Thank you. Good morning, and welcome to PacWest's third quarter 2022 Earnings Conference Call. With me today are Matt Wagner, CEO, Paul Taylor, our President, Bart Olson, CFO, and Mark Yung, our COO and the leader of our venture banking business. Before I hand the call over to Matt, please note that we may make forward-looking statements during today's call that are subject to risks, uncertainties, and assumptions. For a more complete discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements, see our company's SEC filings, including the 8-K filed yesterday afternoon, which is also available on the company's website. Now I'd like to turn the call over to our CEO, Matt Wagner. Thank you, Bill. Good morning, everyone, and thank you for joining our call today. I want to start off by making a few comments about the overall business and operating environment. Overall business activity remains strong, but we are proceeding cautiously as we are thinking about and planning for weaker economic environments ahead. We continue to focus our time and attention on our customers, making sure we are there to serve them throughout the cycle. We slowed some of our lending businesses, given the economic environment and our desire to grow capital more rapidly while optimizing our balance sheet. Given the current economic backdrop, we believe this is a prudent thing to do. Credit remains strong and currently we do not see any negative credit trends, and we continue to monitor the loan portfolio closely as part of our conservative approach to credit. Finally, but most importantly, building capital, as we did in the third quarter, remains our primary focus and this will continue to be a key component of decisions we make each day. With that, let me turn it over to Bill to cover the key highlights of the quarter. Thanks, Matt. The third quarter was marked by a couple key events. First and foremost, all of our regulatory capital ratios increased during the quarter, including CET1, which increased from 8.24% to 8.55% as we march towards our CET1 target of 10% by the end of 2023. Second, our total deposits grew $228 million, and importantly, after two quarters of decreases, our venture banking deposits not only stabilized, but grew $129 million to $12.2 billion. Third, credit quality remains strong, with non-performing assets only at 34 basis points and net charge-offs for the quarter of 3 basis points. We continue to monitor the loan portfolio closely and have not seen any significant signs of credit deterioration at this point. Fourth, our net loan growth remains strong and broad-based across the businesses, but lower than the prior two quarters as planned and as previously communicated. Lastly, our net interest income on a tax equivalent basis was $338.6 million, up 3.3% from last quarter. I'd like to now hand things over to Bart, our CFO, for some specific commentary on the financial results before we go into Q&A. Thanks, Bill, and good morning, everyone. I'm going to focus my comments on page three, a new slide we added to our earnings presentation which provides a condensed view of our financial results. As you can see here, interest income continued to grow, increasing 17% to $410 million during the quarter, and up 41% from a year ago, driven by higher average balances and higher rates. Interest expense also grew during the quarter, with our cost of deposits increasing to 70 basis points, driven by higher rates and higher average balances on wholesale deposits. As a result, this limited our NIM expansion during the quarter. Turning to the provision, the provision decreased by $7 million, primarily due to slower loan growth, a decrease in COVID-related qualitative reserves, offset by less favorable economic forecasts. Our CECL ratio ended the quarter at 1.03%, still above our CECL adoption level of 0.97%. Moving down to non-interest income, this was up $4.3 million due to the successful outcome of a litigation matter which, net of legal fees in 2022, added $5.5 million to non-interest income during the quarter. Meanwhile, non-interest expense was up during the quarter by $12 million. This increase was attributable to a $3.9 million increase in professional services primarily related to the credit linked note transaction, a $3.4 million increase in compensation related to an additional 68 FTEs, primarily related to Civic and our digital and innovation strategy, along with one more business day. Other contributors to the increase were a $1.5 million increase in FDIC insurance assessments as a result of higher wholesale deposits in 2Q and 3Q, and a $2.6 million accrual for a legal settlement. Excluding the $7 million in non-recurring items related to the credit linked notes and legal accrual, non-interest expense would have been $188.6 million. From a balance sheet perspective, the only comments I would make is that we sold approximately $440 million in bonds at a net gain of $86,000 as we continue to actively manage the investment portfolio. Our AOCI unrealized loss for the quarter went from a loss of $645 million at the end of the second quarter to a loss of $848 million at the end of the third quarter, given the movement in market interest rates. Lastly, if you're looking for our outlook on the fourth quarter, I would point you to slide 11 in the presentation materials. This concludes our prepared remarks. Operator, could you please open the line for questions? Yes. Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star one. We do have a question from Jared. Please go ahead. Hey, guys. Everybody, good morning. Thanks for the question. You know, I guess just maybe a little thought on how we should be thinking about beta from here. You know, you, I think, accelerated into the quarter. Should we be thinking that there's, you know, more room to go here as we move through the cycle? Or what's your thoughts on, I guess, beta through the cycle to start off with? Yeah. Jared, good morning. The current cycle rising interest rate environment, we're at 41 basis points for interest-bearing and 26% for total deposits. Looking ahead, our updated forecast on deposit betas over the next 12 months, that's an increase to 50% for interest-bearing deposits and 31% for total deposits. Okay. All right. Thanks. Then, you know, you mentioned a slowing outlook on loan growth. How should we be thinking about the funding of that? Is that, you know, going to see a continued increase in loan-to-deposit ratio? Should we assume that deposit growth is lagging that? Or, you know, should we be thinking that the deposits at that beta should keep pace? Well, again, the guidance that we have on deposits is, you know, flat to up depending on, you know, venture banking predominantly. We'll see where that goes from a deposit perspective. I think the slower loan growth is obviously part of that. With loans, you know, we'll probably do some funding with wholesale, obviously if the deposits don't grow at the same pace as loans. Okay. I guess maybe just finally for me, maybe a bigger picture question for Mark on the venture side. You know, good to see the deposit growth there. You know, maybe would be interested to hear your thoughts on sort of sentiment in terms of the sponsors and pace of potential investment as we end the year and go into 2023. Hi, Jared. Yeah, Mark. Yeah, I would say, you know, our outlook had been that transaction activity would start picking back up here end of Q3 and getting a little bit more robust into Q4. You know, the numbers are out for the broader U.S. venture market. I mean, transaction levels did come down meaningfully in Q3. Part of it aided by, you know, the summer seasonal slump. We are expecting there's still $290 billion of dry powder. I know it's a name, the number's been restated. $160 billion of it is estimated to be used for new investments out of that dry powder. So we do think the VCs will be under some pressure here to put that money to work before year-end. You know, we continue to believe that transaction activities should come up into Q4. Again, it's not gonna be 2021 or 2020 pandemic year transaction levels. It's gonna be more like pre-pandemic transaction levels, but aided and assisted by this tremendous amount of dry powder in the ecosystem. We continue to be cautiously optimistic here into Q4. We'll see where we end up here. Great. Thanks very much. Yeah. Our next question comes from Christopher Marinac. Yes, good morning. Wanted to ask about the percentage of core funding of the balance sheet. Do you see that changing further as we go into next year? Just kind of curious on sort of, I guess in the same line, kind of how DDAs may play out as well. Yeah, I mean, I think core funding, you know, is again tied to venture with that. I think, you know, again, the guidance we have, we think is, you know, flat to up depending on venture. I think from a core perspective, that's gonna be probably the key driver. I think we expect community bank to continue to grow. Saw some decrease in the third quarter, but, you know, expect that to grow as it typically does. Is the wealth management, kind of funds that are off balance sheet, is the beta on that materially different from what we see at the bank overall? Well, it's off balance sheet, so that's not in our numbers, right? Yeah. It has no bearing. Right what those betas would be. We've actually had initiatives, Chris, this is Matt, to bring a lot of that funding back on balance sheet. Project Boomerang, I think we call it. We're having some good success with it. But of course, you know, we're paying up for that money. Great. Yeah. That, that's what I just wanted to establish, so thanks, Matt, for that. Just the final point for me is, on the expense guide that you gave us for the fourth quarter, how applicable is that for the first part of 2023? Is that a good number to kind of read through for the early part of next year? I know budgeting is still going on. Yeah. I mean, the budgeting process, you're right, is going on. We're in the midst of that right now. It's probably a good jumping-off point, but we are taking a look at our expenses closely as we go through the budget process. That'll be a big focus for us, as we go through that. I think from a jumping-off point, that's probably a good guide. You know, Chris, some of the businesses that we're in, you know, you can logically look at them, and I'm not gonna name names necessarily, but it's activity. You're gonna slow down that activity pretty dramatically, like a lot of fixed rate lending and those kinds of things. If you slow down activity, you need less people. You'll see some initiatives coming from us. We don't have, I guess, I wouldn't call it necessarily a formal hiring freeze now, but