Pacific Premier Bancorp Inc (PPBI) 2018 Q2 法說會逐字稿

Good day, and welcome to the Pacific Premier Bancorp Second Quarter 2018 conference call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Steve Gardner. Sir, please go ahead.

Thank you, Steven. Good morning, everyone. I appreciate you joining us today. As you are all aware, earlier this morning, we released our earnings report for the second quarter of 2018. I'm going to walk through some of the notable items. Ron Nicholas is going to review a few of the financial details and then we'll open up the call to questions.

I'll also note that in our earnings release this morning, we have the Safe Harbor statement relative to the forward-looking comments and I'd encourage all of you to take a look and read through those.

During the second quarter, we made significant progress on a number of strategic priorities, while delivering solid financial results. Earlier this year, when we announced the acquisition of Grandpoint, we knew that we were putting a lot on our plate and challenging our team from an execution standpoint. As a result, it's already been a busy year and I'm pleased with how we have delivered on our key initiatives. During the first half of the year, we completed the system conversion and integration of Plaza Bancorp. We conducted due diligence, negotiated and signed the definitive agreement to acquire Grandpoint Capital. We received regulatory and shareholder approvals and closed the Grandpoint deal in just over 4 months, which demonstrates our ability to close acquisitions timely, with minimal disruptions and to quickly begin realizing the benefits of the combined organizations. We have substantially completed the integration of the Pacific Premier and Grandpoint teams. The system conversions will occur in mid-October of this year, and we have largely completed our preparation for meeting the heightened regulatory requirements associated with surpassing the $10 billion asset threshold. While executing on all of these major projects, we have continued to deliver consistent financial results. In the second quarter, we generated $0.58 per share, which included nearly $1 million of merger-related expense. We generated good returns with a return on average assets of 1.35% and a return on average tangible common equity of 15.4%. Excluding the merger-related expense, we generated $0.60 per share on an operating basis. While this performance was solid, it does not live up to the high standards we have set for ourselves. We believe we are capable of higher performance metrics across the organization. Now that we have completed a number of key projects, I expect our team to operate at a higher level. We believe in continuous improvement as an organization, and we know there are number of areas that we can improve and that is firmly what I expect. One area of opportunity for improvement is in our loan growth. During the second quarter, we had fairly strong loan production with $530 million of new loan commitments, an increase of nearly 9% from the prior quarter. As with the first quarter, our loan production was heavily weighted towards our commercial relationship lending areas, as we saw good results from our discipline calling efforts.

During the second quarter, we generated $126 million in new C&I loan commitments, $89 million in franchise loans, $86 million of owner-occupied CRE loans, $65 million of SBA and $17 million in agribusiness and farmland loans. In aggregate, these commercial lending areas accounted for 66% of our total loan production in the second quarter. Due to the strong production in these areas, our business loan categories increased in an annualized rate of approximately 10% in the quarter. And our continued focus on higher-yielding asset classes had a positive impact on the average rate of our new loan production, which increased to 5.35% from 5.27% last quarter. However, similar to the first quarter, our overall net loan growth was negatively impacted by heightened level of payoffs within our existing CRE portfolio and a lower level of new CRE loan production. Given the CRE concentration at Grandpoint, we believed it was prudent to moderate the growth of these portfolios as we move toward closing. Following a large number of client meetings in conjunction with Grandpoint relationship managers and key executives, we are now comfortable expanding our CRE production given the high-quality nature of the combined loan portfolios. We see this as an opportunity to prudently improve our loan -- our growth rates. Additionally, we saw elevated payoffs in the SBA portfolio, as many of these borrowers are now able to acquire lower cost financing through conventional commercial loans. In light of the current environment, we've determined that we can be a bit more flexible on pricing in order to reduce some of the payoffs within the portfolio, enable us to be more competitive on higher-quality deals we are seeing from our business development efforts. We are going to maintain our disciplined approach to our credit standards and the pricing of risk, but we do see some opportunities to more strongly compete where appropriate. We have also made some enhancements to our loan production and workflow processes to reflect the structure that Grandpoint had in place. We liked how they operated from a regional-based perspective and we have implemented a number of their decentralized processes to move the decision making closer to our clients. From an overall perspective, we think loan demand is fairly strong in our markets and the adjustments we have made in our pricing, strategy and organizational structure should help us to produce a higher level of quality loan growth going forward.

