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spk06: Hello and welcome to Bank of California's second quarter earnings 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. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Today's call is being recorded and a copy of the recording will be available later today on the company's Investor Relations website. Today's presentation will also include non-GAAP measures, the reconciliation for these, and additional required information is available in the earnings press release, which is available on the company's Investor Relations website. The referenced presentation is also available on the company's Investor Relations website. Before we begin, we would like to direct everyone to the company's Safe Harbor Statement on forward-looking statements included in both the earnings release and the earnings presentation. I would like to now turn the conference call over to Mr. Jared Wolf, Bank of California's President and Chief Executive Officer. Please go ahead.
spk04: Good morning, and welcome to Bank of California's second quarter earnings call. Joining me on today's call is Lynn Hopkins, our Chief Financial Officer. who will talk in more detail about our quarterly results. Our performance in the second quarter was highlighted by a 7% increase in adjusted pre-tax pre-provision income and a 10 basis point increase in adjusted pre-tax pre-provision return on average assets. The quarter was a good representation of the strong commercial banking franchise that we have built over the past three years. 25% annualized commercial loan growth, excluding warehouse and PPP loans, funded with a low-cost deposit base, disciplined expense control, and solid asset quality in our conservatively underwritten, well-secured loan portfolio. We are proud of our continued sequential growth in earnings per share, excluding the legal settlement that positively impacted our results in the prior quarter. Our tangible book value per share also remained flat, despite an increase in negative AOCI and the repurchase of $38.9 million of our common stock during the quarter, which represented approximately 3.5%. of our outstanding shares. There is uncertainty in the operating environment due to the macro headwinds of inflation, higher interest rates, supply chain disruption, and labor shortages. Nevertheless, the economy in Southern California and the other California markets where we operate continues to show resilience. We are also benefiting from our focus on loan verticals, which aren't supply chain dependent and where inflationary pressures don't impact demand for services as much as in other industries. While we remain selective, the commercial real estate market continues to be active and we continue to see quality lending opportunities. We do expect some moderation in activity, however, from the most recent increase in rates as buyers and sellers adjust to the economic impact. With the highly productive banking teams we have built, we are effectively capitalizing on the economic strength and loan demand seen in our markets to add new clients and expand existing relationships. This resulted in $1.2 billion in loan fundings during the second quarter, which was our highest level of fundings since I joined the bank in 2019. Importantly, we continue to drive growth in our targeted areas of the portfolio, most notably commercial loans excluding warehouse, commercial real estate loans, and multifamily loans, all of which increased at double-digit annualized rates during the second quarter. In addition, we continue to make key hires in new verticals that we believe will enhance franchise value and earnings, such as the payment space that I will touch on more towards the end of our prepared remarks. We are pleased that Jagdeep Sohoda has joined us as EVP and Chief Payments Officer, which we announced in a press release earlier this month. During the second quarter, a drop in the demand for refinancings reduced our warehouse line utilization, which we were able to partially offset with purchases of high-quality SFR loans through relationships with our warehouse clients. This helped us to mitigate the impact of the decline in warehouse balances on our overall loan growth. As we previously indicated, we expected our other portfolios to grow and warehouse to become a relatively smaller portion of our portfolio while not affecting our earnings and growth. This quarter reflected that balance as we expanded earnings even as our warehouse balances declined. A portion of our loan fundings in the second quarter were loans that were priced prior to the recent rate increases. so we have not yet seen the full impact of higher rates on our average loan yields or the benefit to our net interest margin. Our loan pipeline remains strong and relatively consistent with the level we saw at the end of the first quarter, while being at higher average rates than the production we had in the second quarter. On the liability side, since the increase in rates, the behavior of our depositors has generally been in line with our expectations. Institutional clients, which usually are the first to move, have asked to receive some contribution for increase in rates, while some commercial depositors who have built up balances in their operating accounts over the past couple of years have shifted some of those funds into interest-bearing accounts. Lower warehouse line utilization drove corresponding lower non-interest-bearing deposit balances, but we offset some of this impact with our continued success in developing new deposit relationships, and this helped to keep our average balance of non-interest-bearing deposits consistent with the prior quarter. Our total deposit costs increased during the second quarter consistent with our expectations, but the overall asset sensitivity of our balance sheet resulted in an increase in our net interest margin, even with most of the second quarter loan production not reflecting the higher rates that we now see in our loan pipeline. Year-to-date, our balance sheet growth and strong cost controls are driving higher earnings and increased returns, while we continue to effectively manage risk and demonstrate our ability to execute and deliver in a variety of economic and interest rate environments. Now I'll hand it over to Lynn, who will provide more color on our financial performance, and then I'll have some closing remarks before opening up the line for questioning. Lynn?
