Mark Mason: It’s in the call report, right. So, you can check the call report for the levels, but they’re relatively stable.
John Michel: Office, the average balance is $2.4 million in our office, and total portfolio of 376. So, pretty much broken down.
Matthew Clark: Yes. So that’s – okay. Okay. And then just last one for me. Is there anything more – I know your outlook for expenses, operating expenses are flat from here, but is there anything you can do to, kind of right size expenses given the, kind of the NIM pressures that are going to persist here? And is there some consideration or thought about maybe even shrinking the balance sheet to alleviate the pressure on the funding side?
Mark Mason: We continue to work on all of those things, Matt, right. Those are the obvious levers, right. And we continue to work on expenses. We’ve had, as we noted, some additional layoffs in the first quarter. We think that we’re pretty much right at baseline staffing today. We are trying to be thoughtful and careful about not getting our lending lines of businesses so that when the rate environment changes, that we can take advantage of that though we are very lean today in those business lines. Balance sheet shrinkage, we would love to shrink certain parts of it, of course, more quickly, right. We’d love to shrink our multifamily portfolio more quickly. The single-family runoff rate is a little low historically, but not quite as bad.
And the rest of the portfolio is, sort of running at, sort of historical prepayment speeds. There are things that will change those prepayment speeds. So, the most significant one, of course, is the prospect of lower rates going forward. The multifamily portfolio has been particularly sticky, as you might expect, given the rates on the loans when they were originated. That’s why we’re very focused on working with those borrowers to provide some value to them, either in additional advances on low LTV loans or extension of fixed rate periods in exchange for increasing those rates. And we got some of that done this quarter. The typical deal with this quarter raised rates from the low-to-mid 3% range to 5% to 5.25%. That’s a meaningful change on those loans.
In those cases, we simply extended the fixed rate period for those loans. And in a pooled loans, we rebalanced some. And we have a lot of opportunity for that. I think that’s going to be easier until rates fall than trying to hope for prepayments that are unlikely to occur, but as soon as we get some relief on rates, we’re going to see more significant pre-payments. The other lending we’re doing is primarily revolving, right. And while you may see new origination levels of a certain amount, those are commitment levels and not new balances. And all of that new lending is at very current variable rates, right. Rates of between 7% and 9% generally. And we need that revenue, right. Because given our marginal funding rate of 7% to 9% loan, still has a lot more substantial spread than our net interest margin today.
But we’re looking for other ways to reduce the balance sheet. I just don’t know if the magnitude will be as great as given some relief on prepayment speeds. Those are the things that we continue to work on, while continuing to think of new and more attractive ways to raise new deposits. Obviously, a very competitive market.
Matthew Clark: Great. Thank you.
Operator: Thank you. We now have of Clutch Investment. You may proceed.
Unidentified Analyst: Hi. I’ve got several questions, one strategic and three tactical. I’ll ask the strategic question, and then just please give me some color on this. And that is, I’m just a little very puzzled. You’re a premier outstanding financial institution in one of the best states in the nation. And why in the world would you want to put your foot into a in one of the worst states in the nation with very high taxes, high crime, and extremely poor governance? Now, I’ve read your review. I read the 24,000 accounts. But I mean, you’re four hours away by plane. I mean do you have the skill set and the overview? And I mean of all the places I want to have increased my presence, anything in California banking has a huge discount to sort of economic value, because only 750,000 people left the state last year.
I mean, all you have to do is look at the out-migration of U-Haul, and there’s no state in the nation that comes anywhere close to 750,000 people voting with their feet. I’ll go through the strategic. Those are the strategic question. Just give me some sense as to why you thought that a four-hour plane right away was where you want to be and sort of plant your flag and say, – and I understand the idea of community banking and you’re playing with franchises, but where does that go? I mean can you take someone from North Carolina and then say, “Gee, we want to put you in Southern California to be the manager.” How is that going to work? How do you think that – strategically, where do you see yourself moving in Southern California?
Mark Mason: Well, I appreciate the question. I don’t know if you know my background or other members of management, we all came from Southern California. And so…
Unidentified Analyst: But you’re out there now though, but go ahead.
