over the coming weeks and months.
Speaker Change: Looking now at the results our team delivered a solid fourth quarter closing the year in a strong financial position.
Speaker Change: We generated earnings per share at 35 cents a return on average assets of 75 basis points and a return on tangible common equity of seven 2%.
Speaker Change: Our performance throughout 2024 highlighted the resiliency of our organization and the strength of our relationship based business model.
Speaker Change: This success was a testament to the outstanding business development efforts of our entire team, attracting new small business and middle market clients deepening existing relationships and driving new customers to the bank.
I'll note that late in the fourth quarter. The OCC approved our application to convert from a California chartered bank to a national Banking Association.
Speaker Change: This change in charter better aligns our west coast business banking model that is supplemented by our complementary national lines of business.
Amidst a more favorable economic outlook borrower sentiment improved during the quarter, which drove a positive shift in our funding mix.
Speaker Change: Affectively, reducing higher cost deposits by $163 million, while increasing lower cost transaction deposits by $146 million.
These encouraging trends allowed us to reinvest excess liquidity into loans and short term U S treasuries enhancing our overall balance sheet position.
While the absolute level of short term rates remained somewhat elevated we made progress in lowering our funding cost as cost of funds decreased nine basis points to 1.88%.
Speaker Change: And our spot deposit costs at yearend declined eight basis points to 172%.
Speaker Change: Overall, our cost of deposits remains low on a relative basis when compared to our peers.
Speaker Change: As such we will take a balanced approach towards funding loan growth, while driving pricing down further all of which will likely be impacted by the timing and magnitude of potential fed moves.
Speaker Change: With the federal reserve, having initiated interest rate cuts in September coupled with the resolution of pre election uncertainty.
Speaker Change: We observed growing optimism among our clients about the future.
Speaker Change: These positive trends provide us with renewed confidence for stronger organic originations in commercial and business loans as well as high quality opportunities in construction multifamily and CRE.
Speaker Change: Our loan portfolio increased slightly during the quarter driven by increased C&I and consumer loans.
Speaker Change: During the fourth quarter, new origination activity accelerated with new loan commitments totaling $316 million, our highest level since the third quarter of 2020 two.
Speaker Change: As our loan pipelines ramp up and our teams build on the momentum established in the fourth quarter. We will continue to complement organic loan growth with strategic loan purchases in participations in lines of business, where we have established expertise.
Speaker Change: C&I loans, we acquired are predominantly comprised of investment grade credits and not leverage loans we.
Speaker Change: We may modestly add to this portfolio to supplement existing originations, but expect them to make up a relatively small portion of our overall loan production in the coming quarters.
Speaker Change: Prudent risk management continues to remain a priority.
Speaker Change: Demonstrated by a robust capital ratios, which increased from September 30th.
Speaker Change: Our tangible common equity ratio and total risk based capital ratio increased to 11 point, 92%, 17.05%.
Speaker Change: And 22, 8% respectively at year end.
Speaker Change: On a year over year basis, our total risk based capital ratio increased nearly 300 basis points and all our capital ratios continue to rank near the top of the K B W. Regional banking index.
Speaker Change: As we move into 2025, our strong momentum and robust capital levels position us well to adopt a more constructive approach and driving new business through loan and deposit growth.
Speaker Change: Customer deposit trends during the quarter were positive.
Speaker Change: We saw an increase in lower cost deposits.
Speaker Change: We are cautiously optimistic that increased business and commercial real estate activity will lead to additional deposit growth as we move through the year.
Speaker Change: Looking ahead, our team of bankers are laser focused on expanding both new and existing loan and deposit relationships, enabling us to pursue attractive risk adjusted opportunities to drive higher levels of net interest income and increased earnings power.
Speaker Change: As of December 31st our loan to deposit ratio was 83, 3%, providing us with ample liquidity to fund our growth objectives.
Speaker Change: Regarding pricing, we will remain disciplined but our ability to make immediate adjustments will be somewhat dependent on how the interest rate outlook unfolds.
Speaker Change: Ron will provide additional detail in his comments regarding our forward assumptions within our full year guidance.
Speaker Change: Our long standing philosophy emphasizes the franchise value is built through deep client relationships as evidenced by our strong deposit base is important to note that our average client relationship has a tenure of over 13 years.