every new hire, including replacements, are heavily scrutinized before we go forward with that. Great. Thank you, Matt. Thank you, Bart. Our next question is coming from Matthew Clark. Hey, good morning. Wanted to start on deposit costs. Do you happen to have the spot rate on the spot rate at the end of September on interest-bearing deposits to give us some visibility going into next quarter? Yes. The spot rate was 85. Okay. I thought it was 1:15 this past quarter, but okay. I'll have to circle back on that. The 85 is total. Matt, the 85 is total. Total. Thank you. Okay. Got it. In terms of borrowings, they came down this quarter. Should we assume that they continue to come down? As it relates to the wholesale deposits you're willing to take on, you know, what rates are you seeing relative to the duration you're willing to do? Yeah. On the borrowings, I mean, that's gonna fluctuate a little bit again, just with, you know, loan demand and growth and how we decide to fund that, whether we do it borrowings or whether we do wholesale. You know, going through the third quarter, wholesale was cheaper than overnight. That gap has narrowed. I think, you know, when you look forward, I think we probably, you know, have a little bit of wholesale in there, and then use the overnight as well. I think it'll be a mix, and really just depends on, you know, what the rates are. We did during the third quarter and throughout the wholesale process that we did do, you know, it's laddered and so, we'll continue to do that and see where it goes. It's, you know, probably in the 3.5-4 range on the wholesale, depending on the duration. Got it. Just on the guide for slower loan growth in the fourth quarter. You know, are we talking low to mid-single digits? How should we think about overall earning assets? Would they be flat from here or flat to down? We're trying to hold the loan side of the balance sheet more towards flat. There will be some growth in the fourth quarter. Looking out into 2023, again, I think you'll see little growth, but there will be some growth. Yeah. Matt, I would just add to that we've talked about for the last couple of quarters of optimizing the earning asset mix and optimizing the overall balance sheet. I think the comment that Paul made is more of the net balance of that. There's obviously going to be ebbs and flows of different things that'll grow and different things that may come in and out. The net result of that should be a flattish loan portfolio and a flattish balance sheet in 2023. Yeah. Just on your guide around modestly higher NII, you know, from here. Is that, you know, is that assuming you're gonna get some additional lift in the NIM or do you feel like the NIM is kind of near a peak? No, I think we expect NIM to continue to expand. I mean, it was, you know, limited expansion this quarter because of the deposit costs, but I think, you know, we see the loan yields continuing to rise. You know, deposit costs will rise. We think that we'll see expansion in the NIM looking ahead. Yeah. I think it's a mixture of basically the higher rates, and the remixing of the earning assets on a flat balance sheet. Yeah. Okay, I'll step back. Thanks. Our next question- Thanks, Matt. comes from Gary Tenner. Thanks, guys. Good Good morning. Just wanted to ask, and I think you may have addressed this in part by, you know, talking about a flattish loan portfolio in 2023. You know, as it relates to your 10% CET1 goal, you know, obviously added 30 basis points this quarter. 20 of that was the CLN transaction. Can Can you talk about any, you know, additional transactions or strategies you're thinking about in terms of growing that beyond just internal capital generation, as we look out over the next several quarters? Yeah. I think we're looking at everything, you know, to make sure that we meet or exceed the 10% CET1 by the end of 2023. I think you'll see the company go through a process. We'll be announcing things and looking at everything we can to improve capital. You know, Gary, everything's kind of up for grabs. This is Matt. You know, things like, you know, obviously we're going to have amortization of our multifamily loans. And of course, you're also gonna have some activity there where loans, you know, properties will be sold as, you know, in the normal course of business. Maybe not as quick a velocity as you would've in this rising rate environment because they're not doing refis. You're gonna have the same with our SFR portfolio. You're gonna have amortization, and you're gonna have people, you know, you're not gonna have the refi activity, but you're gonna have people move and sell their homes and that sort of thing. Just, you know, in the nature of PacWest, and you'll see this quarter, we had payoffs and paydowns of approximately $2.25 billion, I think, wasn't it, Bart? Yeah. Which is down somewhat from our more average, which was like $2.75 billion. On a quarterly basis, it's paid off. These are things like, you know, construction projects, a lot of which we do, the majority is multi-family coming to completion, certificate of occupancy is issued, and long-term lenders stepping in and taking us out. We still see that kind of activity, and we don't expect that to slow down. When you think about the portfolio, in general, you've got about between $8 billion and $10 billion in natural runoff on