spk07: Thanks, Jared. First, as mentioned, please refer to our investor deck, which can be found on our investor relations website, as a review of our second quarter performance. I'll start by reviewing some of the highlights of our income statement, and then we'll move on to our balance sheet trends. unless otherwise indicated, all prior period comparisons are with the first quarter of 2022. Our earnings release provides a great deal of information, so I'll limit my comments to some of the areas where additional discussion is warranted. Net income available to common stockholders for the second quarter was $26.7 million, or $0.43 per diluted share. When the first quarter legal recovery and preferred stock redemption charge are excluded, our diluted earnings per share increased by 3 cents in the second quarter. Our adjusted diluted earnings per share totaled 45 cents for the second quarter when indemnified legal costs and net losses on investments in alternative energy partnerships are excluded. Our net interest margin increased 7 basis points to 3.58% during the quarter as our overall earning asset yield increased by 17 basis points and our total cost of funds increased by 10 basis points. Our interest earning asset yield increased to 4.04% due to higher yields on both loans and securities during the second quarter. Our average loan yield increased nine basis points to 4.35% due primarily to higher average yields in our warehouse and SFR portfolios and the impact of higher market interest rates. The average yield on securities increased 39 basis points, to 2.68% due mostly to the CLO portfolio resetting with the interest rate increase that occurred in March. The CLO portfolio resets during the first month of each quarter, so the 50 and 75 basis point increases in the federal funds rate that occurred in May and June have not yet impacted the yield on this portfolio. Our average cost of funds increased 10 basis points to 49 basis points, due mostly to our average cost of total deposits increasing by 9 basis points to 17 basis points for the second quarter. The increase in our average cost of deposits was primarily driven by rate increases in our money market and interest-bearing checking accounts, as well as the addition of some CDs to help fund our strong loan production. As part of our interest rate management strategy, we elected to lock in some longer-term funding ahead of further increases in interest rates that are expected. Our non-interest income increased by approximately $1 million from the prior quarter, which was attributable mostly to higher income from equity investments of $2.1 million and an increase in our customer service fees compared to the prior quarter, consistent with the growth in our client base. This was partially offset by the first quarter including a $771,000 gain on the sale of a branch building. There were no similar items in the second quarter. In addition, the second quarter included $455,000 in fair value write-downs on loans held for sale. Loans held for sale total $4 million and are included in other assets. Our adjusted non-interest expense increased $570,000 from the prior quarter, with the largest contributor being higher professional fees, a portion of which related to the development of our payments business. Also, during the second quarter, we consolidated one branch as we continued to look at cost savings opportunities throughout the organization to help offset our investment in new banking talent and technology to support our future growth. The effective tax rate for the second quarter was 27.6%, relatively consistent with the prior quarter, and we continue to estimate our annual effective tax rate for 2022 at approximately 28%. Turning to our balance sheet, Our total assets decreased by $81.4 million in the second quarter to $9.5 billion, and total equity decreased by $29.9 million. The decrease in total equity was due mainly to higher net unrealized losses in the investment portfolio and capital actions, partially offset by our net earnings for the quarter. Our capital actions included our common stock dividends, and the repurchase of 39 million in common stock under the program we announced in the first quarter of 2022. At June 30, our tangible book value per common share was 14.05, consistent with the end of the first quarter. The change in AOCI resulting from higher unrealized losses in the investment portfolio reduced our tangible book value per common share by 25 cents. Our gross loans were essentially unchanged from the end of the first quarter as growth in CNI, CRE, multifamily, and SFR portfolios was offset by the decline in warehouse and the continued forgiveness of PPP loans. Deposits increased $79 million during the quarter, primarily due to the continued inflows from new commercial relationships and the CDs that were added to support our strong loan production. Our credit quality remained strong in the second quarter, with non-performing loans decreasing $10.1 million to $44.4 million at the end of the second quarter. A little more than half of the decrease was the result of loans returning to accrual status, with the rest attributable to payoffs, paydowns, and charge-offs. At June 30, 41 percent of non-performing loans were either in a current payment status but were classified non-performing for other reasons, or SBA loans guaranteed through the 7 program. We did not record a provision for credit losses in the second quarter given the flat loan balances, net recoveries, and general improvement in asset quality. Our allowance for credit losses at the end of the second quarter totaled $99.7 million, and our allowance to total loans coverage ratio stood at 1.34%, which is a bit higher than the end of the prior quarter. Excluding our PPP loans and warehouse loans, both of which have lower relative risk levels in our reserve methodology, the ACL coverage ratio stood at 1.54% at June 30. Our ACL to non-performing loan ratio remained healthy at 224%. This time, I'll turn the presentation back over to Jared.