Speaker Change: As I discussed during our last call we saw the benefit from the strategic actions, we took during the summer to positively impact loan production.
Speaker Change: We have improved our competitive position in the market.
Speaker Change: Which has translated into a nice pickup in new loan activity.
Speaker Change: I read in an attractive weighted average rate on new originations of $6, 92%.
Speaker Change: The team is successfully managing existing portfolio balances ahead of scheduled loan maturities and interest rate resets as a result, we saw a 95 million of multifamily production for existing customers.
Speaker Change: Having moved past key factors that previously fueled broader uncertainty.
Speaker Change: We anticipate expanding our loan production efforts consistent with our ability to attract low cost deposits.
Speaker Change: In the coming quarters, we expect organic originations to meet or exceed the level of prepayments and payoffs.
Speaker Change: Asset quality results remains strong as nonperforming loans decreased $11 million to $28 million and total delinquencies fell to $2 $6 million or 0.0% to 2% of loans.
These favorable asset quality results represent our effective approach to credit risk management.
Speaker Change: Demonstrated throughout our history and will continue to benefit us and our stakeholders.
Speaker Change: With that I'll turn the call over to Ron to provide a few more details on our fourth quarter financial results.
Ron Nicolas: Thanks, Steve and good morning.
Ron Nicolas: For comparison purposes. My comments today are on a linked quarter basis, unless otherwise noted.
Ron Nicolas: Let's begin with the quarter's results.
Ron Nicolas: For the fourth quarter, we recorded net income of $33 $9 million or <unk> 35 per share.
Ron Nicolas: We had total revenue of $144 $5 million.
Ron Nicolas: And noninterest expense was $100 7 million, which translated to an efficiency ratio of 67, 8% and.
Ron Nicolas: And pre provision net revenue of $43 $8 million.
Ron Nicolas: The quarter's results were influenced.
Ron Nicolas: By the sizeable churn of the loan portfolio, which saw a significant run off early in the quarter.
Ron Nicolas: Offset comparatively by stronger organic loan originations and supplemented by loan purchases in the back half of the quarter.
Ron Nicolas: Taking a closer look at the income statement.
Ron Nicolas: Net interest income of $124 $5 million came in at the high end of our third quarter guidance.
Ron Nicolas: As growth in non maturity deposits resulted in a favorable funding mix shift and lower average funding costs.
Ron Nicolas: Our noninterest margin net interest margin.
Ron Nicolas: Narrowed 14 basis points to 3.0% to 2% as average, earning asset yields declined to $4, 74% due.
Ron Nicolas: Due to lower swap income.
Ron Nicolas: Lower rates on floating rate, earning assets.
Ron Nicolas: And paydowns and payoffs of higher yielding loans.
Ron Nicolas: Partially offset by lower cost of funds, which decreased nine basis points to 188%.
Ron Nicolas: Our cost of deposits decreased 179%.
Ron Nicolas: And average non maturity deposit costs were flat at $1 two 8%.
Ron Nicolas: With the spot cost of non maturity deposits decreasing to $1 two 4%.
Ron Nicolas: Okay.
Ron Nicolas: Our sulfur based swap portfolio contributed 10 basis points to the net interest margin and.
Ron Nicolas: And we have $300 million remaining of notional swaps that mature during the first half of 2026.
Ron Nicolas: With our current rate expectations for two fed rate cuts in 2025.
Ron Nicolas: We anticipate approximately $2 million to $3 million of swap income for the first quarter.
Ron Nicolas: Average loan yields decreased to five 3% due to lower rates on floating rate loans and combined prepayments carrying an average coupon rate of seven 3%.
Ron Nicolas: While we fully offset the elevated level of prepayments with new organic originations at an average rate of 692% and loan purchases that carried an average rate of 654%. The fundings occurred later in the quarter.
Ron Nicolas: This dynamic.
Ron Nicolas: Along with the immediate repricing of floating rate loans and swaps had a pronounced effect on the fourth quarter average loan yields.
Ron Nicolas: It is important to note there.
Ron Nicolas: The fourth quarter total end of period weighted average interest rate on loans, excluding fees discounts and swaps decreased only four basis points to 478%.
Ron Nicolas: As highlighted in our investor presentation.