an annual basis, which is 30% of our portfolio, more than 30%, a third. You know, we still have to be out there making loans and, you know, making them to our customers, our customers that provide us core deposits, and we'll continue to do that. It's not going to be like we're gonna be sitting around flat-footed, in order to keep the balance sheet in check. We still have a lot of work to do. Thanks for that color, Matt. Just to make sure that I'm clear on, as you're talking about, you know, optimizing the balance sheet. As you think of the asset side, if you're kind of not growing loans or the balance sheet overall, is it more of optimizing the mix within the loan portfolio? Or as you look at the broad categories of loans, securities, and cash, shifting that mix more from where it is right now? Well, you know, we're not selling our securities portfolio off unless we can do it at a pretty neutral level. Yeah, as you know, what is our monthly maturities, Mark? $440 million. Yeah. It's gone down. It was about that during the quarter. Yeah. You know, forward looking, it's around 30. $30 million a month. Yeah It's just runoff of the securities portfolio. Yeah, I mean, it's optimizing what we wanna do. I mean, with our loan portfolio. Again, you know, we know rates are gonna continue to go up at least through probably the first quarter of next year. Why would you possibly be making a fixed rate loan now? I mean, we still have some flow, and we still have some commitments in Q3 that we had to honor, particularly for our good customers that are also large depositors. But that pretty much has flushed its way through the system. You won't see much more of that. I, you know, I'm pretty optimistic. I, you know, I'm also happy to see the deposit flows improving, particularly with venture. I think that, you know, it's not gonna be like 2020 and 2021 again, as Mark said, but I think it's gonna stabilize. The community bank deposits, which are our other big chunk of deposits, are, you know, continue to grow, although it's never been an exciting growth in community. You know, it's low single digit kinda growth. Yeah. The one thing I would add to that is that when I think you look at it, optimizing the balance sheet is not necessarily optimizing a single part of it's optimizing the whole. We're really trying to manage the balance sheet for capital and liquidity and overall long-term use of it. The ebbs and flows of one part of the balance sheet are less important to me than they are the whole. I think when we're talking about optimizing it's not necessarily loans will be that or this will be that. It's really trying to maximize the overall balance sheet, Gary. We have to keep in mind that the balance sheet runs off about $2.5 billion a quarter. Yeah. Where we're going in is looking at all of our types of loans and going with the most profitable, best loans that we can to fill that $2.5 billion bucket. Yeah. That's when we talk about optimizing it also gets back into the capital side of it, and that's how we can see the clear path to the CET1 of 10% by the end of next year. I mean, if you look at it, Gary, on the CET1, you know, we're at 8.55. You know, that's 1.45 that we've got to get. That's 29 basis points a quarter. Can you achieve that? Absolutely. I mean, the profitability is certainly there. It's just a matter, you know, we can't grow the balance sheet at $3 billion a quarter and do that. But it's not likely that you're gonna see that. I mean, I'm, as you guys know, I'm a very customer-centric guy. Been talking to a lot of people, and I'm headed to the West Coast today to see other customers. People are pulling back. I mean, projects that made sense at 4% interest rates and, you know, aren't gonna make sense at 7.5, you know, and that sort of thing. The business is naturally slowing down. I think you'll see that throughout the country and with the banks. I think you just keep an eye on everything and, again, you gotta be there for your best customers. Our best customers are deposit customers. Again, I emphasize this often in these kind of calls. If you take a look at our venture businesses, I think our loans came in just a little over $2 billion for the quarter, of which a huge chunk of that's capital call lending. We've never been a giant capital call lender, just a pretty moderate one. Our deposits related to those businesses, both the tech, life sciences, and capital call lending, are $12.2 billion. I mean, that's just remarkable. More than 6 times. You know, we've got to take care of those customers, and we will. We'll be out there. Mark and his team are. You know, we're seeing a lot of lending requests from those groups because they don't want to raise capital right now because they'd probably be looking at a down round. It's a dynamic environment. Great. Thanks, guys. I appreciate it. Our next question is coming from Brandon King. Hey, this is Brandon. I'm just curious about. Hey, Brandon. Hey. Hey. Yes. I wanna get an update on Civic loan production. I know it's pretty strong in the quarter, and given, you know, high interest rates is affecting housing demands and lower house prices. Just curious what your outlook is for that, if they can keep up this pace, or if you're expecting slowdown from there as well. Hey, Brandon, it's Bill. You've seen higher rates start to translate throughout the