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spk07: Thank you for standing by, and welcome to the Columbia Banking System's third quarter 2023 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentations, there'll be a question and answer session. To ask a question at that time, please press star 11 on your telephone. As a reminder, today's call is being recorded. At this time, I'd like to introduce Jackie Boland, investor relations director for Columbia, to begin the call.
spk01: Thank you, Valerie. Good afternoon, everyone. Thank you for joining us as we review our third quarter 2023 results, which we released shortly after the market closed today. The earnings released in corresponding presentation, which we will refer to during our remarks this afternoon, are available on our website at ColumbiaBankingSystem.com. With me this afternoon are Clint Stein, President and CEO of Columbia Banking System, Chris Meriwell and Tori Nixon, the presidents of Umpqua Bank, Ron Farnsworth, Chief Financial Officer, and Frank Namdar, Chief Credit Officer. After our prepared remarks, we will take your questions. During today's call, we will make forward-looking statements which are subject to risks and uncertainties and are intended to be covered by the safe harbor provision of federal securities law. For a list of factors that may cause actual results to differ materially from expectations, please refer to slide two of our earnings presentation, as well as the disclosures contained within our SAC filing. We will also reference non-GAAP financial measures alongside our discussion of GAAP results. We encourage you to review the GAAP to non-GAAP reconciliations provided in our earnings release and throughout the earnings presentation. I will now turn the call over to Clint.
spk04: Thanks, Jackie. Good afternoon, everyone. Columbia's third quarter results reflect our associates' emphasis on activities that generate business and drive efficiencies for our franchise. Our focus on balanced growth resulted in relationship-driven expansion in our loan portfolio and higher non-interest income. Despite industry headwinds, we continue to see stabilizing deposit trends. Integration activities are winding down as we are now in our eighth month since the merger closed. I'm pleased to report we achieved $140 million in annualized cost savings through quarter end, surpassing our originally announced target of $135 million. These savings are net of franchise reinvestment, which included investments in talent, products, technology, and strategic locations in the novel markets. While our formalized cost savings objectives related to the merger are coming to an end, our focus on efficient growth is not. We will continue to seek out offsets to our investments, driving our business forward in an efficient manner while enhancing shareholder value. Our talented associates, expanded footprint and customer-focused business model provide us with the resources and opportunities to profitably grow market share throughout the West. Our future is bright, and I look forward to providing updates on these objectives in subsequent quarters. I'll now turn the call over to Ron.
spk12: Okay. Thank you, Clint. And for those on the call who want to follow along, I will be referring to certain page numbers from the earnings presentation. Slide four lays out our Q3 performance ratios. noting stability in the NIM, our operating efficiency ratio at 52%, and our return on tangible common equity just over 20%. These are five-quarter views, and recall we closed the combination at the end of February this year. Slide five shows our summary balance sheet, noting our $0.8 billion of deposit growth exceeded net loan growth, resulting in the loan-to-deposit ratio falling back to 89%. We also reduced our short-term federal home loan bank borrowings this quarter by $2.3 billion, which lowered our on-balance sheet interest rate and cash transition to $1.9 billion. On slide six, we highlighted the income statement trends. GAAP earnings were $0.65 per share, impacted by declining merger expense as we complete the integration along with fair value changes due to higher interest rates. On an operating basis, we earned $0.79 per share in Q3, about flat with Q2 as the increase in provision for loan loss was offset by declining non-interest expense as we realized cost synergies. Operating PPNR was up 6.5% to $259 million in Q3. Turn to slide seven, we break out Q3 gap earnings to help investors understand the non-operating and merger-related impacts on results. First column represents our Q3 gap fully combined results with net income of $136 million, or $0.65 per diluted share, and return on tangible common equity of 17%. The second column includes our non-operating designation for income statement changes, again, mostly related to fair value swings, along with $23 million of merger and exit and disposal costs, including the non-exit expense, which are further detailed out of the appendix. These net to a $28 million reduction in Q3 earnings, resulting in the third column for operating income. And again, our operating income for Q3 was $164.3 million, or 79 cents per diluted share, with our return on assets at 1.2% and return on tangible common equity at 20.5%. We added pages to the appendix with trending on each of these columns. The discounted creation will be a steady and reliable source of interest income over time, as the majority is driven by rate, not credit, providing us with a steady build of capital over time. And recall, the CDI amortization does not impact tangible book value, so the 17 cents per share from merger accounting was the equivalent of 28 cents per share added to tangible book value in Q3. We'll continue to highlight and trend here to aid