Ron Nicolas: We anticipate 125 basis point rate cut in March and 125 basis point cut in September and.
Ron Nicolas: And expect full year net interest income to be in the $500 million to $525 million range.
Ron Nicolas: Noninterest income increased to $20 million as a result of higher investment income of $1 $1 million.
Ron Nicolas: For the full year 2025, we expect our total noninterest income to be in the range of $80 million to $85 million.
Ron Nicolas: Noninterest expense decreased $1 million to $100 7 million attributable to a $3 million decrease in compensation expense.
Ron Nicolas: As well as lower facilities and deposit costs.
Ron Nicolas: We offset by $4 $1 million and higher legal and professional services.
Ron Nicolas: From a staffing perspective, we ended the quarter relatively flat with a head count of 325 compared with <unk> hundred 28 as of September 30th.
Ron Nicolas: Our expectations for full year 2025 are for noninterest expense to be in the range of $405 million to $415 million as we continue to diligently manage our operating expense.
Ron Nicolas: We had a provision recapture of $814000 compared to $486000 of provision expense in the prior quarter commensurate with our loan portfolio mix shift.
Ron Nicolas: And our current asset quality profile.
As Steve noted asset quality continues to trend favorably as we proactively manage our credit risk.
Ron Nicolas: Turning now to the balance sheet.
Ron Nicolas: We finished the quarter at $17 9 billion in total assets consistent with the level at September 30th as we deployed excess cash into loans and <unk> securities.
Ron Nicolas: Total loans held for investment were flat from the prior quarter at $12 million as increases in C&I and single family residential loans offset reductions in CRE multifamily and construction loan balances.
Ron Nicolas: During the fourth quarter, new origination activity increased as new loan commitments totaled $316 million and fundings totaled $193 8 million.
Ron Nicolas: In addition to organic loan growth, we purchased $401 $3 million of investment grade C&I loans, and $116 $3 million of single family residential loans.
Ron Nicolas: Our C&I lines of credit outstanding as of December 31 were $536 $8 million and the utilization rate was 33, 5% compared with $743 $1 million outstanding.
Ron Nicolas: And the utilization rate of 41% at September 30th.
Ron Nicolas: I'll note the elevated level of prepayments and decreased line utilization as seen in the fourth quarter was impacted by the planned exit of a large commercial relationship in early October.
Ron Nicolas: Looking ahead, our loan pipelines are building and we anticipate low to mid single digit loan growth in 2025.
Steve Gardner: As Steve noted.
Steve Gardner: We will continue to supplement organic loan originations with loan purchases to meet and exceed runoff.
Steve Gardner: Total deposits were $14 5 billion, a decrease of $17 2 million from the prior quarter.
Non maturity deposits increased $145.
Steve Gardner: $8 million to $12 4 billion and the level of non maturity deposits increased to 85, 4% of total deposits.
Steve Gardner: With noninterest bearing deposits remaining steady at 32%.
Steve Gardner: The growth in non maturity deposits.
Coupled with.
Steve Gardner: A deliberate reduction in higher cost time deposits.
Steve Gardner: Results at an overall cost of deposits of $1, 79%.
Steve Gardner: We saw our cash position trend.
Steve Gardner: More toward our historical levels, ending the quarter at $610 $6 million.
Steve Gardner: The remix of our balance sheet reflects the stability in our deposit base and moving forward, we anticipate our cash position will remain at this lower level.
Steve Gardner: Yeah.
Steve Gardner: The securities portfolio increased $365 $1 million to $3 5 billion and the average yield on our investment portfolio was 365%.
Steve Gardner: During the quarter, we purchased $705 million of <unk> securities consisting almost entirely of short term treasuries with a weighted average yield of four 3%.
Steve Gardner: From a liquidity perspective.
Steve Gardner: We enter 2025, and a strong position with $610 $6 million of cash on hand.
Steve Gardner: Our loan to deposit ratio of 83% nine.
Steve Gardner: $9 billion of total available unused borrowing capacity and $1 $1 billion of scheduled cash flow coming back from our investment portfolio.
The combination of solid earnings.
Steve Gardner: Stable overall balance sheet size, and a favorable loan mix shift strengthen our capital ratios with all ratios increasing over the prior quarter.