balance sheet, and that includes Civic. Higher rates is naturally slowing production. You'll see that happen in the fourth quarter as that ripples through. You're seeing, you know, a maturation of the portfolio, so the payoffs are starting to kick up. I thought you saw good production, good solid credit stats. Our underwriting has remained relatively consistent for the past couple of years. I would think overall that the net growth will obviously slow as rates go up and payoffs kick up. Bill, since you brought up Civic, you might wanna touch on Florida. Sure. Obviously, with the types of natural disasters that we've had, you know, we went through a deep dive of the entire portfolio, both within Civic and externally. The overall amount of properties that were severely damaged were a little more than a handful. Low single-digit $ million-dollar exposures, all properties where we have insurance policies in place. A really nice outcome in terms of the team doing the work and having the quick diligence to jump on the phones. Obviously a horrible disaster, but I think our teams did a great job in the face of a really tight timeframe. We're pleased with the underwriting and the structure there. I would add to that includes other lending that the bank does in Florida and has done, and it looks really good. In terms of yield, I had to step out just really quickly there. We had a nice bump in yield for the Civic production in September, a jump of about 34 basis points at 7.47, which was quite good. Hopefully, that trend continues. They have raised their advertised rates, and we still have a nice inflow of business. Yeah. What you're seeing there, in terms of the pipeline is that the pipeline from origination to fund kind of is creeping through the balance sheet. I mean, the numbers that Matt mentioned. Yeah are gonna keep creeping up there as that, you know, kind of continues to flow through the pipe. Yeah. There were, I mean, these deals often are committed thirty days in advance, right, Bill? I don't know if we call them a rate lock, but it's almost a moral obligation to do what we said we were gonna do. Sure. We don't like to re-trade deals. Some of that is still working through the pipeline. It worked through the pipeline in Q3, but I don't think we have any more of that really in Q4, in Civic or in the core bank. Got it. Lastly, I wanted to touch on credit. I mean, charge-offs have been very low for a while now. I'm curious- Yeah Now that we're kind of going into an economic downturn, that's kind of the general consensus, where do you think net charge-offs could go to kind more and more normalized level? Yeah in a slower economic environment? You know, it's really tough to peg that in a bank like ours. I mean, we're not very actuarial. You know, we're not very consumer-ish. But we continue to do deep dives on all of our portfolios, focusing on things that are more hot buttons and headlines like office properties and things like that. You know, we're pretty optimistic on what we see within our portfolio, and for that matter, it's the banking industry overall. Again, you know, I think great lessons were learned in the Great Recession, and banks are much more conservative in their underwriting and lending. I think pretty optimistic about that. I don't see any real ugly patches ahead. Bill, do you have anything to add to that? Yeah. Like, what I would say to that, Brandon, is that the past five-seven years inside of this company have really, in my mind, played itself out in terms of the stated numbers. You've seen classifieds, criticized, special mentions, non-accruals really be at the lower end of our historical range. I don't think that's a fluke. I think that's the direct result from all the work that's done. The composition of the balance sheet is materially different than it's ever been. I think when you look out, you know, could you see it like a bump here or there in terms of an individual credit? For sure. I think the overall loss content as I think we've continued to prove out quarter in and quarter out, I think is very, very manageable. I don't think you're like, I know that there's historically been some thoughts of the credit here, and I would point to the fact that the non-accrual numbers have been, you know, near the lowest that we've ever had, and all the other metrics jibe with that. Special mentions, classifieds, criticized. You know, the intense scrutiny that Matt talked about we're doing on a daily basis is our job. That's what we get paid to do. I think you're gonna see it continue to show up in some pretty strong loan, you know, credit metrics. I mean, Bart, what in venture, for instance, what has our charge-offs been for the past three years? I think net zero. Yeah. Been very, very low. Which is pretty just damning. What a great job. Yeah. Matt, we're net recovery about $1.2 million through this year. Yeah. I mean, but I mean, if you look at the previous two years, Mark, we were net positive too, I think, in recoveries. Yeah. 2020 we were. 2021 we were as well, yeah. Yeah. It's pretty remarkable. You know, that's a business that, as you know, in tech and life sciences, if something goes wrong, that's a donut. I mean, it goes to zero. Now, we often can recover money, but you're not recovering at a high level. I think our people have done a great job, and we've been able to keep