investors in valuing all earnings streams. And our tangible book value excluding AOCI increased 45 cents during the quarter to $17.48 per share. Moving to the next slide on Section 9, we highlight net interest income and margin. Our NAM was steady from Q2 at 3.91%, resulting in $481 million of net interest income. The NAM excluding merger accounting was 3.28%. We reduced excess liquidity in cash late in Q3, which should have a positive effect on our NAM in Q4. Both measures were at the upper end of our prior guidance driven by the increase in customer deposits this quarter. Slide 10 breaks out the repricing and maturity characteristics of the loan portfolio, noting 42% is fixed, 29% is floating, and 29% are adjustable. Slide 11 provides an updated view of our combined interest rate sensitivity under both ramp and shock scenarios. We've taken proactive measures to reduce the balance sheet sensitivity to a future declining rate environment. You can see here the training over the past year where our rates down risk has been reduced significantly. And noted below, we calculate our cycle-to-date funding betas, which are calculated on a combined company basis over the periods presented for comparability. As of the third quarter, our Urgent Sparing Deposit portfolio has priced in 37% of the Fed Fund's rate increases. Notable here is the cost for in-spring deposits, which was 2.01% for Q3, and 2.18% for the month of September. And again, the lift this quarter was influenced primarily by the additional broker deposits, which were used to pay off maturing federal and bank advances for a relatively neutral impact on our funding costs. The cost of inspiring liabilities was 2.77% for the month of September and 2.78% at September 30th, relatively in line with the 2.72% for the entire quarter. Slide 12 breaks out non-interest income items, noting we had continued growth in service charges and card-based fees due to higher revenue from customer-related products. The change in loans held at fair value at the bottom was a direct result of the increasing long-term yields this quarter. Next up on slide 13, we're happy to report we've exceeded our original cost energy target of 12% or $135 million. As of quarter end, we've achieved $140 million in annualized go-forward cost synergies as we finalize our integration. We expect that we'll lift to $143 million by year end. Again, these amounts are net of reinvestments made in various areas. Normalizing the month of September expense, XCDI, was $81.3 million, which would be $245 million for the quarter, in the middle of our prior Q4 guidance range. which reiterate at $240 to $250 million. Note on the right side is a waterfall from the prior quarter, with reductions driven by lower comp, occupancy, and contract costs. To better help investors, given the combination accounting and moving parts on Flight 14, we provide an updated outlook for 2023 on several key financial statement items. Our current outlook is consistent with last quarter's update. with the tighter band around the margin as the third quarter's results came in at the upper end of guidance given favorable customer deposit flows. Moving ahead to the next section on the balance sheet. On slide 16, we detail out the investment portfolio. The table takes you from current par to amortized cost to fair value, noting the difference between current par and amortized cost is the combined net discount, which will be accreted to interest income over time. The decline in market value this quarter, of course, resulted from higher market yields across the curve. As you can tell, I'm excited about this portfolio that gives us a significantly higher and stable earnings stream with greater optionality. The overall book yield was 3.61%, with an effective duration of 5.7 as of quarter end. Slide 17 covers our liquidity, including deposit flows during the quarter. For comparability, we presented the table on the left as if we were combined for all periods presented. Total deposits increased $0.8 billion, or 1.9% in the third quarter. And customer accounts increased $89 million, and again, we used the brokerage along with excess cash to fund a portion of the Homeland Bank borrowing reduction. The upper right table details our off-family sheet liquidity, with $12.2 billion available as of quarter end. And below that, we add cash and excess bond collateral not pledged for lines to arrive at total available liquidity of $19.1 billion. This represents 142% of uninsured deposits as of quarter end. Slide 18 provides the loan roll forwards, noting we sold $159 million of marked non-relationship resident loans in Q3. Our loan portfolio increased 3% on an annualized basis when most sale was excluded. Turning now to slide 19, we present the remaining balance of discount marks as compared to the prior quarter and at closing. For the AFS portfolio, the acquired discount was reduced $23 million via accretion to interest income. In our age-related detail, we include this $23 million, along with $19 million of higher bond interest income from the portfolio restructure we completed post-close to arrive at the $42 million total accretion from all. On the loan side, we had $29 million of rate accretion and $6.4 million for credit. The total marks declined $93 million in Q3 through a combination of accretion to interest income and the loan sale. And finally, in the back on slide 26, we highlight our regulatory capital position, moving our risk-based capital ratios increased roughly 25 basis points as expected in Q3. We expect to quickly approach our long-term capital targets at 12% on total risk-based capital, which will provide for enhanced flexibility to return excess capital to shareholders. And with that, I'll now turn the call over to Frank.