Steve Gardner: Our tangible common equity ratio increased nine basis points to 11, 92% and our tangible book value per share increased 75 cents year over year to $20 and 97.
Steve Gardner: Lastly from an asset quality standpoint.
Steve Gardner: We continued to see improvement overall in our asset quality numbers as nonperforming loans decreased $11 1 million to $28 million or <unk>, 23% of loans.
Steve Gardner: Total delinquency decreased six basis points to 0.0% to 2% and classified loans decreased 12 basis points to eight 8% of total loans.
Steve Gardner: Our ACL balance and ACL coverage remain ratio remained at healthy levels totaling $178 $2 million and our coverage ratio came in at 148% compared to 1.45% at December 31 2023.
Steve Gardner: Our total loss absorption, which includes the fair value discount on loans acquired through acquisitions finished the quarter at 175%.
Steve Gardner: With that I'll turn the call back to Steve.
Steve Gardner: Great. Thanks, Ron I'll wrap up with a few comments as we move into the new year.
Steve Gardner: With the new administration and a more encouraging outlook, we have an increased confidence to grow the balance sheet and what is expected to be a more business friendly environment for our clients.
Steve Gardner: Prospects or potential deregulation, leading to increased productivity is expected to have a meaningful impact on our ability to generate new loan production as we work to gain market share.
Steve Gardner: In terms of capital allocation.
Steve Gardner: In the near term, we are committed to maintaining our dividend at the current level and while earnings may be muted. During the early part of 2025, our focus is to redeploy excess liquidity into more loans to grow and generate further earnings power.
Steve Gardner: Moreover, we began this year with good momentum and high levels of capital with a steadfast focus on reinvesting in the business to support organic growth.
We believe we are entering a more constructive environment that should provide greater growth opportunities and better demand for credit.
We have significant optionality to capitalize on any attractive opportunities that may arise.
Steve Gardner: That said as always we are exploring a multitude of capital deployment options to act opportunistically and maximize shareholder value, which could include select loan purchases and participations to complement organic growth.
Steve Gardner: Further reduction of higher cost funding sources, including time deposits and the repayment of subordinated debt strategic.
Steve Gardner: Strategic balance sheet restructurings in the form of exiting lower yielding CRE loans or securities.
Steve Gardner: Or share repurchases as we have roughly $100 million of capacity under our current authorization.
Steve Gardner: On the M&A front, we remain open to a broad range of strategic transactions that will maximize long term value for our shareholders. We.
We firmly believe in the benefits of scale and that is best achieved through effectively structured M&A agreements.
Steve Gardner: Thus, we remain actively engaged in pursuing attractive partners and remain agnostic to which side of a transaction we are on.
Steve Gardner: On behalf of the board of directors and our entire executive leadership team I want to thank every one of our colleagues for their dedication to Pacific Premier.
Steve Gardner: That concludes our prepared remarks, and we would be happy to answer any questions.
Gary: Gary Please open up the call for questions.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May press Star then one on your telephone keypad.
Speaker Change: If you were using a speakerphone please pick up the handset before pressing the keys.
Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Matthew Clark with Piper Sandler. Please go ahead.
Matthew Clark: Hey, good morning, everyone.
Speaker Change: Good morning, Matthew.
Speaker Change: Just a few quick ones around the margin.
Speaker Change: If you had the average margin in the month of December and then kind of thoughts on the near term margin here in <unk>.
Speaker Change: And where you might.
Speaker Change: Thank you might exit 2025 given.
Speaker Change: Your growth prospects.
Speaker Change:
Speaker Change: And where would you do on the funding side.
Speaker Change: Hey, Matthew.
Speaker Change: Our December net interest margin was three.
Speaker Change: 303.
Speaker Change: <unk>, 3.0% to 3%.
Speaker Change: And I would anticipate our first quarter margin is going to be right around where we're at now at least that's what we're thinking right as we sit here today, we still had some obviously some positive things come about with lower funding costs.
Speaker Change: But as we as we talked a little bit about we saw some higher yielding loans prepay off earlier in the quarter, but then we got some I think we've got some yield back here in the latter part with these with the originations in some of these purchases so.
Speaker Change: Net net we're kind of thinking it's going to be right around this level for the first quarter and then as we move throughout 2025 will be able to improve on both sides of that equation.