Mark Mason: But I’m – we’re not headquartered there. If you’d allow me to finish. So, look, to grow, you have to have an attractive product, and you have to have a reasonably sized market, right? The markets in the Pacific Northwest are incredibly small relative to Southern California. Southern California arguably is the largest individual market in the United States. We’re very familiar with Southern California. We entered Southern California many years ago at this point. We’ve acquired two banks. We’ve acquired a number of branches. We’ve opened a number of de novo branches. Today, about a third of our branches are in Southern California. So, our decision to add to that branch network was a fairly easy one, in particular, because these three new branches are in smaller communities that match up well with community banking.
The deposits in those branches are super sticky. They’re primarily small consumer balances, which today are highly valuable. They are very rate-insensitive, and we match up very well with those markets. And so, look, I completely understand your negative comments on California. They are spot on. However, California is not going anywhere. It’s still going to be a very large market forever, and we’re already there, and this decision was a fairly easy one, and timely.
Unidentified Analyst: Okay. Three other just simple tactical questions. Do you have in the immediate future, some kind of – if I were looking at what you have now, I’d be very aggressive in the buyback and I’d encourage all my management and all my employees to buy the stock and have some, kind of signaling from the Board members that each Board member acquires 10,000 shares of stock at 11, I mean this is absurd. If you have a real book value of close to 30 and the stock’s 11, I mean, there’s a real phenomenal disconnect and lifetime opportunity. And that type of signaling, just signaling by buying a thousand shares, it gives a tremendous comfort to the market that you guys are putting your money where your mouth is.
Mark Mason: Understood. As a company, we’re not in a position to buy back stock at this time, right.
Unidentified Analyst: I saw that.
Mark Mason: Right. So, love to, and we’ve done a lot of that over the last several years. We’d much rather have been purchasing stock today, obviously, but that’s on the cards. We discuss with our Board the opportunity. We have requirements for our Board members to own a certain amount of stock. I believe it’s 3x their annual retainer, which is not insignificant. And I think most, if not all of them, are close to that, but we do discuss it. At the end of the day, it’s an individual decision, but we do discuss that. We’ve never been faced with this, kind of low stock price. And so, we’ll see what happens which points we’ll take.
Unidentified Analyst: Two other quick tactical questions. There’s a difference between goodwill and book value. And if I understand this correctly, there’s the assets that went into some, kind of impairment. But those basically roll off after 4 or 5 years. So the question is, those assets that were now at a market rate less than what you purchased, is the maturity, for the most part, about 5 years or 4 years? I mean, you’re going to have about 20% of that bucket come back into book value every year. Is that about right?
John Michel: It would be for the core deposit intangible, that is correct. You’ll be amortizing that over a period of years. But the goodwill is not amortized. It’s based on the books.
Mark Mason: Or are you talking about the securities value?
Unidentified Analyst: No, I’m talking about the security roll-off. I mean those things, the maturity those securities roll-off.
John Michel: Oh got it. I’m sorry.
Mark Mason: That’s what I thought. So, the average duration in the portfolio today is 4 or 4.5 years, right? So, your calculation is, kind of correct if you think about back of the envelope, right?
Unidentified Analyst: Yes. Yes. That’s what I’m looking for.
Mark Mason: But maybe the more practical consideration is that discount might come back sooner with a . And so between the two, it’s obviously coming back, right.
Unidentified Analyst: And the last question is, maybe have you gone back to some of your, you know 19% of your deposits are above the 250 level. If you have a large $5 million or $7 million, $10 million deposit, have you ever done these reverse repos where you say, “Look, your money is good. Don’t worry about it. We will give you a piece of our investment account.” Have you – can you go back to your individual people who have large deposits and find a way to, sort of give them comfort to stay in the game?
Mark Mason: First of all, it’s 14%, not 19%, a level
Unidentified Analyst: I was reading off your news release, but that’s okay. Go ahead.
Mark Mason: I think it’s 14%. But I do want to make sure we got the right number. So, not reverse repos, but we do use the IntraFi products, ICS and CDARS. And if you’re not familiar with those, you might check it out – okay, you are familiar. And that’s really the best way because then, we can get them a 100% FDIC insurance with rates that we customize to each customer. And we are doing that. I’m surprised – I guess I feel fortunate that we don’t have many customers that have had much anxiety. I feel good about that, but where we have had some, they do want to stay with us. They don’t want to go somewhere. So, we have utilized the products.