spk10: Thank you, Ron. Slides 20 through 22 provide select characteristics of our loan portfolio, including the composition of our commercial books, and an overview of our office loans that highlights this diversified granular portfolio primarily supported by properties located in suburban markets. Moving on, slide 23 displays our reserve coverage by loan category. Additionally, the remaining credit discount on loans provides a further 23 basis points of loss absorbing capacity. The $37 million provision expense recorded in the quarter accounts for several factors including shifts in the loan portfolio mix and trends in credit migration. The slight uptick in non-performing loans during the quarter suggests a move toward a more standard credit environment following a phase of exceptionally high quality. Slide 24 provides an overview of our consolidated credit trends. In general, our credit performance is and has remained positive excluding the anticipated trend in FinPAC charge-offs. FinPAC charge-offs remained elevated during the third quarter, still centered in the trucking sector of the portfolio. However, the plateau in related early-stage delinquency trends we discussed on last quarter's call resulted in a reduction in FinPAC net charge-offs, which react on a lag to delinquencies. Excluding FinPAC, charge-off activity at the bank remains at a very low level. I'll now turn the call over to Chris.
spk02: Thank you, Frank. Turning to deposits, slide 25 highlights the quality of our granular deposit base. As Ron noted, customer deposit balances increased during the quarter despite the continued effects of market liquidity tightening and inflation. Our teams remain active in their markets and their focus on customer acquisition and retention resulted in net deposit increases throughout many of our business lines. Strategic expansion also supports our business generation activities. We opened our first retail branch in Utah during the third quarter, supporting our intention to make businesses, their owners, their employees, and any others in the communities we serve throughout our eight state Western footprint. We also selectively added to our talented associate base, including the addition of two key bankers in Northern California. one in commercial and one in wealth management. We continue to capitalize on opportunities our expanded customer base provides and our commitment to our relationship-focused model. I'm pleased to announce our wealth management team had the best quarter in our company's history. We are positioned well throughout our markets to win business and drive balanced growth. I will now turn the call back over to Clint.
spk04: Thanks, Chris. Our regulatory capital position is outlined on slide 26. We remain above both well-capitalized and our internal threshold targets. And as Ron discussed, we expect capital to continue to creep quickly in the coming quarters, providing us with ample flexibility for future shareholder return. This concludes our prepared comments. The team is now available to answer your questions. Valerie, please open the call for Q&A.
spk07: Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star 11 on your tone telephone. Again, to ask a question, please press star 11. One moment for our first question. Our first question comes from the line of Jeff Rulis of D.A. Davidson. Your line is open.
spk09: Thanks. Good afternoon. Hi, Jeff. I wanted to kind of look at that margin guidance you've got for the full year. It looks like, you know, to hit the low end, of the 385 for the full year, you've got to be, it looks like it's got to kind of really tank in the fourth quarter in terms of margin. What would, I guess, if you could kind of frame up the environment of how you hit the low end of the guidance for the full year on margin?
spk12: Jeff, this is Ron. Hey, good morning or good afternoon. That'd be similar to what we saw last quarter, right? So it depends on customer deposit flows. If we're on the upper, if we're, If we're positive on that front, we'll be on the upper end. If we're negative on that front, we'll be on the bottom end. Feel pretty good about it at the end of the quarter.
spk09: Okay. So, again, all right. Seems pretty – well, I'll move on. On the credit side, just on the increase in non-performers, could we kind of break out what type that was in and perhaps where within the footprint?
spk10: It was really centered in two commercial accounts with the bank. Both of them had been struggling for quite some time, and one of them just decided to cease operations. That one migrated into non-performing. You know, the balance of it is really associated with, in terms of nonperforming assets, is a slight escalation in the 90-day plus in residential construction. They were, in terms of geography, they were located, one of them was located in Portland, kind of the Pearl District of Portland, and another one was located in California.
spk09: Okay. And I guess the expectation, if we kind of track impact losses, like you said, kind of a lagging indicator tied to delinquencies, is that still the case, that we've seen that plateau, and if we follow delinquencies, it continues to come down on that end?
spk10: It is still the case. I mean, I will say that, you know, things, the third quarter, you know, has... few holidays in it that impacts collection activity any impact of collection activity really hampers obviously reducing those past dues and and we had that in the third quarter had we not had that in the third quarter we would have seen some some further improvement but that trend should continue obviously into the fourth quarter fourth quarter is usually another another difficult one for collection activity, but we make sure that we're staffed up to handle it. So we feel we continue to be on track.
spk09: Okay. One last one on the expense front. I don't know if it's possible to launch a 24 expense growth expectation. It's a big year of cleaning up and you got a little extra on the cost savings on the deal in the fourth quarter, but Maybe not if you can't point to a figure, just talk about kind of big picture. I think you kind of spoke to Clint, you know, sort of continuing to optimize is sort of the message. But any big picture sort of branch consolidation or larger investments that may come in in 24? Yeah.