Speaker Change: Matthew.
Matthew Clark: Okay Fair enough and then on the.
Speaker Change: Comp expense it looks like there was a reversal of comp accruals can you just quantify how much that was and kind of what we should anticipate for merit increases and <unk>.
Speaker Change: There is a few dynamics that happened here in the fourth quarter, we had just overall lower staffing through the entire quarter. I think we finished the second quarter at about 350 people on our third quarter came down and then we stayed pretty much flat. So that gave rise to lower our overall incentives.
For the full year, if you will lower benefit costs lower compensation costs. So we we had a little bit of a wind windfall.
Speaker Change: In that respect here in the fourth quarter the.
Speaker Change: First quarter.
Speaker Change: Our budget is around 3%, we'll probably see a couple million dollars there.
Speaker Change: Increasing.
Speaker Change: As well as with the payroll taxes, and then we'll get back to a more normalized.
Speaker Change: Run rate.
Speaker Change: Okay, Great and then last one for me just on the loan purchases.
Speaker Change: So the types of things you purchased but can you just give us some more some more color on what you.
Speaker Change: Wed like to purchase on the on the margin kind of incremental in terms of yield and some type of assets.
Speaker Change: Sure.
Speaker Change: It's really again, we use is tactically to supplement.
Speaker Change: The production and as the team ramps up further and depending upon market conditions.
Speaker Change: We continue to look to acquire.
Speaker Change: Non CRE, although we're not completely opposed to CRE purchases as long as it met our risk adjusted return thresholds.
Structure price and the like so we will continue to look at a variety of.
Speaker Change: A product types, but again, it's it's.
Speaker Change: Within that spectrum of of where our expertise lies in C&I.
Speaker Change: Commercial real estate and the like.
Speaker Change: Great. Thank you.
Speaker Change: The next question is from Gary Tenner with D. A Davidson. Please go ahead.
Gary Tenner: Thanks, Good morning.
Speaker Change: Good morning, Garrett topic, good morning on the <unk>.
Gary Tenner: <unk> of being kind of not.
Gary Tenner: Anti CRE can you talk about how.
Gary Tenner: If your view on that changed at all here you've got your CRE concentration ratio just a tick over 300 right now the first time, you've been down to that level since the August acquisition, a few years ago, so as that.
Gary Tenner: There is getting to that level materially change your your appetite or view of that segment.
Gary Tenner: No it doesn't materially change yet.
Gary Tenner: But I think that.
Gary Tenner: One we wanted to work that down over time, historically, we had done that more rapidly following.
Gary Tenner: Acquisitions, just principally because our primary focus is on banking.
Gary Tenner: Small business is middle market clients and that typically lead to much.
Gary Tenner: Much greater activity on the C&I side, and then certainly just the dynamics that occurred with the pandemic post Opus acquisition and just the high quality nature of our business clients. We just saw rapid paydowns in those areas.
Gary Tenner: And given our expertise in the multifamily.
Gary Tenner: That is what we originated during that period of time, but we.
Gary Tenner: We certainly wanted to bring that concentration down and certainly there were a lot of uncertainties over the last couple of years on how CRE would perform I think some of those have abated, but not fully.
Gary Tenner: And that's really stemming from what we saw with the fed beginning to.
Gary Tenner: Remove the tightness in fed funds rate last year with the 100 basis points decline, we'll see where that goes from from here, but in addition to that we were pretty confident in the performance of our own loan portfolio and we've certainly seen that very strong asset.
Gary Tenner: Quality metrics across the board just all of that adds up and we're just a bit more constructive here today.
Gary Tenner: We're willing to add a little bit to it but.
Gary Tenner: We certainly rather.
Gary Tenner: We're not going to be growing at significantly or materially.
Gary Tenner: Great appreciate the thoughts there and then as it relates to kind of the rebuilding.
Gary Tenner: In the wake of the wildfires.
Gary Tenner: Do you think that.
Gary Tenner: As we move to the back half of the year, you actually see a tangible.
Gary Tenner: It should growth I've had some people suggest it could be an extended period of time until there is even building permits.
Gary Tenner: Issued as far as the rebound just because of the amount of cleanup that has to be done.
Gary Tenner: The thoughts around that.
