Banc of California, Inc. (NYSE:BANC) Q2 2022 Earnings Conference Call July 21, 2022 1:00 PM ET
Company Representatives
Jared Wolff – President, Chief Executive Officer
Lynn Hopkins – Chief Financial Officer
Conference Call Participants
Timur Braziler – Wells Fargo
David Feaster – Raymond James
Matthew Clark – Piper Sandler
Kelly Motta – KBW
Gary Tenner – D.A. Davidson
Operator
Hello! And welcome to Banc of California’s Second Quarter Earnings Conference call. All participants will be in listen-only mode. [Operator Instructions]. 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 reference 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 over to Mr. Jared Wolff, Banc of California’s President and Chief Executive Officer. Please go ahead.
Jared Wolff
Good morning! And welcome to Banc 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 were 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 multi-family 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 payments space that we’ll touch on more towards the end of our prepared remarks.
We are pleased that Jagdeep Sahota 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 client. 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.
The 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 account over the past couple of years have shifted some of those funds into interest bearing accounts.
Lower warehouse line utilization grew a corresponding lower non-interest bearing deposit bounces, 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 seen 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 risks 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 lines for questions. Lynn.
Lynn Hopkins
Thanks, Jared. Frist as mentioned, please refer to our investor deck, which can be found on our Investor Relations website as I review 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. Most otherwise indicated, all prior period comparisons are with the first quarter of 2022. 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 charges are excluded, our diluted earnings per share increased by $0.03 in the second quarter.
Our adjusted diluted earnings per share totaled $0.45 for the second quarter, when indemnified legal costs and net losses on investments and 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 9 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 to deposits was primarily driven by rate increases in our money market and interest bearing checking accounts, as well as the addition of some CD’s 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 totaled $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 brands as we continue to look at cost savings, opportunities throughout the organization to help offset our investment 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 dividend, 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 $0.25.
Our growth loans were essentially unchanged from the end of the first quarter, as growth in C&I, CRE, multi-family 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 to the CDs that were added to support our strong loan production.
Our credit quality remains 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, pay downs and charge-off.
A June 30, 41% of non-performing loans were either in the current payment status, but were classified non-performing for other reasons or SBA loans guaranteed through the 7(a) 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%.
At this time I’ll turn the presentation back over to Jared.
Jared Wolff
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 a 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 this 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 a value added solutions for our clients, solidifying further the 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 the Banc of California to lead our payments initiatives, as well as Keeley Figueroa [ph] who brings deep experience on the receipt of payment. 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 built a relationship oriented commercial banking franchise that can deliver solid growth, while also effectively managing credit and industry risk.
If economic conditions and loan demand remains 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 Banc 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.
Question-and-Answer Session
Operator
[Operator Instructions]. And our first question will come from Timur Braziler of Wells Fargo. Please go ahead.
Timur Braziler
Hi! Good morning!
Jared Wolff
Good morning!
Lynn Hopkins
Good morning!
Timur Braziler
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 SFR loans from your partners within there?
Jared Wolff
Thanks Timur. Well, first of all you know on our overall loan portfolio and growth for the quarter we were very pleased. We saw very balanced growth across, and diversified growth across all of our lines outside of warehouse, and so we do see that continuing for now. Our pipelines are strong and 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 up-tick in multi-family I think for that reason, but that doesn’t mean that loans are going to drop off a cliff 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 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 has been in the past, and that’s what we said. We said that we would be able to grow through warehouse. It would become a smaller portion of our balance sheet and it wouldn’t disrupt our earnings growth.
Timur Braziler
Okay, that’s helpful. And then, I appreciate the commentary…
Jared Wolff
One other thing Timur before I – that I forgot to mentioned is just that, our product yield on our new loans was pretty high. I mean we got a 50 basis point bump, in yield on the 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.
Timur Braziler
That perfectly dovetails into my next question on, you know what were the origination yields in the second quarter and as you look at the pipeline, what are the pipeline yields looking like today?
Jared Wolff
Lynn help me out here, but I have our production yields overall. You know 50 basis points higher than the first quarter, and you know one of the things that happens is there is a tail effect right, because we’ve committed to making loans in this environment. The feds likely to raise rates next week and so then there’ll 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 are getting booked are reflecting the current rate environment and may be a little bit of a tale from the prior rate environment for stuff that’s kind of just finishing up.
