Luther Burbank Corp (LBC) 2019 Q1 法說會逐字稿

Good morning, and welcome to the Luther Burbank Corporation First Quarter 2019 Earnings Conference Call. (Operator Instructions)

Before we begin, I would like to remind everyone that some of the comments made during this call may be considered forward-looking statements. The company's Form 10-K for the 2018 fiscal year, its quarterly report on Form 10-Q and current report on Form 8-K identify certain factors that could cause the company's actual results to differ materially from those projected in any forward-looking statements made this morning. The company does not undertake to update any forward-looking statement as a result of new information or future events or developments. The company's periodic reports are available from the company or online on the company's website or the SEC's website.

I would like to remind you that while the company's management thinks the company's prospects for continued growth and performance are good, it is the company's policy not to establish with the markets any earnings, margin or balance sheet guidance.

I would now like to turn the conference over to Simone Lagomarsino, President and CEO. Please go ahead.

Thank you very much, and good morning, everyone. Welcome to the Luther Burbank Corporation 2019 First Quarter Conference Call. This is Simone Lagomarsino, President and CEO, speaking. And with me are Laura Tarantino, our Chief Financial Officer; John Cardamone, our Chief Credit Officer; and Robert Armstrong, our Chief Banking Officer.

We'll go ahead and get started with earnings. Our net income for the quarter was $12 million or $0.21 per diluted common share compared to $10.6 million or $0.19 per diluted common share in the prior quarter and $11.1 million or $0.20 per share a year earlier.

The first quarter earnings compared favorably to the linked quarter even after excluding the $236,000 and $832,000 net after-tax impact of the onetime items that occurred during the first quarter and fourth quarter, respectively. Excluding these onetime items, the adjusted first quarter 2019 earnings would have been $11.8 million and the EPS would have remained at $0.21. And the adjusted fourth quarter 2018 net after-tax earnings would have been $11.4 million or $0.20 per share. The onetime item during the first quarter was a pretax gain on the sale of some loans of $333,000, and we'll discuss that in more detail in a few minutes. The onetime items during the fourth quarter of 2018 were primarily comprised of charges relating to the CEO transition net of the special FHLB dividend.

Our loan pipeline at December 31, 2018, was approximately 60% of what it had averaged last year, which is why we noted on our earnings call in January that we anticipated somewhat slower growth during 2019 than we experienced in 2018. At that time, we indicated that we expected growth for 2019 in the low double digits compared to the 22% growth that we experienced in 2018.

Since our call in January, the yield curve has inverted between the 3-month and 5-year treasuries, and we've experienced a continued level of accelerated payoffs and slower growth than we previously anticipated particularly in our single-family portfolio.

Our annualized loan growth during the first quarter was less than 1%, and if we exclude the loans that we sold, the annualized loan growth would have been 4.4%. Our loan pipeline has expanded from $209 million at the end of 2018 to $281 million as of March 31, 2019, which represents approximately 85% of what our pipeline averaged last year. However, as a result of the inverted yield curve and anticipated higher levels of loan prepayments, we're now projecting loan growth in the 5% to 7% range for the year.

With the slower loan growth during the first quarter, we took the opportunity to focus on the liability side of the balance sheet, working to be more disciplined in our deposit pricing. This approach paid off to some extent during the quarter, and we think this approach will prove to be beneficial in the future.

We continue to experience pressure on our net interest margin due to the current rate environment. The net interest margin for the quarter was 1.86%, down 2 basis points from 1.88% in the prior quarter. This 2 basis point decline is better than the 6 basis point decline that we had experienced in the prior quarter. The margin compression in the first quarter is mostly driven from the increase in our cost of interest-bearing deposits of 11 basis points from 1.83% in the prior quarter to 1.94% in the first quarter. The cost of borrowings decreased by 5 basis points during the quarter. The yield-earning assets increased 9 basis points.

If we continue to operate in the current flat yield curve environment, we anticipate continued compression on our net interest margin of up to as much as 9 basis points per quarter through the end of the year, and then we anticipate that the margin will stabilize. Certainly, when the yield curve normalizes, our margin should begin to expand. In the near term, we will continue our focus and discipline around our deposit pricing to lessen the margin compression as much as possible.