spk04: You know, we're always looking at how can we become more efficient and and and i do think that there's opportunities for us to to do that as we've already you know we've already started uh we're well into our 2024 planning process um so that's that's what i was alluding to there you know we're going to continue to invest especially in our de novo markets and um you know chris and and and tory of of uh Tad Piper- made some strategic hires and in existing markets that you know Chris has prepared remarks, he mentioned California northern California so we're going to continue to be opportunistic within legacy markets, but also invest in in. Tad Piper- In those newer markets in those high growth markets but we're going to challenge ourselves to do that. by finding offsets and efficiencies in other parts of our organization as opposed to just simply letting expenses ramp up. In terms of kind of a launch point for modeling purposes, I'm going to defer to Ron on that.
spk12: Yeah, and Jeff, we'll talk about that. That's an updated guide in January as we look into 24.
spk09: Okay, and just curious on the – you said – Cost saves are net of investment. Is there a ballpark number that you'd pass along in terms of what you think you invested against the cost saves of $140 million?
spk12: Hey, Jeff, this is Ron again. Yeah, it's actually a specific number, $21 million. So we've got gross of $164 million down to $143 million.
spk09: Okay, great. Thank you.
spk02: Hey, Jeff, this is Chris. And to answer your question you asked about branch consolidations, we have five left over from – the original ones that we did. And when we look at or go forward, we're very pleased with our footprint. I think we're in a good spot with those and don't anticipate anything further.
spk09: Thanks, Chris.
spk07: Thank you. One moment, please. Our next question comes from the line of David Feaster of Raymond James. Your line is open.
spk13: Hi. Good afternoon, everybody. Hi, David. I was hoping maybe we could just touch on the funding side and specifically focusing on the core funding side, exclusive of the broker deposit increases that we talked about earlier. I'm just curious what you're seeing there as we dig in. It sounds like core trends are stabilizing, that you're actually having some success attracting new clients. which may be difficult for us to see in some regards, just given clients utilizing excess liquidity. I'm just curious, some of the underlying trends that you see there within your core deposit franchise, where you're seeing the most opportunity to drive core deposit growth and attract those new deposit clients, and how new core deposit pricing is trending.
spk03: David, hi. This is Torrey Nixon. I'll talk a little bit on the commercial side of the house and let Chris kind of – chime in on the consumer side of the house. For commercial banking, I mean, you're seeing just a few different things. One, folks are using excess cash to invest in their companies when and where appropriate rather than borrow. So the borrowing side is just less robust than it was a year ago. Folks are also kind of looking for yield where they can with any excess deposits. Um, we have done, I think a really nice job, uh, connecting with our existing customer base and just looking holistically at their relationship. And with, with that in mind, kind of focusing on where they may have funds at other places and, you know, talking about bringing those funds to, uh, to uncle bank and had a lot of success with that. Um, that will continue, uh, without a doubt. Um, we've had, we had a lot of success this quarter with it and we've got a really, I think a really nice pipeline as we kind of move into Q4. So Chris.
spk02: Yeah, pretty much the same piece on that, David, I would add that, um, on the new side, our rates are very competitive in the market, but where we're really seeing the opportunities to deepen relationships is in talking with the customers, taking them through our relationship model. asking questions about what else they have out there, and we continue to source deposits from other institutions. As well, the teams have really kind of moved towards, there's still some minor integration but not technology types of things, and our teams are out jointly calling together in all of our markets and winning new business just with their outward bound efforts.
spk03: Hey, Dave, sorry again. I thought I'd just add one more thing on there. One of the things kind of going on in our marketplace is tremendous disruption from other financial institutions. And we're looking, you know, we've got, it gives us a lot of opportunity. And so, you know, we're working hard in the markets in our footprint to talk to anybody and everybody that we think fits the bank and having some success with that.
spk13: Okay. That's great. And maybe stepping back a bit, it seems like we're going to be in a higher for longer environment for some time. I'm just curious maybe, and look, I know it's still early, but I'm just curious how you think about maybe the margin trajectory and the business performance more broadly in a higher for longer environment and how you're looking to manage the balance sheet in the business for that kind of environment.
spk12: Hey, Dave, this is Ron. And again, I'll come back to comments we talked about earlier. Do we see continued customer deposit growth, then I'll feel really good about where we're at in a higher for longer environment. I think maybe in terms of 2024 specifically, we'll definitely give you an update on that in January as we look into the year, but it's going to be the basic block and tackling. You heard Chris and Tori talk about a continued customer deposit growth. We'll look down that front.