Lynn do you have other data to share?
Lynn Hopkins
Yes. 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 you know we are participating in the higher rate environment and there’s an expectation that the rate on production would continue to move upward.
Jared Wolff
You know Timur, I think I was going back through some notes from the first quarter, and at the end of the first quarter we obviously had a very large jump in our margin in Q1 and we did say that we didn’t expect to see that big a jump in Q2. We did still expand our margin and I would expect our margin to continue to move up. Hard to know at what level since we don’t manage to a margin. We are kind of managing the profitability and continuing to grow earnings, but we do expect our loan yield to keep moving up.
Timur Braziler
Okay, and then if I just could ask one more question on the funding base. You know first couple of quarters was this new and improved funding base under your belt, happy to see that. Results are falling in line with your broader expectations. You know as you are 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 non-interest bearing savings, other types of funding mechanisms?
A – Jared Wolff
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 – you know we don’t have a lot of CD’s 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 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 CD’s over money markets, and so I would expect to see our CD balances grow, whether their broker or not, just to lock in the funding and you know 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 and 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?
Lynn Hopkins
Yeah… [Cross Talk]
A – Jared Wolff
People know we don’t script these comments, so Lynn might disagree with me, but…
Lynn Hopkins
No, I agreed with – to how you prioritized it as well. Our non-interest bearing deposits, we’re 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 on the funding side. Our wholesale funding ratio is fairly low and you know there’s some good opportunities out there should we need to fund strong loan growth, and then again preference maybe over some CD’s over money market, but there’s opportunity there. There’s still a lot of liquidity in the market place.
Timur Braziler
Got it. Thank you for the color.
A – Jared Wolff
Thanks Timur.
Operator
The next question comes from David Feaster of Raymond James. Please go ahead.
David Feaster
Hey! Good morning, everybody!
A – Jared Wolff
Good morning!
A – Lynn Hopkins
Hey David!
David Feaster
Just wanted to follow-up kind of on the loan growth side. You know just looking at one of your slides, payoffs and pay downs just seem to be offsetting – you know continuing to offset your acceleration in the funding. But if I think about the outlook, kind of taking a lot of your commentary together, even if we do see you know somewhat of a slowdown and maybe that there was a pull forward in some multi-family and 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 ’23. Is that fair?
A – Jared Wolff
Yes.
David Feaster
I mean is – how would you characterize it? And like when we look at your pipeline, where do you see the drivers? I know you guys have invested a lot in CRE and some – excuse me, C&I and some of the new niches. I guess if I had you know to get some expectations on where you’re seeing the most opportunities, where are you seeing – what segments are you expecting to drive your growth.
A – Jared Wolff
Well, I’d say it’s pretty broad based and diversified as it was this quarter. I mean our core C&I business which excludes warehouses is going very, very well. That’s owner occupied real estate, its healthcare, its entertainment. You know we were 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 are not as much affected by labor and you know 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, you know we’re not an office lender, but we’re lending on bridge real estate for – generally it’s for you know multi-family 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.
We knew we saw an uptick in construction. Construction balances we’re drawing a little bit. We’re very selective on construction. We’re only lending to very deep pocketed developers you know and tight infield markets with good projects and that’s working well as well, so it’s been pretty broad based.
David Feaster
Got it, that’s great. And maybe just at a high level on overall asset quality. I’d just be curious of your high level of 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 may be 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.
Jared Wolff
So, of course we feel like we’re always strict, we’re always 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 and distribution space where they have you know the trifecta of problems with supply chain challenges, higher interest rates and then you know labor seems to be a continuing challenge for those sorts of businesses. And so, you know look at what happened to Tesla in terms of their manufacturing issues that drew down their quarter and I think that that’s just a – that’s representative of what’s going on in those businesses.
To the extent that we’re in traditional core C&I like that, you know I think we would rely on our ABL to make sure that it’s – you’re kind of lending against you know 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 our behavior, because that’s the way that we’ve been anyway. We don’t have a large base of – you know installed base of manufacturing and distribution borrowing clients, and 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, yes.