the customers and most importantly, you know, keep that $12.5 billion, $12.2 billion in deposits. Got it. Thanks for all the color, and thanks for taking my questions. You bet. Our next question comes from Chris McGratty. Hey, good morning. On the NII guide, the slow growth or modest growth in Q4, if I put the pieces together for next year, like, down-ish, flattish balance sheet, heard your comments on margin. Do you think, NII can grow from that fourth quarter number into 2023, or is there going to be some pressure on that? We think it will grow in 2023. Growth off the Q4. Great. Second, within the venture book, I think you said it was $12.2 billion. Where's the composition of that in your deposit portfolio? How much is interest-bearing versus non-interest-bearing? Yeah, they're breaking. I don't know if I have the breakdown handy. Mark, do you happen to have that? I don't have that breakdown, no, not for venture specifically. We'll get back to you on it, Chris. Okay. Thanks, man. Maybe lastly. Go ahead. Nope, you go. Go for it, Matt. The majority is going to be interest-bearing. Yeah. I mean, you know. It's money market, isn't it? Yeah. I mean, you're over $50 million, and there's a lot of depositors in that population that are over fifty. You have the overall, what's the rate on the overall portfolio of in venture? It's 93 basis points. It's more expensive because it's more driven by the 50 and over depositors for obvious reasons. You know, they're big depositors. They're going to put their hand out. When interest rates are at historic lows, they don't really care. Got it. Just to make sure here, Chris, as well, I mean, the betas for the venture bank specifically have been tracking against other up-rate cycles too. There's no anomaly here in that sense. Yep. Got it. Thanks, Mark. Just one on the expenses for next year. I think there's an assessment for the industry, FDIC assessment that's going to go through. Is that. How should we think about the magnitude of that for you guys? Yeah, I mean, we haven't calculated that out. I mean, we're going through the budget process now and looking at the assessments. Obviously, like I mentioned, we got uptick this quarter because of the assessments being higher on wholesale, so that had an impact on the Q2 assessment, and that'll have an impact on the Q3 assessment. You know, we'll see how that continues to play out based on where those deposits go. We'll look at the increase. I read that too, Chris, and it looks very modest to me. We'll have to calculate it ahead. Okay. Yep, understood. Thank you. Yep. Our next question is coming from David Feaster. Good morning, everyone. Wanted to circle back on the credit side of things. You know, a lot of your peers have been building reserves here ahead of any pressure despite seeing no sort of kinks in the armor at this point. What would it take for you guys to really start building that reserve level up? Is it something you need to see Moody's change their forecast? Okay, go ahead. I mean, you have to, you'd have to see, you know, classifieds going up dramatically. You'd have to see some real, you know, waves out there. I mean, if you go down and look through the components of our portfolio, you don't see a lot of risk there. I mean, our multifamily portfolio has held up, you know, and across the country, it really has. I mean, multifamily portfolios have held up really well. You know, I don't know. There has to be a big wave change. I just don't see it happening. You know, maybe I'm an eternal optimist. I don't know. I mean, what do you, Bill, you got any comment or Paul? No. What I would say about that is like, look, like, we're preparing for whatever gets thrown at us. We, you know, we're not seeing it today, and that's just capital and reserves. It's not singled out towards one of them. You know, you got to keep in mind our NPA ratio is at 34 basis points, which is pretty low. I mean, when you think about it, we're still, you know, our ACL is still above our CECL adoption slightly. You know, you have to think about where it's gonna be. I mean, I think about it every day, to tell you the truth. You know, where are the hotspots going to be? I mean, leverage finance, we're not in there. I think the consumer has got a lot of, you know, there's trouble up ahead in my mind for the consumer. I mean, there is true inflation. I mean, I don't spend a lot of time at the grocery store, but I get a lot of comments from my spouse about, you know, how much more everything costs. What I do understand is when we go to a restaurant, I usually pay the bill, and I'm looking at it, and it's dramatically higher, and you know, costs, that sort of thing. I look at our bank. We're giving people raises. You know, much higher raises than we have in the past due to inflation, and that's here to stay. I mean, there's real inflation out there. I think the consumer isn't keeping up with it. We hear that every day, you know, if you listen to the news. I mean, a 5% raise isn't gonna keep up with what's going on with gas prices, food costs, and that sort of thing. There's gonna be pain out there. You know, there's going to be pain out there. I just don't think it manifests itself in a portfolio like PacWest so much. Yeah, I think the other thing that you've got is your non-bank lenders have been much more aggressive. When you look at a