Looking at deposits, we saw good inflow in the second quarter, with total deposits up almost 7.5% annualized, and our deposit mix remaining relatively consistent. From a pricing standpoint, we continue to see increasing pressure on deposit costs. To some extent, this is a function of our expansion over the past few years. With a larger branch network and customer base of retail deposits, we are seeing pressure on retail CD costs. Additionally, we have not raised our posted rates across the board, but we are getting a steady flow of request from business clients with excess liquidity to increase rates on their money market deposits. Managing our deposit costs is one of our top priorities and we believe the addition of the specialty deposits product team from Grandpoint will be helpful in our efforts. Prior to the acquisition closing, we had already added personnel to this group to expand their business development capabilities. They provide the expertise and product knowledge that net depositors in niche industries are looking for. And we believe this group will be a valuable generator of low-cost deposits in the coming years.

Looking ahead, we've put in a lot of work during the first half of the year to build a strong foundation that will further enhance the value of our franchise. We've added an exceptionally good team of bankers and a great client base through Grandpoint. And we believe, we have attractive opportunities to expand our relationships with many of these clients. With the addition of their team and the adjustments we've made, I believe that we'll be able to resume generating stronger balance sheet growth in the second half of the year. That being said, we continue to see growth that enhances our profitability and shareholder value while remaining disciplined in managing the risks of the business. Given that we have largely completed the investments required of institutions that cross the $10 billion asset threshold, we are in better position and more fully absorbed those costs and realize greater operating leverage going forward. In addition, once we fully integrate Grandpoint and realize the synergies from this transaction, we believe that the earnings power of the franchise we have built will become more clear as we enter 2019. I believe we are a stronger bank today than we were at the beginning of the year, and we have more opportunities to continue growing our franchise. We've expanded our footprint and entered new markets on the West Coast that provide exciting opportunities for both organic and acquisitive growth.

One of the byproducts of having completed 10 acquisitions over the course of 8 years is that we have consistently improved our M&A processes. Our team executes exceedingly well on all aspects of M&A. From the upfront work required for due diligence and negotiation to getting through the regulatory and shareholder approval process in the most efficient manner possible, to quickly integrating the teams, converting data and operating systems and then realizing the projected cost savings and benefits once the deal is closed. Our team performs at an elite level and it's a core competency and competitive advantage that we intend to continue leveraging in the future.

With that, I'm going to turn the call over to Ron to provide a little bit more detail on our second quarter results. Ron?

Thanks, Steve, and good morning, everyone. As in the past, I will be reviewing some of the more significant items in the quarter focusing primarily on a linked-quarter comparison.

Overall, as highlighted in our earnings release, reported net income was $27.3 million for the quarter and we earned $0.58 per diluted share compared with net income of $28 million and $0.60 per diluted share for the first quarter of 2018. As Steve mentioned, excluding merger-related costs, we earned $0.60 per share on a fully diluted basis. Major items impacting the quarter's results include total revenue, which increased $375,000 to $89.3 million for the second quarter was negatively impacted by a $1.8 million decrease in accretion income; lower provision expense of $1.8 million commensurate with lower loan growth and lower net charge-offs for the quarter; total operating expense, excluding merger-related costs at $49.1 million compared with $48.9 million in the prior quarter; and lastly, our effective tax rate for the quarter, which came in at 27% compared with 24% in the prior quarter as a result of our stock-based compensation deduction heavily weighted to the first quarter.

Taking a closer look at the income statement, our net interest income of $81.2 million was essentially flat compared with the prior quarter of $81.3 million.

Our net interest margin decreased to 4.41% from 4.50% in the prior quarter with accretion income accounting for $1.9 million for the quarter compared with $3.7 million in the prior quarter. Excluding the impact of accretion, our core net interest margin expanded to 4.29% compared with 4.26% in the prior quarter. Offsetting the lower accretion and higher deposit expense, where higher earning asset yields driven principally by higher rates on our new loan production and higher yields on our loan and investment portfolios compared with the prior quarter. Our overall cost of deposits increased 11 basis points to 50 basis points, driven predominantly by higher money market and retail CD rates. With the addition of Grandpoint bank, we expect our core net interest margin to reset in the 4.05% to 4.15% range. The company recorded a provision for credit losses of $1.8 million in the quarter compared with $2.3 million in the prior quarter. Included, we added $400,000 for the loss reserve for unfunded commitments. The decrease in our provision for credit losses was primarily due to lower loan growth as well as lower net charge-offs compared with the prior quarter.

Noninterest income of $8.2 million included loan sales gains of $3.8 million compared with $3.0 million in the prior quarter and included our recurring SBA loan sales of $31.9 million as well as $20 million in CRE sales for our $900,000 gain as we pruned our CRE portfolio in anticipation of the Grandpoint closing.