Noninterest income was $1.4 million for the first quarter of 2019 compared to $1.2 million during the linked quarter. The $134,000 increase in noninterest income was primarily attributable to the $333,000 gain on sale of loans sold during the quarter and the increase in loan fee income of $170,000, which was partially offset by a special FHLB dividend of $484,000 in the fourth quarter.

Noninterest expense was $16.2 million during the first quarter, down $1.7 million from the prior quarter. During the prior quarter, there were onetime charges of $1.7 million related to the CEO transition. Excluding these onetime charges, the quarterly expenses would have been $16.3 million.

Noninterest expense to average assets for the first quarter of 2019 was 0.93% comparing favorably to the prior quarter adjusted level of 0.95%. We continue to operate very efficiently with our first quarter efficiency ratio of 48.55% comparing favorably to the fourth quarter adjusted efficiency ratio of 50.15%.

Turning now to the balance sheet. During the quarter, we sold 2 pools of loans totaling $53 million and generating a gain on sale of $333,000. One pool was comprised of 30-year fixed rate, single-family loans with an average loan to value of 86% and with an average coupon of 4.53%. We understand that the buyer purchased them for CRA purposes. The other pool was $19 million and was comprised of multifamily loans with an average coupon of 4.10%, and this sale was agreed to very early in the quarter. We do not anticipate having any additional loan sales this year.

As a result of the loan sales and slower originations and the prepayments in our single-family portfolio, the loan portfolio remained relatively unchanged quarter-over-quarter at $6.1 billion. However, the composition of the loan portfolio changed slightly with multifamily representing 61% of the loan portfolio at March 31 compared to 59% at the end of the year and single-family loans representing 35% of the portfolio at the end of March compared to 38% at the end of the year.

The inverted yield curve resulted in the national 30-year fixed rate loan for jumbo loans being near our 5-year hybrid pricing. This negatively impacted our first quarter single-family originations. As a result of payoffs and the loan sale outpacing the originations in our single-family portfolio, the portfolio decreased by $91 million during the first quarter.

Credit quality remained very strong and nonperforming loans totaling -- with nonperforming loans totaling $1.5 million at March 31, 2019, or 2 basis points of total loans, and this compares favorably to the linked quarter and prior year level. John Cardamone will speak to credit quality in a few minutes.

During the first quarter, our retail consumer deposits declined by $47 million while retail business deposits decreased by $39 million. These decreases were primarily driven by our more disciplined approach to pricing as well as the decrease in 1031 Exchange, which was related to the slowdown in the real estate market.

Both the bank's and company's capital ratios remained strong and are above the minimum levels required for bank regulatory capital purposes. And now with the slower growth, we can again underscore, as we noted in our last call, that we do not anticipate the need to raise capital any time soon. And as we noted a few months ago, if growth does pick up, we have multiple levers available to us to manage our capital levels including, as an example, loan sales.

The company's ROA and ROE during the quarter were 0.69% and 8.19% compared to 0.62% and 7.34% during the prior quarter. The improved ROA and ROE were primarily the result of nonrecurring items discussed earlier. Excluding the impact of these items in both periods, our current period ROA and ROE would have been 0.68% and 8.03% compared to prior quarter amounts of 0.67% and 7.91%.

We are pleased to report that on April 29, 2019, the Board of Directors declared a quarterly cash dividend of $5 --- I'm sorry, $0.0575 per share, and the dividend is payable on May 20, 2019, to shareholders of record as of May 9, 2019.

During the first quarter, we repurchased an additional 393,000 shares as part of our share repurchase plan at an average price of $9.88 per share. Since the inception of the share repurchase plan in August of 2018, we've repurchased 566,300 shares at an average price of $9.49 per share or 9% discount to our book value. We have approximately $9.6 million remaining of the $15 million that we set aside for share repurchases, and we will continue to evaluate these future repurchases as appropriate.

And I will now turn the call over to Laura who's going to provide further detail regarding our first quarter results.