large real estate project, what you commonly see is the senior debt, which is a bank, you know, anywhere from 50%-60% leverage, and then there's 20% of mezz after that, and the mezz is charging them, you know, probably double-digit rates, and then the equity. I mean, your non-bank lenders are the guys that have the big risk on whether it's office or any kind of CRE, in my mind. I think you're going to see it there. The other thing a bank can do, and you guys have probably all heard me say this over the years, you know, when times do get tough and a borrower gets stressed, and that we even went through that as most recently as the pandemic, particularly as it related to hospitality, we could be flexible with our borrower. We're not a CMBS, we're not a structured CLO or whatever, and we can, you know, we could back off the rate for a while, looking to fight another day and maybe getting, you know, improving loyalty from that customer. You know, we give up some income in the short term, but you know, you can keep from having a problem. You know, I've been in this business for decades, and that you know, I've seen that happen, and as a CEO, I've been involved in those kinds of transactions and you know, it's really worked out well. That's the way to go about it. No, that's a great color and a testament to the way that you guys treat your customers. Mm-hmm. I appreciate the update on the yields, the underwriting yields on Civic. Do you guys have a specific reserve for that part of your portfolio? We do. We do. Sure. It's treated like every other, you know, loan asset class that we have. It has its own reserve based on the history, both inside and outside. You know? You know, when you think about that business, and I do, not as much as Bill does, probably. You know, you think about that business, there's decent down payments on these properties. Again, our average loan size is $355,000. There's real equity in those deals. There's still just a huge need, you know, for affordable housing out there. It's gonna get tricky. I mean, you know, again, a lot of these would be considered starter homes. Are people in that category going to go out and pay up 6.5%-7% for a mortgage? Maybe not. A lot of this business could end up fixed to rent, of which, you know, we have a sizable portfolio of that today too. That could be where it ends up in the short term. I'm still pretty optimistic. I mean, we have much higher delinquency rates in that portfolio. We have, you know, as a percentage, we have higher non-accruals and that sort of thing. In the end, we don't take a loss. We have other people that are willing to step into those properties and finish them or whatever it might be. I'm still pretty optimistic about that. The Florida thing is gonna be fascinating because, you know, there's clearly gonna be rebuild in Florida. People wanna be there. You know, some of the most desirable areas in that state got the hell kicked out of it, and they're gonna rebuild. It may not be the person that lives in that home today, but that person may be selling what's left of their house for land value and something better will be built there. I think you've seen in all natural disasters, and I think somebody said that to us yesterday or later. You know, Katrina, I mean, they build back better by far. That's. Isn't that a Biden thing? Build Back Better. It is. All right. I'll take that back. Anyway, I mean, I think that you're gonna see that, you know, going way back to the Northridge earthquake, you know, in California, you definitely saw that. Anyway. Got it. Thank you. Thanks, guys. Appreciate the color. Yeah. We had a question come in through the web chat, so it was asking for an update on the HOA acquisition. Bill, maybe you wanna- Sure. Talk about that. Yeah. The HOA business has been a great add for us. We spent the vast majority of 2022 integrating the platform into the bank as well as starting to combine our legacy business with that business into one HOA business. Overall deposits have been stable, and I believe somebody was asking about the betas there. Our betas in that group are among the lowest in the bank in terms of that. We feel good about where we are. The plan was to get it integrated, and then look for growth in 2023 and beyond. I would say that that was the plan, and that's what we've produced. We feel really good about the diversity of funding and what it gives us for the bank. We think it's like we're really excited about all the hard work that our team has done to put it together, and we're excited about what's to come there. Yeah, we're gonna really concentrate on the staffing there and try to really ramp it up. I love that business, and I wanna see, you know, we took our time to integrate it as effectively as possible and not lose customers, which we haven't, and now it's time to grow it. Any others? Operator, are there any more questions? Once again, if you'd like to ask a question, please press star one, and we'll take our next question from Jon Arfstrom. Hey, good morning, guys. Oh, hey, John. Good, John. Can you talk a little bit about momentum and your production yields? I know you touched on a little bit at Civic, but you've got the 5.92% average for the quarter. What does that look like today? What's that one? You wanna take it, Bart? What I would say is that you've seen the movement in loan production yields move up pretty significantly. We talked about it a lot in the second quarter about how, you know, both higher rates and mix shift is going to continue to help that. I think you're gonna continue to see that. A lot of that is gonna be a lot of the same stuff we've talked about, right? Higher rates, mix shift, incremental, you know, production going to a higher yield. All of those things are gonna contribute to that. I just think if you look at where our variable rate loans are, just off of spreads compared to how much LIBOR or SOFR has moved, you'll see that incremental yields will continue to keep creeping up from there. It's super hard to be specific because it'll depend on the type of loan that is in there. 