spk13: Okay. And then last one from me, you guys have been accreting capital at a rapid pace. You're getting close to your 12% total risk-based target. I'm just curious, as you approach those targets, how do you think about capital management? Is there any interest in potentially returning capital maybe early next year? Or at this point in the cycle, would you primarily be focused on capital preservation?
spk04: Well, I think... You know, our focus is we always want to be good stewards of capital. And we have our long-term targets, and we've spoken about those and been very consistent with those. You know, even on a standalone pre-merger basis, our thoughts around capital levels were pretty consistent. And so, you know, essentially add 150 basis points to whatever the criteria is to be considered well-capitalized, and that's our long-term target. You know, total risk-based capital has been the constraint. You mentioned the 12%. You know, absolutely, we're going to look at all capital deployment opportunities. I don't think that, you know, as soon as we hit like 12.01 or something that we're going to look at, you know, a major shift. But if we're creating 25, 30 bips of capital a quarter, it happens pretty quickly where then suddenly you're 50, 75, 100 basis points over that target and still growing capital. We've mentioned that with our forecasts and expectations and the earnings power of this company, that there's not a level of what we think would be prudent organic growth that would absorb all of that capital. So by default, yes, we will be looking at capital return and how we do that as we manage those ratios. Now, I don't think you should expect it next quarter necessarily, but I do expect that it will be a nice problem that we'll have as 2024 progresses. Absolutely.
spk15: Thanks for the call, everybody.
spk04: Thanks.
spk13: Thank you.
spk07: Thank you. One moment for our next question. Our next question comes from the line of Tamir Braziliar of Wells Fargo. Your line is open.
spk15: Hi, good afternoon. For the broker deposits that were added during the quarter, can you just talk through kind of the timing during the quarter they were added, their costs, and then the expected duration?
spk12: Yeah, this is Ron. Good afternoon. That was later in the quarter, roughly two to four months in tenor. That's how we managed all of this from a wholesale standpoint, including the home and bank advances. And you're talking probably mid fives in terms of cost.
spk15: Okay. And then I guess as you look at your borrowing position, where is that today relative to where you want it to be? And as that continues to mature, maybe just give us a schedule of how that matures and if the expectation is to replace that with additional brokered.
spk12: Yeah. And again, the home will make advances are also in that two to four month center. So they're all replacing them that call it mid five area as well. And that just gives us the most flexibility. Right. And back to your second question, we're obviously sitting on more borrowings than what we like. It's in response to, of course, what's happened with just liquidity drain in the overall system over the past year. Ideally, over time, deposit growth continues to exceed loan growth. Customer deposit growth exceeds customer loan growth, and we're able to pay those down.
spk15: Okay, that's helpful. And, you know, to the first question, it seems like the low end of the margin guide seems fairly conservative. And I'm just wondering, as we look at NII, Is that also kind of 50-50 for an inflection point next quarter? Or even though there's some stability in the NIM, we could see another quarter of NII compression prior to that higher for longer really kicking in and benefiting the top line in 24?
spk12: Yeah, I mean, specific to that question in Q4 in the guide, if we're talking about material move, it's going to come down again to customer deposit growth. So I feel good about, you know, you're not going to see a significant increase you should not see a significant change in the net interest income dollars if we do have continued customer deposit growth in the fourth quarter.
spk15: Okay. Okay. And then the SINPAC early stage plateauing last quarter, charge-offs still somewhat elevated this quarter, still focused on trucking. I guess, is that more of a cliff event where that pretty much subsides going forward, or is that going to be more of a tail where this lingers for a couple additional quarters prior to subsiding?
spk10: It's going to be a slow reduction over time, over multiple quarters to my best estimation.
spk15: Okay, great. And then just last for me, the resume loans that were sold, about $159 million, What was the discount they were sold at, if you can provide that?
spk12: Yeah, the par value was in the 185 and 190 range, so discount was in ballpark 35. Got it.
spk15: Great. Thank you for the question.
spk12: Yeah, thank you.
spk07: Thank you. One moment, please. Our next question comes from the line of Brody Preston of UBS. Your line is open.
spk05: Hey, good evening, everyone. How are you?
spk12: Good afternoon.
spk05: Hey, I just wanted to follow up just on the loan waterfall chart. I just wanted to make sure I understand the 343 from payoffs or sales, the single family sale, I think it was the 159 that's in there, and then the remainder of that is just payoffs, correct?
spk12: That's correct.
spk05: Okay. Okay. And then the 515 of prepayments, I just want to ask kind of like what was the success rate in kind of maybe converting those into new originations this quarter?