Thank you, Simone. So Simone gave a comprehensive overview of our results, and I just like to give you a little bit more detail with regards to volume, rates and repricing. And as typical, my focus will be on our first quarter results as compared to the linked quarter.

Although our margin did decline during the first quarter, our net interest income increased slightly quarter-over-quarter by $341,000 to $32 million or a 1.1% increase over the linked quarter. Interest income grew by $2.7 million. Interest on loans increased $2.8 million or 5% due to both the average balance of loans outstanding increasing by $159 million and the yield on those loans increasing by 8 basis points. These portfolio trends are very similar compared to the linked quarter where the volume in the fourth quarter increased by $171 million and our yield increased by 9 basis points. However, new loan origination volumes decreased during the first quarter. And consistent with the prior quarter and also as shown on Slide 15 of our deck, the spread between rates on new loan origination and current period payoffs and curtailments remained compressed. This change as compared to the first 3 quarters of 2018 where the spread grew in the fourth quarter of '18 and the first quarter 2019, that spread declined.

In the first quarter, we originated $312 million of new loans as compared to $470 million in the linked quarter. The rate on new lending was 4.62%, which declined by 11 basis points from the prior quarter rate of 4.73%. From December 31 to March 31, we saw declines in both the 5- and 10-year Treasury rates by approximately 28 basis points. Additionally, in March, we saw the 2-year and 10-year curve inversion, and the current level of 5- and 10-year Treasury rates are far from the 3% level that we experienced at the end of the third quarter in 2018.

As Simone inferred, with the flat yield curve, 30-year fixed rate loans are a viable alternative for our single-family borrowers, and single-family loan prepayments remain high. During the first quarter, our payoffs and paydowns totaled $247 million to slightly less than the $266 million level in the prior quarter, and those prepayments had a weighted average coupon of 4.19%. The spread between loan originations and loan payoffs was 43 basis points in the fourth -- in the first quarter of '19, which was very similar to the linked quarter spread of 44 basis points.

As we experience slower loan growth and compression between the rate on originations and payoffs, our overall loan portfolio reprices more slowly as would be expected. At March 31, the coupon on the loan portfolio was 4.15% or only 4 basis points greater than the prior quarter, which represents a change of approximately 1 basis point per month. This is the continued slowdown from the linked quarter where our rate on the loan portfolio increased slightly more than 2 basis points per month and a definite slowdown from calendar 2018 where our loan portfolio coupon increased 35 basis points or approximately 3 basis points per month.

The growth in our interest income on loans was slightly offset by declines on interest income on cash and securities as the average balance of cash and investments decreased by 4% quarter-over-quarter, which was somewhat offset by the related increase in the yield on those same cash and investments, which grew 5 basis points from 2.4% from 2.35% in the linked quarter.

Moving to interest expense. Interest expense increased $2.3 million over the linked quarter driven both by an increase in interest expense on deposits of $1.3 million and an increase in interest expense on FHLB advances of $990,000. Average deposits declined $11 million from the linked quarter while the rate on deposits increased 11 basis points. This also is a slowdown compared to the prior quarter where the average balance of deposits grew $230 million and the deposit rate increased 19 basis points from the third quarter of 2018 because we practiced greater pricing discipline during the first quarter of this year. The average volume of FHLB advances increased $160 million -- $167 million quarter-over-quarter with only a 2 basis point increase in the rate of those advances.

During the quarter, as greater emphasis was placed on deposit pricing, we supplemented our funding with wholesale sources of funds, which offered a competitive price alternative. While total deposits increased quarter-over-quarter by $81 million, retail deposits actually declined by $86 million and wholesale deposits increased by $167 million.

Thinking ahead about future repricing. At March 31, the annual rate on our deposits was 1.97%, an increase of 13 basis points from the linked quarter rate of 1.84% or an increase of just over 4.3 basis points per month. This is a notable improvement as compared to fourth quarter of 2018 where the deposit portfolio rate increased approximately 6.3 basis points per month and also an improvement from calendar 2018 where our deposit rate increased by 68 basis points over the year or about 5.7 basis points per month for the calendar '18.