'Cause you can see pretty wide variances between asset classes. Yeah. We feel it's gonna continue to creep up. Yeah. Okay. Yeah, that was a big step up in the quarter. Just a couple cleanup. Bart, what's left to do on hiring? You know, you talked about further expenses, but what do you feel like you have left to do? Well, you know, as Matt mentioned, we, you know, we're looking at every new hire, whether it's a new add or a replacement. We have a process around that we implemented in September. We still are committed to, you know, our digital and innovation strategy, our Vision 2025. You know, they had a slow start. We talked about this at the beginning of the year that there was gonna be investment in this area. A very slow start in the first quarter. Saw the FTEs ramp up in Q2 and Q3, although Q3 was down from Q2. We still have some hiring to do in that group to get to where we want to be. I think the pace slows through the combination of the people they've already hired and just taking a hard look at just FTEs overall. I do think there's probably a little bit more there that we'll see in the fourth quarter, and then we'll, you know, see where that goes next year. I I don't know, Paul, if you want to add to that. Yeah. You know, that's an area we're looking at very seriously and we are gonna get more aggressive on that. As we've stated a couple times during that call, this call, I mean, I look at every new hire and every replacement that's VP and above, and I've got to sign off on it in order for it to be filled. We're getting very serious on FTEs. That's been a lot of the increase. Civic is fully built out in terms of FTEs, so there'll be no more Civic creep. That's been about half of our FTE increase. Again, we're gonna get very serious about expenses here. Okay. Last question. I mean, you just got it, guys. I mean, I think we're not gonna be the lone rangers in the industry. I mean, you've got to look at every nook and cranny right now. Yeah. Okay. Last question, and I hate the question, but I'm actually kind of interested in the answer. But just, Matt, can you touch on or Paul, but just the quality of deals that you're seeing in competitive behavior. You know, some people say larger banks are pulling out of CRE. Other banks, you know, some of your peers are putting up kind of 8%-10% annualized loan growth. But I'm just curious what your assessment is of the competitor- No, I think. The competitive environment, the quality that you're seeing. Yeah. Yeah, I think the deal flow, first of all, John, we've really curtailed the deal flow with the exception of, you know, very large deposit customers. I think the deal flow has been good and the underwriting has been good. We, you know, you got a lot of guys pulling out, you know. Maybe that was somewhat summer, but you got a lot of guys, you know. I mean, the rates are better. I mean, and not just the rates, the spreads. You know, where we were facing, you know, SOFR plus, you know, 275 on certain kinds of projects. Those are clearly up 1%. SOFR 375. We've seen no real decline in the quality of the deal flow. Again, we're trying to slow it a little bit. We had tremendous growth in the first half of the year. You know, we've got to rebuild capital here. Also we've got to prepare for, I mean, I think most of us believe there's some rocky waters in front of us too. I think by slowing down, that's gonna help insulate us from potential losses too. Okay. Guys. I don't see competitors being willy-nilly or, you know, being overly aggressive right now. The aggressiveness we've seen, but it's not specific to this year. Yeah. As in if somebody wants a product, they just price to win. Right. It's not structure. Right. Very little decline in underwriting. You know, we got a couple of deals that we have special mention on. We've got a big hotel that's being taken out by a debt fund, and I'm very happy about it. I mean, we didn't see a loss potential in it anyhow, but we just found that out this week, which is good news. There was one other deal like that too. Once again, it was a debt fund. Listen, you're gonna pay up if you're going to a debt fund because they're gonna give you more leverage. That's generally why they wanna do it. Yeah. That's good news. All right. Well, thanks, guys. I appreciate it. Thanks, John. Thanks, John. I think I have. Anything else, Bart on that? Okay, great. Well, if there's no further questions, we really appreciate everybody's attendance and, we look forward to speaking with you next quarter. Thanks. Thank you very much. This concludes today's call. Thank you for your participation, and you may now disconnect.