David Feaster
That makes all the sense in the world. And then just you know, you have a lot of success attracting new talent over the past year, year and a half or so. I’ve you know 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 cost of new hires is expensive. Just curious, you know your thoughts on the hiring side.
A – Jared Wolff
I think the market is actually gone 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. You know the two people that we announced this quarter were two of many talented people that we brought to the bank, and you know 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 Banc 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.
David Feaster
That’s great! Thanks everybody!
A – Jared Wolff
Thanks David.
Operator
The next question comes from Matthew Clark of Piper Sandler. Please go ahead.
Matthew Clark
Hey! Good morning!
A – Jared Wolff
Good morning, Matthew!
Matthew Clark
Any – Lynn, maybe any update on your run rate guide for expenses relative to what you provided last time?
A – Lynn Hopkins
Matt, I don’t think – I don’t know if there’s really any updates. I think that we have 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 up-tick 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.
Matthew Clark
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 for the magnitude that we can see next year from a revenue expense perspective and how quickly it could become profitable.
Jared Wolff
Hi 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 – 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? Matthew, can you hear us?
Matthew Clark
Yeah, thank you. Sorry juggling between two Q&A’s right now.
A – Jared Wolff
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 quarter, you know just franchise metrics, and we obviously are continuing to grow our top line in 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 and 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.
Matthew Clark
Okay, great. Thanks.
Jared Wolff
Thank you.
Operator
The next question comes from Kelly Motta of KBW. Please go ahead.
Kelly Motta
Hi! Thanks for the question. I saw that you were really active with the buy back last quarter and continue to be active quarter to-date. Just wondering about your appetite there, particularly as maybe topline loan growth may be slowing with warehouse becoming a smaller part for now?
Jared Wolff
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.
Lynn Hopkins
Yeah. No, thanks for the question Kelly. You know 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 market place between our capital actions and I think just you know modest loss and AOCI in the quarter is offset by earnings. So I think we’ll look at the opportunity for what’s left of the stock buy-back 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 kind of loan growth next quarter. I think there’s other things that we can evaluate.
Kelly Motta
Awesome! Thank you, Lynn! And then turning to the deposit base, you had about $130 million of run-off of non-interest bearing. Do you have a sense of how much of that migrated to some other higher cost categories and is that – do you expect a similar amount of deposit outflows or migration this quarter with rates, you know expectations where they are? Thanks.
Jared Wolff
Thanks Kelly. I don’t think we’re going to expect. We should see the same level of outflow. I mean the outflow that we saw in NIB was pretty discreet. There were a couple of things going on. One, we had a client that got acquired; we had some associate 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, you know from a pure account perspective we actually grew our accounts and relationships last quarter pretty meaningfully. I just don’t know if we’d 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 were just down a little bit plus the factors that I mentioned, but I expect and I believe they continue to grow, and 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 are putting at it.
Kelly Motta
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 see that at all with your relationship?
Jared Wolff
So, we absolutely have seen some mortgage warehouse borrowers struggle, but the way that we’re set up in design, 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 are 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 have thought – you know I’d say the vast majority of our borrowers hedge their loans, either directly or with forward take outs. 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. So we don’t see any exposure for us, but that doesn’t mean that some of the underlying borrowers, their business might shrink or even move out.
Kelly Motta
Thanks! That’s helpful. I’ll step back. Thanks a lot for the time. I appreciate it.
Jared Wolff
Of course. Thank you, Kelly!
Operator
The next question comes from Gary Tenner of D.A. Davidson. Please go ahead.
Gary Tenner
Thanks! Good morning!
Jared Wolff
Good morning, Gary!
Gary Tenner
Hey! So my question is on payments announcements and you know expenses were asked. But just as it relates to the payment 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 exclusively as a fee opportunity?
Jared Wolff
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 being a better 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 a 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, it 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 know you think about businesses where they might accept payment 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 this payment, 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.
Gary Tenner
I appreciate the color. And then just in terms of the brokered money that was added during the quarter, was that a 12 month piece of money Lynn or is it laddered up earlier that than?
Lynn Hopkins
I think it’s a little bit further than that. The average maybe around 12 months. I think there’s some short term and then a little bit two [ph] year money in there.
Gary Tenner
Thank you.
A – Jared Wolff
Thanks Gary.
Operator
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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