spk04: Thank you, Lynn. I'll wrap up with a few comments about our outlook. Through the first half of the year, we have executed well and generated the profitable growth that we are targeting, and we see many catalysts that should drive further increases in earnings per share. Our loan pipeline remains strong, and while higher rates may start to impact real estate loan demand and C&I loan demand, to date we have not seen any meaningful change. Our deposit pipeline also remains strong, which will enable us to continue to fund our loan growth with low-cost deposits. Starting in the third quarter, We expect our new loan production to start to reflect the current rate environment and support further expansion in our net interest margin. And we are effectively managing expenses, which should enable us to continue to expand operating leverage as we grow the balance sheet and generate higher revenue. We've been able to manage our expense base while also reinvesting strategically to support our continued growth, both in terms of new banking talent that we continue to add and the development of innovative products and services most notably toward our payments business. We are very pleased with the progress we have made in building the foundation of what we believe will be a differentiated offering that reflects our forward-thinking approach to technology. We expect our payment solutions will provide value-added solutions for our clients, solidifying further their relationship with the bank while also providing a meaningful source of fee income and improving our ability to attract new commercial relationships. Core to our strategy is also the focus on continuing to grow our low-cost deposit base. I'm thrilled that Jagdeep Sahota joined Bank of California to lead our payments initiatives, as well as Keely Figueroa, who brings deep experience on the risk side of payments. We look forward to providing more details on our payments initiatives as we begin to offer additional solutions to our clients in the coming months. Although the operating environment over the rest of the year remains uncertain, we believe we are very well positioned to continue performing well. We've built a relationship-oriented commercial banking franchise that can deliver solid growth while also effectively managing credit and interest rate risk. If economic conditions and loan demand remain strong in our California markets, then we would expect to participate in that growth via our loan and deposit portfolios. If economic conditions deteriorate, then we continue to have the same characteristics that enabled us to effectively manage through the depths of the pandemic, most notably a conservatively underwritten loan portfolio with more than 64% of our loans secured by residential real estate and one of the strongest housing markets in the country. As we navigate through the current environment, we believe that the franchise we have built will enable us to continue to generate strong results for our shareholders. I want to thank all of our colleagues at Bank of California for their contributions and dedication, which helped us to deliver a very solid quarter and continue to position us well to further enhance the value of our franchise going forward. With that operator, let's go ahead now and open up the line for questions.
spk06: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. And our first question will come from Timur Braziler of Wells Fargo. Please go ahead.
spk05: Hi, good morning. Good morning.
spk06: Hi there.
spk05: Maybe just starting on the loan portfolio, loan outlook. I guess for warehouse, is this a good level going forward? Do you foresee any incremental pressure out of that portfolio and then just your appetite to continue purchasing as afar loans from your partners within there?