Looking forward to the next 3 months, 34% of the time deposit portfolio or $1.2 billion is subject to renewal. Half of this balance is represented by wholesale deposits with a weighted average interest rate of 2.39%, and that rate remains consistent with current pricing. The other half of the renewal balance is represented by retail CDs with a weighted average interest rate of 1.98%. This rate represents a much smaller repricing spread as compared to the linked quarter wherein retail maturities had a weighted average interest rate of only 1.5%. And looking further forward in 2019, the rate on rolling-term deposits averaged 2.10% and greater.

As measured by a trailing 12-month figure, our beta as of 3/31 was 85% versus 79% in the linked quarter. As previously noted, the repricing on our deposit portfolio slowed considerably during the first quarter with the average cost of deposits for the quarter slowing by approximately 40% from the linked quarter. However, it will take some time for that improvement to be reflected in the 12 months or longer trailing beta.

As Simone noted, our net interest margin only declined by 2 basis points quarter-over-quarter. However, with deposit repricing continuing to outpace the rate of change in our loan portfolio, further compression is anticipated. And without any general improvement in market rates or some steepening in the yield curve, we continue to believe that a disciplined price approach to attracting increased deposit volume is the best strategy to reduce the pace of NIM compression and achieve stability. As always, margin improvement depends on several factors, but in large part, the improvement in NIM will require a more normalized yield curve.

Moving briefly to other income statement components. We recorded a $300,000 loan loss provision in the first quarter as compared to $150,000 in the linked quarter. We maintained ALLL coverage ratio of 56 basis points, and our allowance coverage to the problem assets continues to be extremely strong with the coverage of 23x nonperforming assets in the first quarter, up from 15x nonperforming assets in the prior quarter. We still expect our coverage ratio to remain relatively consistent and expect future quarterly provisions to provide for loan growth.

Simone covered our increase in net interest -- noninterest income for the quarter, as she said it was primarily related to the gain on sale of loans. I just want to point out that the 2 loan sales were done for 2 very different purposes. A single-family sale of $33 million was really an opportunity to reduce credit risk, and interest rate risk that those loans for 30-year fixed rate maturities -- fixed rate loans with combined loan-to-value of over 90%. Conversely, we occasionally entertain smaller portfolio sales just to yield some feedback from capital markets as to the credit characteristics and pricing within our loan portfolio. And that was related to the $19 million of multifamily loans that we sold during the quarter.

As a result of the single-family sale and 1 new term FHLB borrowing, our interest rate risk declined somewhat during the first quarter as compared to the linked quarter. Other changes in our noninterest income related to an increase in the market value of equity securities. During [2019] (corrected by the company after the call) or the first quarter, we did adopt ASU 2016-01, which means that we will see future changes and certain -- in the market value of certain equity securities running through the income statement as opposed to OCI. She also mentioned that our service fee income net of amortization was up $123,000 over the prior quarter, and all of these increases were offset by that special FHLB dividend in the fourth quarter of 2018.

In the first quarter of 2019, our noninterest expense of $16.2 million was a $1.7 million decrease from the linked quarter, again, related to saving the CEO succession cost that we incurred during the fourth quarter of $1.7 million.

Typical seasonal increases in the first quarter such as payroll taxes and an increase of $384 million was mostly offset by reduced marketing expenses of $334,000 payroll tax increase, mostly offset by reduced marketing expense of $334,000 related to deposit gathering during the first quarter. We do expect our run rate on noninterest expense to average about $60 million per quarter.

Simone mentioned our efficiency ratio at 48.6%, which is similar or better to what it was then over the last 5 years, which is, I think, especially notable given the margin compression that we've been -- or we have experienced.

Our taxes remains at an effective rate of -- for the quarter of 29% as expected, and we're not anticipating any change moving forward. Without the loan sale, we had annualized asset growth of 4.4% and ended our assets at about $7 billion.