Gary Tenner: Yes, no I think the cleanup is going to be significant.
Gary Tenner: Uh huh.
Gary Tenner: And just certainly the.
Gary Tenner: Tightness in the construction trades and the industry overall right now finding those individuals.
Gary Tenner: But I think it's encouraging hearing.
Gary Tenner: The policymakers political leaders.
Gary Tenner: At the local and state levels seeming to be very committed to.
Gary Tenner: Temporarily suspending or removing a lot of this red tape.
Gary Tenner: That has existed for a long period of time that frankly has led to this on durability and under development.
Gary Tenner: Of housing in the state.
And that that will hopefully benefit here.
Gary Tenner: Those individuals that have been impacted so we'll see how things evolve here.
Gary Tenner: I think that we are in a very unique position with our capital levels with our knowledge experience on the construction side.
Gary Tenner: Banking businesses and consumers and again right within our own neighborhood that.
Gary Tenner: That we expect to be very active in and helping our communities rebuild.
Gary Tenner: Great. Thanks, everyone. Just a quick bookkeeping question can you give us the total ACL include any allowance for unfunded commitments at year end.
Gary Tenner: I don't have that off the top.
Gary Tenner: My head here.
Gary Tenner: Gary Let me, let me get back to you on that.
Gary Tenner: Okay. Thank you.
Gary Tenner: Sure.
Speaker Change: The next question is from Chris Mcgratty with K VW. Please go ahead.
Speaker Change: Oh great.
Chris Mcgratty: Can you kind of a two part.
Speaker Change: Question about the effects of what happened in November and the election.
Speaker Change: Maybe maybe a comment on the increased optimism business friendly you touched upon in your prepared remarks, and I've got a follow up on that.
Speaker Change: Sure.
Speaker Change: No I think that broadly the.
Speaker Change: Yes.
Speaker Change: Increased level of optimism from business owners were combination of factors again, the fed beginning to reduce the fed funds rate I think was a.
Speaker Change: A piece of that.
Speaker Change: To just getting the election behind us.
Speaker Change: The smooth peaceful transfer of power.
Speaker Change: <unk> important and then I think widely expected is just a more constructive business friendly environment.
Speaker Change: That clients are sensing.
Speaker Change: And where they have been reluctant to invest.
Speaker Change: I think theyre just all of those factors that played into a bit more of an optimistic viewpoint.
Speaker Change: Their outlook and that's what they're indicating to us and Thats what were certainly sensing from the conversations that we're having with business owners and investors.
Speaker Change: That's great. Thank you.
Speaker Change: My follow up.
Speaker Change: Maybe a comment on how M&A conversations have evolved in the last maybe 90 days if theres been any change given.
Speaker Change: Stocks and working a little bit more than just a growing optimism for the economy and.
Speaker Change: And deregulation.
Speaker Change: Yes, I think certainly.
Speaker Change: Conversations have picked up a little bit.
Speaker Change: Given.
Speaker Change: I think we all widely expect that the muted levels of M&A, we've seen over the last couple of years.
Speaker Change: As the regulators.
Speaker Change: Seemed to be calm.
Speaker Change: A bit more open to transactions and widely expected that they.
Speaker Change: Could move through the process a bit more smoothly.
Speaker Change:
Speaker Change: That's created also a level of optimism.
Speaker Change: We are actively pursuing.
Speaker Change: <unk>.
Speaker Change: That's great. Thank you.
Speaker Change: The next question is from Andrew <unk> with Stephens. Please go ahead.
Speaker Change: Yeah.
Speaker Change: Hey, good morning.
Speaker Change: Good morning, Andrew.
Speaker Change: Ron if I could ask on me.
Speaker Change: The margin quickly I think you said that you were expecting $2 million to $3 million of swap income in the first quarter can you just remind us how much do you recognize in the fourth quarter.
Speaker Change: About $4 million was recognized in the in the fourth quarter Andrew.
Speaker Change: Okay.
Speaker Change: I wanted to ask on <unk>.
Speaker Change: Some of the purchase strategy.
Speaker Change: For the C&I loans I think your C&I book was up one.
Speaker Change: $170 million or so this quarter.
Speaker Change: Was any of that snacks and can you just quantify I might've message is how much of the C&I was purchased how much of a single single family was purchased this quarter.