spk03: Yeah, this is Torrey Brody. So let me just real quick on that. I think the success rate is very, very high. That's what we want to do. We had growth in the commercial side on our CNI teams of about $40 million or $50 million, and then growth in the CRE teams at about $180 million. a lot of success in the rollover of that.
spk05: Okay, great. Um, and then could I ask, um, just a generic question with a loan portfolio? What, what portion of it is shared national credits? And then of that, uh, what, what are you lead on?
spk03: Uh, so we are total commitment in the SNCC portfolio is around 3 billion. Uh, our outstandings are roughly 1.8 billion. We lead a couple deals today, but most of them are just a participation with ancillary business, and it is not a part of the organization that we are growing really at all. We have really straight guidelines of what we want to be in and what we're going to do, and obviously it's got to have significant ancillary business, including deposits, to even consider.
spk05: Got it. Okay. Thank you for that. Maybe just on the office portfolio, you give great detail there, but I was wondering if you happen to have what the ALLL for the office portfolio was?
spk10: Yeah, thanks for the question, Brody. We choose not to provide that much detail surrounding ACL on that portfolio. We feel that there's enough detailed information provided elsewhere for the group to really ascertain the quality of our loan portfolios, which is high. Very good quality.
spk05: Okay, cool. And then I did want to ask, this was more of interest for me. Just on the multifamily originations this quarter, I just noticed that there was, like, a big difference, I think, between the debt service coverage ratios that you had initiated, that you had originated last quarter. I think they were, like, 1.7, and this quarter they were 1.32, and, like, you know, that's still healthy, but it was just a big difference, and so I just wanted to know if there was anything specific that kind of caused that.
spk10: Nothing specific, Brody. You know, I... Without having that detail in front of me, it's hard for me to say, but what I would intimate from this is that we had extremely strong sponsorship on those deals, and they were relationship-based opportunities, so we had the banking relationship and knew the client.
spk05: Got it. And then I just had a couple last quick ones for you. Just on the The, the non accruals that I wanted to understand was there, was any of that included in the delinquencies? Just cause when I looked at the buckets, um, that you'd disclose on page 20, I noticed that the, the DQ rates had kind of moved higher for owner occupied and, and CNI and, and, and mortgage. Um, and then FinPAC as well. I just wanted to make sure, was there any kind of overlap between the non accrual moves and the DQ moves?
spk10: Explain DQ moves.
spk05: The delinquencies. So the mortgage went from 0.43 to 0.59. The CNI went from 0.3 to 0.6 on the total delinquencies. Owner occupied from 0.23 to 0.51.
spk10: Yeah, that was primarily centered in a couple of loans, Brody.
spk05: Okay. Were those the ones that you talked about earlier?
spk10: Correct.
spk05: Okay, and then this is my last one. On the one that you talked about earlier where they just decided to, or I guess you said they had been struggling for a bit and then they ceased operations. What was the collateral that was backing, you know, that specific loan? And I guess, like, you know, how does the workout process evolve here, you know, from when a business just decides to shut down? Kind of what do the steps look like?
spk10: That was an owner-occupied commercial real estate piece of collateral that What we do initially, obviously, is we downgrade it. We then get the property reappraised, which did come in. I've said on these calls historically about our lending discipline and our aversion to leverage. Well, it played out in this case because we got the property reappraised. We still have equity in the property. We continue to work with the borrower on trying to structure an orderly way out of this. We will not take a loss on this piece of property.
spk05: Awesome. That's fantastic to hear. I appreciate the detail. Thank you very much, everyone.
spk07: Thank you. One moment, please. Our next question comes from the line of Chris McGrady. Of KBW, your line is open.
spk14: Oh, great. Thanks. Ron, I'm starting on slide 10, the rate disclosures. So I think somebody had asked before about higher for longer. You do have, I guess, a back book narrative. So I guess I'm interested in a little bit more color in a higher for longer environment, your views like in terms of the opportunity to defend margin and I guess is the first question. The second question is, and you provided the spot deposit rate, do you have the September margin? Thanks.
spk12: Yeah, the September margin was within a couple bits of the Q3 margin. And just back to the first part of the question, again, I think it was around the loan repricing maturity schedule, higher rate environment for longer, et cetera. Again, the theme's going to come down to, can we continue to be successful at growing customer deposit balances? That is going to be one of the single biggest drivers in terms of where our margin, how our margin performs at rate safety levels over time, because then it can continue to reduce higher cost wholesale funding, right, to help offset.
spk14: Okay. And then what's the approximate difference between roll-off yields and new production yields for loans?
spk03: This is Tory. I don't know, I don't, in the top of my head, I don't know raw yields, but I can tell you production on the commercial side for the quarter ranged anywhere from $7.25 at the low end to $9 at the high end. So the weighted average is just over 8%. Okay, great.