spk04: Thanks, Timur. Well, first of all, you know, on our overall loan portfolio and, you know, growth for the quarter, we were very pleased. We saw very balanced growth across and diversified growth across, you know, all of our lines outside of warehouse. And so we do see that continuing for now. Our pipelines are strong and You know, on a quarter-over-quarter basis, it was just very robust. Unsure what the impact will be of rising rates, but we have not seen changes in behavior yet. I think there was probably a little bit of a feast ahead of rising rates for people to kind of get loans done, and we saw a little bit of an uptick in multifamily, I think, for that reason. But that doesn't mean that loans are going to drop off a cliff, you know, going forward, and we don't see that. As it relates to warehouse... It's hard to know. I mean, originations right now are obviously down. We see a lot of stability in the portfolio, and our teams are working very well. We probably will moderate our SFR purchases down the road eventually, but as we keep the balances relatively stable. But for now, it seems fine. I don't know what the outlook will be for warehouse from an asset perspective in terms of the overall balances, but we see our loan portfolio growing overall. And I just would expect that the contribution from warehouse would be less than what it has been in the past. And that's what we said. We said that we would be able to grow through, you know, warehouse. It would become a smaller portion of our balance sheet, and it wouldn't disrupt our earnings growth.
spk05: Okay, that's helpful. And then, you know, appreciate the commentary.
spk04: One other thing, Timur, that I forgot to mention is just that You know, our production yield on our new loans was pretty high. I mean, we got a 50 basis point bump in yield on new loans. And so I expect that to kind of continue. And warehouse rates have moved up as well. So even if the averages are lower, there's a big contribution of rate that has gone up. So that's going to help as well.
spk05: Thanks. Perfectly dovetails into my next question on you know, what were the origination yields in the second quarter and you look at the pipeline You know, what are the the pipeline yields looking like today?
spk04: Lynn help me out here, but I I have our production yields overall you know 50 basis points higher than than the first quarter and You know one of the things that happens is there's a there's a tail effect right because we've committed to making loans in this environment and The Fed's likely to raise rates next week, and so there will be a whole new series of loans that probably get done in the late third quarter, early fourth quarter that will reflect those rates. So right now, the loans that are getting booked are reflecting the current rate environment and maybe a little bit of a tail from the prior rate environment for stuff that's kind of just finishing up. Lynn, do you have other data to share?
spk07: Yep. No, I agree. For the rate on production in the second quarter, it was able to step up 50 basis points as we – I think moved through and anticipated the rising rate environment. And the pricing up for the production actually in the second quarter, we should get the benefit in the third quarter. And then I think with respect to the pipeline, I don't know that we're commenting specifically, but we are participating in the higher rate environment, and there's an expectation that the rate on production would continue to move upward.
spk04: you know to where i think i was going back through some notes from the first quarter and and at the end of the first quarter we we obviously had a very large jump in our margin in q1 and we we did say that we didn't expect to see that that big a jump in q2 uh we did still expand our margin and i i would expect our margin to continue to move up i hard to know at what level um since we don't manage to a margin we're kind of managing the profitability and continuing to grow earnings um but But we do expect our loan yield to keep moving up.
spk05: Okay. And then if I just could ask one more question on the funding base. First couple of quarters with this new and improved funding base under your belt, happy to see that results are falling in line with your broader expectations. As you're thinking about funding future loan growth, How should we think about that? I mean, you're under-indexed on CDs. Is that going to be a larger component of the overall funding story? Or is there something else that you think is going to be driving kind of core, either not interest-bearing, savings, other types of funding mechanisms?
spk04: Well, we have a lot of tools at our disposal. And we did mention in our comments that we decided to lock in some fixed-rate funding ahead of rising rates, which we've done selectively over time. We are, you know, we don't have a lot of CDs at all. I would say that my preference is to prioritize, you know, obviously our priority is on operating accounts with businesses, and that's checking accounts and, you know, low-cost checking and non-interest-bearing checking, and we work hard at that every single day, and we continue to. I probably would prefer to have CDs over money markets, and so I would expect to see our CD balances grow whether they're broker or not. Just to lock in funding and do a little bit of match funding for some of the loans that we put on. We're probably a little bit hot right now in terms of our loan to deposit ratio. I would like to be lower. I just think we wanted to bring the earnings forward and we had plenty of flexibility on the deposit and liquidity side. But I can see us kind of tempering that with some longer term funding if we need to. Lynn, anything else, or do you agree with that?