Speaker Change: I don't have the exact amounts here.
Speaker Change: On me I mean, Theres certainly Ron may have.
Speaker Change: There are some states in there.
Speaker Change: In other loan types that we purchased <unk> participated in.
Speaker Change: As we've mentioned predominantly investment quality assets, Andrew It was $400 million.
Speaker Change: On the C&I side, and about 115 round numbers on the SSR.
Speaker Change: Got it okay.
Speaker Change: And I wanted to ask on just back on the deposits.
Speaker Change: Quickly I think you mentioned that the spot rate 172 at year end on total deposits I guess I'm just curious how does that 172 do you feel like there's more room to go in terms of repricing customer deposits.
Speaker Change: Absent any future rate decreases here kind of in the first half of the year or does that 172 really incorporate kind of avi.
Speaker Change: All the actions you took.
Speaker Change: Prior meetings.
Speaker Change: We think there's some opportunity to continue to push deposit costs down.
Speaker Change: As we grow.
Speaker Change: Quality relationships that lead to.
Speaker Change: Low cost transaction accounts.
Speaker Change: Yes, we're seeing most of the pricing benefit on the time deposits.
Speaker Change: We have seen some on the transaction and the non maturity deposits.
Speaker Change: Our deposit beta overall is running around 35% to 40%.
Speaker Change: But we're seeing higher on that time than we are on the on the non maturity.
Speaker Change: Albeit again, so there is some opportunity to some mix opportunity as Steve indicated.
Speaker Change: But obviously, we will see how the how it plays out with the fed.
Speaker Change: Our cost of course is already.
Speaker Change: Lower than the average yes relatively speaking so we have a little bit of room to give.
Speaker Change: With the.
Speaker Change: With the fed funds lowering whereas some folks who are right their cost of deposits being much closer to a much higher.
Speaker Change: <unk> immediately started to take advantage of those initial fed fed cuts Andrew yes.
Speaker Change: Yes, Okay that makes sense, if I could sneak one more in just on that.
Speaker Change: On the deposit expense for me in the Opex line.
Speaker Change: There was a little bit of moderation this quarter, but my sense is that a lot of these are pretty.
Speaker Change: Pretty rate sensitive that might come down.
Speaker Change: More than that Dan I'm, just curious you know for the conversations youre having with.
Speaker Change: Clients around ECR rate and the deposit operating expense you are paying and does that feel more and more competitive as you have those conversations.
And your more traditional clients.
Speaker Change: I mean generally that's a good chunk of that is it's related to our community Association HOA banking.
Speaker Change: Banking team in.
Speaker Change: Over the last couple of years, we've seen.
Speaker Change: <unk> heard some just a crazy frankly pricing.
Speaker Change: By some folks that.
Speaker Change: Indicate to us at least a level of desperation and it's just never been a game that we would play or enter.
Speaker Change: Focused on long term and keeping our deposit costs low.
Speaker Change: And but at the same time remaining.
Speaker Change: Competitive where we can so we'll see as we move through the year.
Speaker Change: What options, we have there to to push some of those costs down.
Speaker Change: Okay. Thank you for taking the questions.
Speaker Change: The next question is from David Feaster with Raymond James. Please go ahead.
David Feaster: Hi, good morning, everybody.
Speaker Change: Good morning, David.
Speaker Change: Just starting on the loan side it seems like if I'm hearing you correctly, we're expecting organic lead to at least keep things stable and supplement the growth with <unk>.
Speaker Change: <unk>.
Speaker Change: Be the driver of growth.
Speaker Change: I guess, what do you what do you think it'll take to get organic growth to support that low to mid single digit pace of growth that you were talking about and maybe alleviate the need for purchases or participation do you have the team in place to do that are you interested in additional hires to maybe get where you're trying to go.
Speaker Change: No we have the team in place and I think it's look as.
Speaker Change: We really became obviously.
Speaker Change: Our market position improved.
Speaker Change: We did that.
Speaker Change: Conscientiously in during the summer and so the pipeline began to build from that point and so we're still to an extent a little bit in the early stages.
Speaker Change: But we're encouraged by how we engaged in the level of activity that we're seeing from our bankers and the opportunities that they are coming across.