At quarter end, our tangible book value was $10.38 per share or an annualized growth rate of 5.1%, and we maintained a consistent quarterly dividend representing a yield of over 2% based on current pricing. We continue to have strong capital ratios with a tangible common equity ratio of 8.4%, leverage ratio of 9.3% and a total risk-based capital ratio of 17.3%.

And with that, I'll pass it to John Cardamone to speak more about credit quality.

Good morning, everyone, and thank you, Laura. And I appreciate everybody joining us today. I'm delighted to continue to report to you that our credit quality remains exceptionally strong, and I'd like to share a few numbers with you to back up that statement.

Our nonperforming assets to assets declined from 3 basis points to 2 basis points. NPAs to loans fell from 4 basis points to 2 basis points. Our ALLL remains solid at 56 basis points. We have no OREO on our books and had none at the end of the last quarter.

Our CRE portfolio LTVs remained steady at a dollar-weighted level of 57%. Our debt coverage ratios declined a few basis points from 1.53x at the end of the year to 1.49 at the end of the quarter.

On the single-family side of the fence, FICOs remained very strong at 751 both year-end and at the end of the quarter. And our LTVs on a dollar-weighted basis dropped slightly from 65% to 64%.

As reported in our package, the average loan size in our portfolio on the CRE side is slightly above $1.5 million. Year-to-date, we've been producing it slightly above $1.7 million. Single-family loans at $908,000 in the portfolio. However, quarter-to-date growth was $1.070 million.

And as we go into this quarter, we have tightened our credit standards somewhat on both the CRE and the single-family side, and we have enhanced our due diligence on early 30-day delinquencies. We saw a very minor tick-up to about 5 basis points -- or excuse me, yes, 5 basis points at the end of the quarter. Most of those loans cleared during the quarter, but we've enacted a much tighter monitoring on who's going 30 days delinquent and see if we're establishing any trends with those borrowers.

With that, I'll turn the microphone over to my colleague, Robert Armstrong.

Thank you, John. As previously stated, with the pause in loan growth, we were able to be more deliberate in our deposit strategy this quarter. We continued to see a net migration out of checking and money market into CDs early in the quarter. However, improved pricing discipline allowed us to reevaluate more expensive transactional business and start to develop lower-cost products. This led to a slightly lower CD retention rate of 79% by balance versus 87% Q4 for the period.

Retail consumer deposits, as previously stated, were down for the quarter, roughly $47 million, but we're able to slow the rate of acceleration versus prior 2 quarters. Retail business deposits also decreased for the quarter, down $39 million primarily due to a market-related decrease in 10/31. In aggregate, taking a more disciplined approach to pricing allowed us to slow rate of -- the rate escalation of 11 basis points versus 19 for the prior quarter.

Slower growth provided an opportunity to focus on a few key areas that are the cornerstones of our strategy going forward. We continue to build out and focus on less rate-sensitive products. Greater emphasis was placed on capturing cross-sell opportunities. A good example of this was in our single-family residence deposit rate buy-down program, of which 98% of participating loans include active deposits and almost 50% are retained even after payoff. Also last quarter, we enhanced our income property loan officer compensation to incent greater cross-sell participation. This initiative should gain traction in future quarters.

The third part of this is we continue to pursue -- and reduce, excuse me, large specialty and wholesale funds in favor of core business banking activity related primarily to our lending activity in niche business markets. An example of this was our expansion of trade union niche vertical with almost $50 million in the strategy now and just centered primarily in the North Bay of Northern California. This represents a big opportunity going forward for us to expand in an area that we know well and have developed specific products for the vertical. These initiatives continue to take time, are not linear, particularly with strong deposit competition in all of our markets. But we will continue our focus and discipline around improving our deposit cost of funds to lessen margin compression.

With that, I'll turn it back over to Simone.

Thank you, Robert. And at this time, we'll go ahead and open the lines for questions from our 4 analysts.

(Operator Instructions) Our first question comes from Gary Tenner with D. A. Davidson.

I wanted to just, I guess, make sure, Simone, I heard you correctly during your prepared comments that on the margin pressure or potential margin pressure. Was that as much as 9 basis points per quarter through the end of the year?