spk07: Yep.
spk04: As people know, we don't strip these comments, so Lynn might disagree with me.
spk07: Yeah, no, I agreed with how you prioritized it as well. Our non-interest-bearing deposits, we were able to average 38% during the quarter, which I think supported our net interest margin, and we do focus on that and expect that to continue to have success and participate. I do think we have a lot of flexibility in On the funding side, our wholesale funding ratio is fairly low, and there's some good opportunities out there should we need to fund strong loan growth. And then, again, preference may be over some CDs over money markets, but there's an opportunity there. There's still a lot of liquidity in the marketplace.
spk05: Got it. Thank you for the call, Eric. Thanks, Tamar.
spk06: The next question comes from David Feaster of Raymond James. Please go ahead.
spk01: Hey, good morning, everybody. Good morning. Hey, David. Just wanted to follow up kind of on the loan growth side. You know, just looking at, you know, one of your slides, payoffs and paydowns just seem to be offsetting, you know, continuing to offset your acceleration in the fundings. But if I think about the outlook kind of taking a lot of your commentary together, even if we do see – somewhat of a slowdown in maybe that there was a pull forward in some multifamily, a slowdown in some CRE. It still feels like your core commercial loan growth outlook is, I mean, we should still see pretty solid growth in the back half of the year and into 2023. Is that fair? Yes. I mean, how would you characterize it? When we look at your pipeline, where do you see the drivers? I know you guys have invested a lot in you know, CRE and some, or excuse me, CNI and some of the new niches. I guess if I had to, you know, get some expectations on where you're seeing the most opportunities, where are you seeing, what segments are you expecting to drive your growth?
spk04: Well, I'd say it's pretty broad-based and diversified as it was this quarter. I mean, our core CNI business, which excludes warehouses, is going very, very well. That's owner-occupied real estate, it's healthcare, it's entertainment, as we're doing. Obviously, we've expanded that group, and our team is doing very well. These are things that are not affected by supply chains. They're not as much affected by labor, and they have less inflationary pressure and seem to be doing very, very well. And so there's a lot of opportunity in those. And then on this CRE business, we're not an office lender, but we're lending on bridge real estate for Generally, it's for, you know, multifamily that is being rehabbed in our markets and buildings that are being fixed up and improved for housing. And that business is going very, very well. And then we saw an uptick in construction. Construction balances were drawing a little bit. We're very selective on construction. We're only lending to very deep-pocketed developers, you know, in tight infill markets with good projects. And that's working well as well. So it's been pretty broad-based.
spk01: Okay. That's great. And maybe just at a high level on overall asset quality. I'd just be curious your high-level thoughts. Obviously, the economic outlook's increasingly uncertain. But, you know, as we look at the credit outlook from your perspective, I mean, are there any segments that you're maybe a bit more cautious on? You touched on construction and being selective there. Is there, you know, I know you guys always have tight underwriting standards, but is there any segments that you might be tightening standards on? And just, you know, your overall appetite for credit here, just given the economic environment.
spk04: So, of course, we feel like we're always strict. We're always, you know, well-controlled in our underwriting. I made this comment last time, and I still believe it's true that to the extent that there are businesses that I'd be more concerned about right now, It would be businesses that are in the manufacturing distribution space where they have the trifecta of problems with supply chain challenges, higher interest rates, and then labor seems to be a continuing challenge for those sorts of businesses. And so look at what happened to Tesla in terms of their manufacturing issues that drew down their quarter. And I think that that's representative of what's going on in those businesses. To the extent that we're in traditional core C&I like that, I think we would rely on our ABL to make sure that you're kind of letting against good receivables and things like that and less against inventory. So we're being cautious, but fundamentally, David, I don't see a major change in our behavior because that's the way that we've been anyway. We don't have a large base of installed base of manufacturing and distribution borrowing clients. We haven't seen a lot of demand in terms of what we focus on. That's not to say we don't have any. We just don't have a huge installed base of them.