spk14: And then last one on the tax rate, any help on kind of go-forward tax rate?
spk12: Yeah, the ballpark 25% still is a go-forward rate.
spk14: All right, great. Thanks, Lon.
spk12: Good, thank you.
spk07: Thank you. One moment, please. Our next question comes from the line of John Afstrom of RBC Capital Markets. Your line is open.
spk08: Thanks. Good afternoon, everyone. Hi, John. Question for you on just the deposit flows during the quarter. you know, it seems like deposit growth is back. And so, so Ron, I'll take the over on customer deposit growth, but what, what, what was the difference between Q3 and Q2? I think, you know, some of us were disappointed in the Q2 deposit growth, and this is obviously rebounded, but what's driving these increases. Is it rate driven or, or something else?
spk02: I think there's a little bit of both in there. As far as the market has calmed down somewhat, as far as the rapid increase in rates, We didn't see as much of that in the third quarter. Uh, we're farther past, um, our initial conversion and things of that nature, where I'll just say it again, that our teams are out in the markets, winning new business, using the expanded capabilities that we have. And when you, when you put those things together, you know, the value proposition really comes to play of we've got great bankers that are externally oriented and they're doing it in a collaborative manner. And that allows us to keep our deposit costs down, but we're also then winning business. And when you win operating accounts, it helps keep it down as well. But some of it is just the stability of the rate environment and that we stop seeing increases during the quarter and move past some of the issues that happened in March as well. And I won't say business as usual, but it's a whole lot calmer.
spk03: And, Torrey, I don't know if you want to add anything. No, I think that's very well said. I think it's all those things, and it's a real outbound focus by all of our teams to connect with our customers and connect across specs and bring business into the bank and realizing that the most important business we bring in the bank is on the deposit front.
spk04: The other thing I'll add to that is there is an element of seasonality, and it's a little murky. more so than what it has been historically in terms of isolating the seasonality. But I do believe there was some seasonality, you know, and it's pretty easy for us to track new relationships that we're bringing in, in particular on the commercial side. But the seasonality aspect, I think, also played a role, you know, and then You know, kind of as a, as a continued headwind is, is consumers are still pressured and, um, you know, the impact of, of, of inflation. And, um, I'm not sure, um, you know, necessarily, uh, uh, what, uh, what this translates to, to, uh, where you're at John, but, uh, um, you know, I feel car up the other day and it was six 50, a gallon, um, you know, so. you think about $175 to fill your SUV up, that takes a bite out of a lot of consumers. And so I think we're still seeing the impact of inflation on that aspect. Fortunately, we lead a lot with the commercial and the operating account side, and we're seeing great success in winning new business and bringing in
spk08: uh additional aspects of existing relationships on that front okay good that's very helpful um i don't know if this is uh you clint or tori but can you comment on the overall lending pipelines are they changing at all and what what's a comfortable pace of loan growth for the company yeah this is tori um the the loan pipeline is down just a just a touch from last quarter
spk03: But it's actually pretty strong still and fairly robust. So I feel good about the mix in the pipeline and actually the size of the pipeline throughout the footprint. I think Clint mentioned earlier our de novo offices of Utah, Colorado, and Arizona. We've got some really nice pipelines there, which is great to see. And I feel good about it. I think we're still probably a low to mid single digit. in in loan growth for the bank um pipelines for deposits are are nice and the fee income pipeline is really strong which is kind of the in i think connection to the conversation that chris and i both said about connection with clients and prospects and looking at a bunch of different solutions to solve you know to help customers thrive yeah the one thing i i don't think that
spk04: The absolute level of the pipeline tells the whole story because we're being very disciplined and focused on the types of loans and the types of relationships that we're pursuing. And so we're maybe outside of a quantitative tightening environment, we might have done more in terms of real estate and things like that. You know, so the types of, and jump in here, Chris or Tori, if you feel differently, but the types of loans that we're really interested in, the pipeline and the activity that our bankers are surfacing is really, really solid.
spk03: Yeah, 100%. I mean, on the commercial side, it's just CNI pipeline, CNI growth, and it's business orientation and, you know, And it comes with, to the point, the relationship comes with deposits and fee income. And that's critically important in the way that we will do business.
spk08: Okay. Okay. Thank you very much.
spk07: Thank you. One moment, please. Our next question comes from the line of Andrew Terrell of Stevens. Your line is open.
spk06: Hey, good afternoon. Good afternoon. Ron, just a quick one on the cash balances. Should we expect any more normalization from this call at $1.9 billion level, or is this kind of the right level to think about the cash balance?
