Jared Wolff : Yeah, I think 8% to 10%. I mean, we’re higher than we want to be right now, but I think 10% would be the high watermark. And as we bring it down, and historically we ran with 2%, 3%. And I think banks today are running with a little bit more, especially because you can get such a good yield on liquidity. And so, it’s a function of what we can get right now. I think Joe’s targets is right.
Andrew Terrell: And if I could ask that all the commentary is super helpful in terms of, I know there’s a lot of moving pieces here, so I want to appreciate all the color. Just wanted to ask on kind of the exit ROAA for 1.10% in 4Q ‘24. I’m trying to get a better sense of just what type of exit margin you would expect. The expense part is helpful, but it seems like the one kind of detail that I’m trying to get to here is the NIM. So any kind of color you could provide on an exit for NIM that would underpin the 1.10% ROAA would be helpful.
Jared Wolff : The NIM is — we haven’t defined that yet, I don’t think Joe have we?
Joe Kauder : Well, our — we haven’t defined what we did. Our exit, we did say our estimate spot rate for net interest margin was 2.75% at 12.31%. Andrew, is that what you’re looking for?
Jared Wolff : No. He’s asking for Q4 2024 where we’re going to be. So Andrew the reason why we’re not there is because the NIM is pretty much an output for us. And so, if we’re a little bit larger, a little bit smaller, it obviously we will affect the NIM, and kind of the mix of our portfolio. And so, we just haven’t guided to it yet. We have all these levers, we have all these models. We’ve looked at three different ways to get there and the NIM is different in these different models, but we still achieve the same ROA, and so we haven’t provided guidance there yet.
Andrew Terrell : Okay. Yes.
Bill Black : Andrew, the easy way to back into that though is that, if you think about it, of the three main income statement components, fees, net interest income and expenses, if you’re comfortable with your estimate for fees and expenses, you can essentially in some cases you go through that and back into it. So just to give your own, I mean, to pressure test it on your own?
Andrew Terrell : Yes, I was running that analysis, Bill, and it just seemed like the margin that I had to plug in was pretty high. So I just was trying to spot check it. I can move on. The one other I wanted to ask about was the $16.8 million of additional expense you guys called out as related to the HOA business this quarter. Can you talk about specifically what drove that and was that more transitory in nature? We should view it as one time?
Jared Wolff : It was one time. It was a catch-up expense for a specific client and we took care of it in the fourth quarter.
Andrew Terrell : And then actually last one the borrowing facility termination for $19.5 million, did that come through operating expense or was it in your interest expense?
Joe Kauder: Operating expense.
Operator: Our next question comes from Timur Braziler from Wells Fargo.
Timur Braziler : Jared, you had made a comment regarding loans that balances more or less flat as demand is okay. But you’re continuing to see some runoff or maybe expecting some runoff. I’m just wondering, as we’re looking at the categories today, where could we see some additional trimming off of loan balances?
Jared Wolff : So in the discontinued portfolio premium finance loans, like we laid this out on a table in the deck of what the discontinued portfolios are versus kind of what we consider core portfolios going forward. And you have premium finance, lender finance, all those things. And lender finance is coming off at about $100 million quarter-over-quarter is what it was last quarter. And I don’t know if it’s going to continue at that pace, but that 7.32% is running down and it’s a lower yield, a little below 3.5%. We have some good yields on some of the other stuff, civic is coming down for sure. Half a portion of that is bridge and the other portion is kind of for rent single family. So, those are two of the categories that I think student loans.
There’s barely any national lending left, but the stuff’s running down. We think the loan portfolio overall will be flat to slightly down. And this is obviously an environment where you can get reasonable yields with your liquidity relative to the stuff that’s paying off. But obviously, we want to deploy the funds in good loans because the rates right now are very good for lending. As Joe said, 7% to 8% is what we’re getting and in many cases higher than that. And so we want to deploy any good loans. But we’re being conservative and we’re making sure that with the right relationships, we really want to use our balance sheet for our clients and for full relationships. And so we’re ensuring that when we are lending today, it comes with a real relationship.
With the reduction in banks overall, it’s been easier for us to require larger components of the overall relationship to bank with us and to lend. And in the past, it was much more complicated. Given the position of our bank and the options available to the clients that are speaking to us, we’re in a much better position to demand more. It’s not to say that every client is going to have a single a relationship. I talked to somebody yesterday, I ran into at a restaurant and a well-known real estate guy. And he said, can I call you after lunch? I said, of course. And he called me as he said he would. And he said, look, we’ve been with First Republic, which is now Chase. We’ve been with City National, and they’re pulling back. And are you open to talking to us?
We have about $40 million to $50 million in balances. We’re not going to put it all at one bank, but we do need to put our operating account somewhere. And I said, we’d love to talk to you. I said, I want to make sure that we can serve you with what you need and how you need it. And so let us look at all that and then come back you to make sure that we can meet you where you’re going. But there’s a lot of opportunities like that.
Timur Braziler: And then maybe again just circling back to your comments about bringing back legacy PacWest deposits that left last year. I’m just wondering what industries those are in and to what extent you’re getting some of the venture tech related deposits reengaging with the bank?
Jared Wolff: I would say the deposit outflows that PacWest had and that Banc of California had as well, but they were obviously more dramatic at PacWest. We’re in all areas. And so there isn’t an area where we’re not looking to bring deposits back. But the headline, of course, was the deposits that went out on the venture side and how PacWest classified those. I would say that my observation and the data that we have is that those relationships are very, very strong. We’ve been able to positively promote the strength of our bank. And this combination really, really gave people a lot of comfort. Our credit ratings came out obviously very strong. And so we have been successful at bringing back relationships and deposits that left in those areas.