Speaker Change: So we will see it somewhat depends on the level of Paydowns and payoffs that we see in the portfolio.
Speaker Change: I would fully expect.
Speaker Change: Again, depending upon market conditions.
Speaker Change: Within the next couple of quarters that the team should be.
Speaker Change: <unk> funding.
Speaker Change: We should be originating the product ourselves.
Speaker Change: And we will just tactically Utah.
Speaker Change: Utilize loan purchases participations here.
Speaker Change: Along the way.
Speaker Change: Okay terrific.
Speaker Change: And then just curious.
Speaker Change: What are you seeing on the new loan yield Brian. It seems like you are increasingly willing to compete on rate to drive growth still getting really attractive yields pushing 7%.
Speaker Change: And yields held up pretty well despite fed cuts I'm just curious looking forward how do you think about.
Speaker Change: The loan yields.
Speaker Change: And repricing, taking taking into consider kind of the fixed the fixed rate pricing that you got in the book coming up this year and especially in 2026 and 2027 and you got the swap headwind gone. So I'm just kind of curious how you think about the pace of yield improvement given some of these dynamics.
Speaker Change: I think it remains to be seen what does the fed do.
Speaker Change: One way or the other.
But right now the yield on the new originations.
Speaker Change: Is pretty attractive in the high sixes and same thing with <unk>.
Speaker Change: Some of the product.
Speaker Change: We purchased.
Speaker Change: So we're pretty encouraged also we have a chunk of the multifamily and CRE that's repricing here.
Speaker Change: This year.
Speaker Change: And hopefully we can retain much of that we've seen an unusual dynamic here over the last couple of years as soon as those loans.
Speaker Change: Move to that adjustable rate and much higher hub borrowers were just paying us off with all cash.
Speaker Change: Or sometimes less extent moving to another institution to finance it.
Speaker Change: So I think we're worrying courage here more so than we have been in the past about the ability to.
Speaker Change: Reprice the loan portfolio up over time, that's not going to happen overnight.
Speaker Change: We're fairly.
Speaker Change: Constructive at this point.
Speaker Change: Okay, that's great and then just.
Speaker Change: We touched on some of the capital priorities, notably the the M&A side.
Speaker Change: I'm, just curious kind of how you think about obviously dividend maintaining the different dividends top priority got some organic growth on the horizon, how do you think about buybacks or additional restructurings.
Speaker Change: I mean, I think as I mentioned that we're looking at a multitude of options.
Speaker Change: We are regularly assessing it.
Speaker Change: It comes with impacts both positive and negative if you will and <unk> got to take all of those into consideration and then you're making assumptions about fewer.
Future the ability to grow organically to redeploy that liquidity.
Speaker Change: And the like.
Speaker Change: So we'll continue to reassess asset and as.
Speaker Change: As I've mentioned, we include that in the stock buybacks as well.
Speaker Change: Alright, Thank you everybody.
Speaker Change: The next question is a follow up from Matthew Clark with Piper Sandler. Please go ahead.
Speaker Change: Yes.
Matthew Clark: Yeah. Thanks, just on the sub debt can you remind us when that re prices and whether or not you would.
Matthew Clark: Either refinance that or just pay it off I mean thats the only.
Matthew Clark: Those are the only borrowing do you have left on the balance sheet.
Matthew Clark: That's correct I mean, one of them are repriced last year, our or move to adjustable rate. The other one I believe in June June right right. Yes that is correct, yes, yes look we're.
Matthew Clark: We're looking at that as well.
Matthew Clark: Considering refinancing at <unk>.
Matthew Clark: Considering paying it off.
Matthew Clark: <unk> leave it in place all of those various options, we're looking at modeling and discussing internally.
Matthew Clark: Okay. Thank you.
Matthew Clark: This concludes our question and answer session I would like to turn the conference back over to Steven Gardner for any closing remarks.
Steven Gardner: Thank you Gary and thank you all for joining us today.
Matthew Clark: Okay.
Matthew Clark: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Matthew Clark: Okay.
Matthew Clark: Yeah.
Matthew Clark: Yes.
Matthew Clark: [music].
Matthew Clark: Okay.
Matthew Clark: Okay.
Matthew Clark: Okay.
Matthew Clark: Okay.
Matthew Clark: Yes.