For the remainder of 2018, in combination with the Grandpoint acquisition, we expect our noninterest income to be in the range of $9 million to $10 million based upon our recurring income and normal business activities. Our noninterest expense came in at $50.1 million compared with $49.8 million in the prior quarter. Both quarters included approximately $900,000 of merger-related costs. First quarter staff growth related to our Grandpoint acquisition and the $10 billion threshold led to higher compensation costs in the second quarter, offset by lower payroll taxes.

Staffing for the second quarter finished at 896 employees compared with 883 as of March 31. The net increase of 13 employees was entirely attributable to our Summer Intern program. Separate from the intern program, staff count was down 1 on a quarter-to-quarter basis. Also, contributing to the modest personnel increase is higher equity-based compensation directly related to the expansion of the company's Stock Award compensation program across the organization. We anticipate our quarterly expense run rate to be in the range of $63 million to $65 million, excluding the merger-related costs and will have realized 100% of the Plaza operating expense savings by the end of the third quarter. By year-end, we anticipate the full realization of the Grandpoint cost savings. Our effective tax rate was 27.2% in the second quarter compared with 24.1% for the first quarter. Impacting the effective tax rate was the tax effective exercise, investiture-based compensation awards, resulting in a $372,000 tax benefit to the company for the second quarter compared to $1.4 million in the first quarter. As we guided previously, we expect our estimated full year tax effective rate to be approximately 26% to 27%.

Turning now to the balance sheet. Total loans came in at $6.3 billion, an increase of $35.7 million for the quarter. During the quarter, we originated $530 million in new loan commitments compared with $488 million in the first quarter, an 8.6% increase. However, loan growth for the quarter was impacted by higher prepayments of $266 million compared with $213 million in the prior quarter as well as higher loan sales of $52 million compared with $37 million in the prior quarter. Our business loans grew by approximately 9.5% annualized and in particular, our C&I outstanding grew by 15% annualized.

Our new loan origination and commitment yields were at 5.35% for the quarter compared with 5.27% in the prior quarter. Our investment portfolio finished the quarter at $907 million compared with $888 million at the end of the first quarter. We saw 3 basis point increase in our security's portfolio yield primarily related to new investments and higher-yielding MBS incorporates. With the Grandpoint acquisition, we will be acquiring approximately $400 million of investment securities and anticipate repositioning that portfolio growing our investment portfolio to $1.3 billion to $1.4 billion over the next couple of quarters. Total deposits finished the quarter at $6.3 billion, growing 7.5% annualized with nonmaturity deposits of $5.1 billion or 81% of total deposits. We saw solid growth in our noninterest bearing deposits of almost 6.5% annualized. Our nonmaturity deposits grew just over 5% on an annualized basis and our loan-to-deposit ratio finished the quarter at 99.5%, down from the prior quarter of 100.8%.

Our total shareholders equity ended the quarter at almost $1.3 billion, and we finished the quarter with $46.7 million fully diluted shares outstanding. Our tangible book value per share at June 30 rose to $16.21, a 15% increase on a linked-quarter basis and a 17% increase compared to June 30, 2017. Lastly, our TCE ratio increased to 9.91% compared to 9.63% in the prior quarter.

Finally, taking a look at asset quality. Our allowance for loan loss ended the quarter at $31.7 million, an increase of $1.2 million from the prior quarter. Our allowance to loans coverage ratio ended the quarter at 0.51% of total loans held for investment compared with 0.49% in the prior quarter. We have approximately 40% of our total loan portfolio under fair value accounting with a total discount of $22.2 million or 0.35% of total loans held for investment. This puts our combined loss coverage ratio at 0.86%.

Nonaccrual loans, delinquent loans and corresponding asset quality measures all improved on a sequential quarter basis.

With that, we would be happy to answer any questions you may have. Steven, please open the call up for questions.

(Operator Instructions) And our first question comes from Matthew Clark with Piper Jaffray.

Can you give us a sense for where you think the purchase accounting accretion might shake out for the third quarter? Just want to make sure that we're all on the same page in terms of the likely run rate.

Yes, Matt, difficult to say right now as we're still going through all of the fair value accounting work that needs to be accomplished, obviously, by the end of this quarter. Initially, on the loans of course, we had roughly about a 1.4% mark, which was roughly around $33 million. If anything, given the rise in interest rates, I suspect that, that number is probably going to go up a little bit. The other thing I would say is what we've seen is we've seen it somewhat front-loaded post our acquisition. So I would anticipate similar, where we'd see the first couple of quarters a little bit higher than probably normal, if you will. A little bit higher than straight line and then tailing off as the quarters progress.