Yes. And Laura, maybe take a couple of minutes and just discuss some of what we're seeing currently even just in the month of April in terms of repricing, what's in our pipeline and our coupon on our loans and kind of why we're saying it could be as much as 9 basis points.

So Gary, the trends that we've seen over the fourth quarter of '18 and the first quarter of 2019 continue particularly with regards to the rate on new loan originations with the yield curve. Or looking at our pipeline, and I think we've noted this in our slide deck, the rates on loans in the pipeline are even less than the rate that we brought them on in the first quarter. Additionally, we held deposit costs rather contained in the first quarter, but our growth in retail volume particularly wasn't very strong. So while we think that we can do a good job with price discipline on the deposit side moving forward, we still have deposit rate increases outpacing loan rate increases in the portfolios.

On that topic, obviously with the projections for slower loan growth, it seems like you kind of have 2 options on the funding side. You could kind of take your foot off the gas a little bit and try to minimize the increase in upward pressure on those funding costs or given that you've got maybe a window of slower balance sheet growth overall, maybe try to grow deposits to work down the loan to deposit ratio in preparation for maybe a future kind of need for that liquidity. So how do you -- how are you thinking about managing that dynamic?

That's exactly what we've done in the first quarter. We've recognized that slower growth, recognized that single-family loans are probably going the 30-year course, causing some of more recently originated 30-year loan with higher -- excuse me, hybrid loans with higher rates to pay off. And because we've had reduced pressure on the asset side, have been trying to grow our deposits slower and smarter.

We have a couple new products that we developed during the first quarter that we're going to be rolling out now in the second quarter on the deposit side, which again we'll be using to cross-sell our loan customers, hopefully, into these deposit products including a little higher rate money market product as well as --

FDIC-insured.

Yes, FDIC-insured, DDA account that's going to pay an interest rate on it as well. And Robert, do you want to talk about that for a minute?

Well, for competitive purposes, I don't want to go too far. But we believe we have an advantage on these products right now particularly given our access to niche verticals that heading into more of a downturn might -- it might be more prudent as a fiduciary to be insured up to the full amount versus taking a risk on the bank's balance sheet.

And our following question comes from the line of Matthew Clark with Piper Jaffray.

Just on the loan yields this quarter, I think they're up about 8 basis points. Was there anything unusual in that yield that created that expansion? It just seems like it's a decent lift in -- but it doesn't sound like you're going to get that kind of lift going forward.

I would say there is nothing unusual. I think part of that is paying off from the growth that we put on during 2018. I would expect the lift to be less in future quarters primarily because our portfolio is just not turning over as quickly as it was with greater growth and because, again, the spread between what we are originating loans at earlier in 2019 to today are quite a bit different.

Obviously, there's no change in the credit characteristics in the portfolio this quarter.

Okay. Great. And then just on the CDs that are maturing this coming quarter. Can you just quantify that bucket? I think you gave the overall, including wholesale. But maybe just the CD bucket and maturing rates and renewal rate.

So of the $1.2 billion, about half wholesale, half retail. The wholesale basically price would be currently so I wouldn't see any pressure there. On the retail side, the renewing rates during the second quarter is 1.98%. Our new and renewed loan deposit growth during March came in at about 2.29%, but I would point out that it didn't bring in a ton of growth. We replaced some maturing CDs, but in total, our retail deposits declined.

Yes. Okay. And then on the single-family resi portfolio. You had some loan sales there this quarter, but you adjust for that. I guess what's your outlook for growth in that portfolio? Do you think it'll continue to shrink from here? Or do you think you can actually show net growth?

April was a better month than the first quarter, and I think it's a wait-and-see. Our payoffs slowed a little bit in April, and our loan to volume was a little stronger in April. But I can't really commit further than what we're seeing in the first month of the second quarter.

And I would just add that, I think, we'll see -- we'll continue to see the growth in the 5% to 7% range for the total portfolio, most of which will be coming from the income property rather than the single-family.

Okay. And then just the expenses, $16 million on average sounds like for the rest of the year. I think embedded in that was -- or maybe, I don't know if it's still embedded in that, advertising expense. I know it could move around quarterly, but is that still expected to be flat year-over-year?