spk01: That makes all the sense in the world. You've had a lot of success attracting new talent over the past year, year and a half or so. I've called it a talent magnet. Just curious how hiring has trended of late, whether you're still having as much success, and maybe just your appetite for new hires. Obviously, it's increasingly competitive, and the cost of new hires is expensive. Just curious, you know, your thoughts on the hiring side.
spk04: I think the market has actually gotten a little bit easier for some reason. You know, we haven't had a problem attracting talent, and we haven't had a turnover problem either, so we've been growing. And we've been growing selectively in key areas. The two people that we announced this quarter were two of many talented people that we brought to the bank. And I think this is becoming a place that people want to be. And they want to work around other talented people. And we have great benefits and a great culture. And we have an event this afternoon that's focused on senior women at Bank of California and women in leadership, and just a lot of great things are going on here. So it just hasn't been an issue. That's great. Thanks, everybody. Thanks, David.
spk06: The next question comes from Matthew Clark of Piper Sandler. Please go ahead. Hey, good morning.
spk04: Good morning, Matthew.
spk02: Lynn, maybe any update on your run rate guide for expenses relative to what you provided last time?
spk07: No, Matt, I don't think – I don't know that there's really any update. I think that we had kind of talked about, I think, 45 to 47.5 is kind of, I think, what we've been chatting about. I think in the current quarter we did have some uptick in some of our professional service fees. I think as we're investing in some of our corporate initiatives. So I think might even expect those to come down a little bit. So kind of at the higher end of the range. But I think that's more of a reflection of us investing in ourselves and still being able to grow earnings at the same time. So I think we're still on track.
spk02: Okay, great. And then maybe, Jared, just maybe speak to the payments opportunity. Can you just maybe size up the revenue opportunity that you have a line of sight on and the related expense needs? Just trying to get a sense of the magnitude that we could see next year from a revenue expense perspective and how quickly it could become profitable.
spk04: Matthew, I know why you're asking, and I appreciate you asking. We're just not prepared to give those numbers yet. I think when we will have a later announcement with kind of more detail hopefully around that and to give people more clarity. So sorry for not trying to be opaque. We just want to make that announcement in a kind of a different context. Did we lose you, Matthew?
spk03: Matthew, can you hear us?
spk02: Yeah, thank you. Sorry, Chuck, in between two Q&As right now.
spk04: Oh, sorry to hear that. Okay, I know how busy it is right now. Yeah, well, look, I think, you know, the business is going to be important to us. This quarter we showed really strong core, you know, just franchise metrics. And we obviously are continuing to grow our top line and creating operating leverage. And we're not taking our eye off the ball of our core franchise, which is very strong. And we've just had consistent, stable fundamentals for several quarters in a row. I mean, going back, I don't know, a year and a half now, I mean, it's been fantastic in a variety of different environments. We do believe, however, that what we're building on the payment side will be a real differentiator. We obviously have the talent that people can read about here to support it. And when we roll out and announce exactly how we're going to compete in that space, I think it'll be evident how differentiated it is. But it's not to take the eye off the ball of our core franchise and what we've been doing here, which has been, just I'm really proud of our team, how stable and strong it's been.
spk02: Okay, great, thanks. Thank you.
spk06: The next question comes from Kelly Mata of KBW. Please go ahead.
spk00: Hi, thanks for the question. I saw that you were really active with the buyback last quarter and continue to be active quarter to date. Just wondering about your appetite there, particularly as maybe top line loan growth may be slowing with warehouse becoming a smaller part for now.
spk04: Yeah, I think we've used up almost two-thirds of what we've announced from a buyback perspective. Lynn, how do you see that playing out? Yeah.
spk07: Thanks for the question, Kelly. I think we've taken down about two-thirds of it. I think we've viewed our stock as a good opportunity based on where it's been priced relative to the market and our tangible book value. I think we've done a great job of being able to keep it relatively flat despite a pretty volatile marketplace between our capital actions and And I think just modest loss in AOCI in the quarter offset by our earnings. So I think we'll look at the opportunity for what's left on the stock buyback and compare it against other opportunities. So we will take a look at it. But I don't know that it's necessarily driven off of loan growth next quarter. I think there's other things that we can evaluate.