But I think key here, Matt, as Ron said, we still have work to do to finalize all of those fair value marks and get those booked.

Yes, great. Okay. And then the $63 million to $65 million noninterest expense run rate, excluding merger charges. Can you quantify the contribution from Grandpoint. I just want to, kind of, isolate legacy PPBI if possible? And then, also want to confirm that the bump up in intangible amortization is included in that figure?

Yes, Matt, you hit the nail on the head. It does include the additional amortization -- CD amortization that we anticipate or CDI amortization. And it also includes -- we've got the seasonal project, which we've commenced. And we have a little bit for increasing rate there. But just to reaffirm, it does also include the 40% cost savings we anticipate with the Grandpoint acquisition.

The 40% cost savings will not be fully phased in until the end of the year. And so 2019 -- first quarter of 2019, we expect a clean run rate with those full cost savings than phased in.

Yes.

And I think that would imply a run rate that's lower than $63 million in the first quarter then? Is that fair?

The -- it is. All things being equal, that's what we would expect obviously. As we move through the year here, we'll have some further guidance in that regard. But, yes.

Okay. And then, just on the step-up and balance sheet growth, sounds like you're going to grow the securities portfolio, also sounds like loan growth is going to pick up here. It's high single-digit, kind of a -- still a good way to think about it or do you think maybe in the second half you could do better than that based on the pipeline and some of the changes you've made?

We'll see where that shakes out. There's a lot of moving pieces obviously and where the net loan growth comes out. At the moment, we're pretty encouraged. The pipeline is pushing a little over $950 million. We'll see what the pull-through rate is there. We'll see what the runoff rates are as well. We've put some pieces in place that we think are going to improve both the production and then, slow down the runoff rate and where that ultimately translates into as far as net loan growth, we'll see. I would certainly expect something in the high single digits, but at the same time, we're gonna see. Ultimately, as we grow, we're going to remain disciplined around, in particular, credit risk there. And assuming, we're comfortable with the credit risk and we can get the growth and I certainly think that in the high single digits is a reasonable place, given our business model and the talent of our people.

Okay, great. And then, last one for me. Just on the deposit repricing, how much of that do you think was kind of a catch up, if at all? Or do you feel like this pace -- this -- the pace of increase is likely to continue.

It's hard to say. I think that the pricing pressure is likely going to continue. We've seen that there was an inflection point once the Fed got to whatever it was [1 25, 1 50] and there doesn't seem -- on Fed funds. We just got another quarter point raise here in June. And I think the markets have priced in about a 91% raise in September and we're still looking at another high likelihood of a raise in December. I don't see any reason why the pressure on deposit costs are going to abate. We've mentioned, obviously, we're excited about the specialty deposit group that we're bringing over from Grandpoint and have invested in personnel there. And we think that, that will help over time to moderate some of those pricing pressures.

Our next question comes from Jackie Bohlen with KBW.

I'm sorry to touch base again on expenses, but I just want to make sure that I completely understand. I'm just given that the $63 million to $65 million range, does that include Grandpoint without a full cost saves striped out of it? So meaning that it's elevated based on where you see cost savings going.

Yes. So once we have the system converge and completed, Jackie, which will occur in mid- to late October. We would suspect by -- and then there is always few folks that we have that help with that transition after the conversion. But by December or early December, all of the cost saves should be in place. And so we would look at Q1 of 2019 as a clean run rate for all of the cost savings to be achieved.

Okay. So that $63 million to $65 million, you still anticipate 3Q being within that range even though you're carrying excess costs from Grandpoint?

Correct. And same thing with -- at this point, same thing with Q4 as well.

Okay. And I would assume you'll have some cost savings in Q3 from individuals who may not be coming over. But then, Q4 you'll start to realize the bulk of that savings post the conversion? Is that a reasonable way to think about it?

Yes.

It is, that's accurate.

Okay. And then, just to touch on some of the loan growth strategies that you have in place to increase growth going forward. You had mentioned, looking into CRE growth again, now that you're more comfortable with exposures post Grandpoint. And then the SBA and be more flexible with pricing on good credits. Was there anything else that I may have missed in terms of what you're looking for just in addition to normal work that your team is doing?

I think the benefit that we're going to see from the changes that we implemented during Q2 on our workflow, processes and approval processes by adopting some of the model that Grandpoint had, which was more on a regional basis. And we think is certainly more scalable over the longer term and will allow us to be a little bit more efficient, move that approval process and loan pricing structuring to those regional managers will also benefit us as well. We did -- we had a lot of work that we did during Q2 impacting our folks as we changed and developed those workflows to adopt that similar processes that Grandpoint had.