Advertising expense is expected to be flat year-over-year, yes. And $16 million a quarter is a good estimated run rate.

And our next question comes from Jackie Bohlen with KBW.

Just looking for an updated outlook on capital plans now that the growth outlook is a little bit slower than what we talked about last quarter. I know that there's still quite a bit left in the buyback if you think that pace in the first quarter is pretty indicative of how it will be going forward or if I'm -- just how you're thinking about it, I guess.

We continue to have about $9.6 million left than the approved repurchase -- share repurchase. And we continue to look for opportunities, and we're pleased that we've been able to buy as much as we have at of discount of 9% to our books. So yes, if we continue to see where we can take the opportunity to repurchase, we intend to do so particularly when it's at a discount to our books.

Okay. And then just one more for me. Are there any plans for de novo branches in the future?

We have...

I know the Bellevue office has done really well.

Yes. We actually have 1 branch that is underway right now and should be opening sometime in the -- end of the third quarter, early fourth quarter. And that's in the city of El Segundo in Southern California.

Okay. And is that -- at the present moment, is that the forward plan for de novo activity? Or are there -- is there anything else that could be in the pipeline?

That will be it at the present time.

And our following question comes from Tim O'Brien with Sandler O'Neill.

Question for John. John, you mentioned tightening credit standards and enhancing due diligence. That was a first quarter move.

We started in the first quarter, and we'll continue to monitor the portfolio very, very closely. Obviously, performance has been really quite good so far, and we want to keep it that way.

Can you ID the particulars that were tightened relative to what they were before? Like, I don't know, was it LTVs, cash flows, what have you? Can you give a little color?

We're tightening our -- the flexibility we have on each product in the single-family side is the biggest thing. We're going to be more focused on recourse lending than we were last year. We're going to require more tax returns, and we...

The last 2 comments were relating to the income property.

Income properties, yes.

The first comment was single-family.

Yes, single-family. Thank you, Simone.

We always require tax returns for the single-family.

That's right, Tim. Yes. So those are the big things, Tim.

Great. No change in LTV requirements or such?

No. They're remaining constant at the moment.

Okay. And then another question I have for you is just the outflows of noninterest-bearing deposits tied to 1031 Exchange. Can you give a little bit more color on what's going on in the 1031 Exchange market? Is that endemic and broad-based? I know you -- I guess a different way to approach it is can you talk a little bit about that niche? And how much in deposits that accounts for or is it accounted for in the past? And have they all flown out? And is it Southern California-based or Bay Area-based? A little bit of color there.

Yes. So Tim, it's not a big percentage when you look at it stacked against the $5 billion deposit portfolio. It's ranged anywhere from $100 million to $200 million, and we see it as -- I think it's only 29% of just the business vertical. So what we saw was a net outflow. Actually, there is some -- even some seasonality Q1, what people are finding in exchanges. As you know, with the 1031 Exchange of 180 names to trade out and find a replacement of the property. So specific to our portfolio, we saw a relatively minor outflow of, I believe, it was $47 million. So it wasn't a big deal when you stack it against everything else that we've diversified into. But it was a decrease, and we don't anticipate that bucket being a growth area for us. We will maintain what we have and look for strategic opportunities. Some of the pricing there became relatively expensive as people are striving to fund their loan needs, and we did not pursue it, beyond our comfort zone in terms of pricing.

And honestly, I'm not really concerned about your situation kind of given the context of where you gather deposits and how big a piece that was to your deposit base. In the last cycle, we saw -- and I'm sure a number -- you all are familiar with this, outflows from 1031 Exchange is being leading indicators of a slowdown in real estate markets, and the way that I read the language in the press release suggests that was part of this. So I was just looking for a little bit more on that.

Yes. Fair enough. It's too early to...

From a macro standpoint.

Yes. From a macro standpoint, I think it's too early to tell, but it was off across the board.

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back to your speakers for closing remarks.

Thank you very much for participating in our first quarter conference call. This concludes the call. Thank you.