spk12: Again, that will come down to customer deposit flows, as we talked about earlier. So ideally, yeah, you're going to see us continue to more normalize that to a lower level, probably somewhere in the mid-one range. But I'm not sure if that will occur by Q4 or not, but that's ultimately where I'd expect it to settle.
spk06: Okay. And then on the deposit flows specifically within the quarter, on the non-interest bearing side, do you see most of the balance contraction occur earlier in the quarter or was it pretty ratable throughout the quarter? And then just to put a fine point on the margin and the customer deposit balance discussion, if we see 4Q deposit trends from a core perspective look similar to 3Q, that would put you at the top end of the full year margin guidance, correct?
spk12: On the first question, yeah, that was rateable over the course of the quarter. There was no specific, you know, shock in it. I think, again, back to what you heard Clint talk about earlier on the consumer side driven by this continued inflation, the majority of it declined there. In terms of Q4 and the gap, you're spot on, right? So if we do better on that front in Q4, we'll be on the upper end. If we're a little less, then we'll be on the bottom end. But feel good about where we're at, ballpark going into it.
spk06: Okay. And then on the FinPAC portfolio, it looks like the delinquencies in that book moved from, I think I recall, nearly 6% last quarter down to low 4% this quarter. I guess, should we expect to see the commensurate kind of move lower in charge-offs heading into the fourth quarter, I guess, just like magnitude-wise? Or I guess, do you think they'll hang around this 5% kind of charge-off level for a while?
spk10: I think in the fourth quarter, I think it's going to be pretty stagnant. That's what I would say. Again, I mean, fourth quarter is historically the most difficult quarter to collect in that business. And that just coupled with just the overall economic headwinds that truly impact these most susceptible companies, I think it's going to be pretty stagnant in the fourth quarter. But I think the trucking will continue to gradually decline. It's just going to take a while. It's going to take a few quarters to get to more normalized level in that space.
spk06: Yep. Okay. Got it. And then the last question I have is just following up on the SNCC discussion. I think you said you've got $1.8 billion outstanding in syndicated loans. I realize some of the rationale there, it sounded like the rationale for participation was deposit-driven. Do you have a similar level, or I guess, is that $1.8 billion of SNCCs fully funded with deposits generated by those relationships, or is there a greater deposit sponsorship that comes with it, or is it less? Just any more color there would be helpful.
spk03: Yeah, no, this is Tory. nature of that part of the borrowing apparatus, there's less deposits associated with that than there is loan outstanding. It's just a byproduct of participating in a large credit. But with that in mind, I mean, what we do have, we've had for a longer period of time, and we have a very strong connection to management and to the companies, and we have, in almost all cases, ancillary business, whether that's some sort of fee income business and or deposits.
spk06: Okay. Thanks for taking the questions.
spk03: Thank you.
spk07: Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star 11 on your telephone. Again, to ask a question, please press star 11. One moment, please. Our next question comes from the line of Matthew Clark of Piper Stanley, your line is open.
spk11: Hey, good afternoon, all. Just a couple of questions on credit. Classified up 15 basis points, I think to 1.28%. And it looks like you built reserves, CNI reserves by about 22 million. Just want some additional color behind the increase in classified and then Not only that, but just the increase in C&I-related reserves.
spk10: Yeah. Hey, Matt. The increase in classifieds was really driven by a migration from special mentioned into the classified loan status, and it's really centered in the commercial book of business. Again, these are the two commercial borrowers that I mentioned that just continued to struggle, and we had to downgrade them into classified status. And that's the bulk of that change. And as far as the building of the reserve, you see the FinPAC continues to have elevated charge-offs. We've got the increase in classified loans, and the Moody's baseline economic forecast continues to move in the direction that warrants building of the reserve.
spk11: Okay. Okay. Yeah, I was actually speaking to the $16 million increase in C&I. Okay. And then just on the overall reserve, I think last quarter there was a an expectation that maybe reserve coverage kind of trends lower toward 1%, but went the other way this quarter. Just any updated thoughts? I know obviously macro assumptions change and the environment changes, but any updated thoughts on the overall reserve coverage going forward?
spk12: I would just say, you just said yourself, the macro environment changes, the economic forecast change, they got a little worse this quarter. We had a little bit of migration this quarter, and so it went up three bits instead of down three.
spk11: Okay. Fair enough. Thanks.
spk12: Good. Thanks.
spk07: Thank you. I'm showing no further questions at this time. I'll have to turn the call back over to Jackie Boland for any closing remarks.
spk01: Thank you, Valerie. Thank you for joining us on this afternoon's call. Please contact me if you'd like clarification on any of the items discussed today or provided in our earnings material. This concludes our call. Goodbye.
spk07: Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.
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