spk00: Awesome. Thank you, Lynn. And then turning to the deposit base, you had about $130 million of runoff of non-interest-bearing. Do you have a sense of how much of that migrated to some other higher-cost categories? And do you expect a similar amount of deposit outflows or migration this quarter with rates, you know, expectations where they are?
spk04: Thanks. Thanks, Kelly. I don't think we're going to expect that we should see the same level of outflow. I mean, the outflow that we saw in NIB was pretty discreet. There were a couple things going on. One, we had a client that got acquired. We had some associated with warehouse that balances were down. And then the other was just general balances. I mean, I think from what I've read, a lot of banks have been down on the deposit side. And I think We held up pretty well. Right now I'm seeing actually inflow of non-interest bearing and I actually, from a pure account perspective, we actually grew our accounts and relationships last quarter pretty meaningfully. I just don't know if we give out that specific data, but I have data about the number of new relationships we brought to the bank. And so average balances I think we're just down a little bit, plus the factors that I mentioned. But I expect NIB to continue to grow. While we can't control it completely, I'm pleased that in a quarter where it looked like a lot was down, our average NIB stayed flat. And hopefully we'll grow from here on out. I know how much work we're putting at it.
spk00: Awesome. Thanks for the color. Last question from me. There was another bank that saw some deterioration from a credit perspective on their mortgage warehouse. I know it's generally been a very safe category. Just wondering if you've seen that at all with your relationships.
spk04: So we absolutely have seen some mortgage warehouse borrowers struggle. But the way that we're set up and designed, we don't have any exposure. We don't believe we have any exposure for ourselves. And it's been something that we've been able to manage through. I mean, I think the business overall went through a pretty quick disruption with the change in rates. We think the ones that we work with are well-controlled and well-managed and we have visibility into how the lines and how the loans are moving off the lines. We look at agings. We look at, you know, loans that might have been originated at lower rates, how they could be moved. Most of our borrowers, if not, you know, I'd say the vast majority of our borrowers hedge their loans either directly or with forward takeouts. And so that protects and insulates them from some of the volatility in the market. And then the ones that don't, we look at very, very carefully. We don't see any exposure for us, but that doesn't mean that some of the underlying borrowers, their businesses might shrink or even move out.
spk00: Thanks. That's helpful. I'll step back. Thanks a lot for the time. I appreciate it.
spk04: Of course. Thank you, Kelly.
spk06: The next question comes from Gary Tenner of DA Davidson. Please go ahead.
spk03: Thanks. Good morning. Good morning, Gary. Hey, so my question is on, you know, payments announcements and, you know, expenses were asked, but just as it relates to the payments side, and I know you're not going into detail here at all, but is there a deposit play as part of that business or is it, do you view it, you know, exclusively as a fee opportunity?
spk04: Thank you for the question. We view the deposit opportunity as very significant. And that's one of the reasons that we're pursuing this. What we're focused on is designing solutions for clients where they can have payments be an embedded part of their financial services ecosystem. As we've said, we want to be the hub of that financial services ecosystem and provide solutions that help clients. We see this both as an ability for us to attract new clients as well as a way to provide additional services to existing clients. Fee income will be a benefit that we get, and we think there's a substantial opportunity there, but the deposits are equally as large. And when you can marry payments and merchant processing together with a bank account, you all of a sudden have things that clients don't have today, like real-time visibility into their payments. and you think about businesses where they might accept payments via credit card, most of those businesses don't see their payments in real time. They have to wait several days. If their bank is tied to how they see those payments, they might be able to have real-time visibility. So we think all of those things make for a pretty attractive opportunity on the deposit side, and obviously that's a tidbit of things we're working on, but there's more to come.
spk03: Yeah, I appreciate the caller. And then just in terms of the brokered money that was added during the quarter, is that a 12-month piece of money, Lynn, or is it laddered out further than that?
spk07: I think it's a little bit further than that. The average may be around 12 months. I think there's some short-term and then a little bit of two-year money in there. All right.
spk04: Thank you. Thanks, Gary.
spk06: This concludes our question and answer session. The conference has now also concluded. Thank you for attending today's presentation and you may now disconnect.
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