Okay. And then, just lastly, would you contemplate any loan sales from Grandpoint's portfolio, as you potentially look to reposition the loan portfolio?

I think -- we think of it as the total loan portfolio at this point. And loan sales and loan purchases have always been a tool that we have to manage our growth, credit risk, liquidity risk and so that's a possibility. But I'm very comfortable with the credit risk and -- that is in their portfolio, well managed. We think that there are a lot of clients there that we can expand relationships with. So at this point, we're not anticipating any loan sales, other than our normal course SBA.

Our next question comes from Tyler Stafford with Stephens.

First, thanks for all the outlook and guidance for the back half of the year. To start maybe just on the core margin expectation with Grandpoint, the 4.05% to 4.15%, would you expect to be able to build of that with future rate hikes? Or to be more, I guess, relatively flattish with rate hikes just given the funding pressure?

I mean, I would -- it remains to be seen. You've seen where we have been able to increase the yields on our new originations in the past 3 or 4 quarters. And so I would think that we'll be able to continue to build on our loan yields going forward. No reason why we can't. At the same time, we'll see how much that will offset than any rise in deposit costs. At this point, the margin has been relatively stable here over the last few quarters taking up a couple of basis points here and there. And we expect moving forward that we'll be able to achieve the same.

Okay, very good. On -- just one more from me on the expenses. I believe you said the remaining plaza expenses would be done by the end of the third quarter. Just how much remaining is left from that acquisition?

That is complete now, Tyler. Yes.

That was completed in Q2.

Q2, with -- so converted their systems. We'll realize...

Okay. I must have misunderstood what you said.

Yes, we'll realize a 100% of the cost savings related deposit this quarter.

Okay. Okay, got it. And then just on future M&A at this point. I guess, there -- seemingly a lot on your plate with Grandpoint. But Steve, are you ready for more M&A now? Do you feel like you need to take a temporary time out to digest Grandpoint or are you ready to go?

No, we're ready to go. I would -- if you would've asked me that question 3 months ago, I would not have thought we would have made as much progress as we did during Q2. I was really impressed with everything that the team was able to achieve. And as I said, the operational integration of the 2 teams is substantially complete, we'll be doing refinements as we always do. Always looking to get better in the organization. But there is nothing at this point that would preclude us. Obviously, each transaction is unique and different and so it would just depend upon the institution. But we are looking at opportunities today.

Okay, very good. And just last one for me. Any updates you could share on just where we stand with the Grandpoint private equity? Just anything you could share there.

We're not aware of anything on the private equity side and their plans.

Our next question comes from Andrew Liesch with Sandler O'Neill.

Just a follow-up question on the M&A discussion. The Grandpoint franchise gets you into some different markets or some newer markets. Are there any areas where you are particularly looking for, for an M&A or is Southern California still the -- your main geographical region?

No, as we've said in the past, Andrew, certainly, California is ideal. We think there's opportunity to grow. At the same time, for the right organization, the right institution and size, we would look beyond California to the Pacific Northwest to anything something along the Rocky Mountains. Certainly, if there was something that came up that we could continue to build out our presence either in Nevada or Arizona, we'd be open to it. And certainly, as far as south is -- in the southwest as maybe south far as the Dallas market goes. But to go outside of our primary markets, those would need to be sizable transactions that really move the needle and in particular, would have to be similar relationship-focused banks predominantly focused on serving business clients as opposed to something that was heavily consumer or retail oriented.

Okay, great. And then, on the provision guidance the $2.5 million to $3.5 million or so. Just with loan growth, where it's been and even with some pickup and charge-offs were they've been and credit issues been pretty low. And what would cause the provision to be near the higher end of that range?

Loan growth.

Our next question comes from Tim Coffey with FIG Partners.

Steve, was there anything about the timing of the pay downs that you saw in the quarter. They incurred early in the quarter or they pretty much spread out?

It was pretty spread out.

But no real trends there then?

No.

You the -- you've been expecting merger-related expenses around, say, $32 million as part of that Grandpoint transaction. You've taken very little so far. Are you expecting the balance of those will occur in the second half of this year?

Yes. Because we've closed the transaction on the first day of Q3. The majority of those merger-related expenses will come through in Q3 with some trailing over into Q4 as well.

Okay, okay. And then, on the specialty deposit groups. As these -- we talking about bankers that are targeting HOAs and perhaps IRS custodians.

This is away from -- this is separate than our HOA group. Although, I think we will leverage some of the technology, processes and systems that we've employed in that group that has proven to be very successful. This is from a whole host of other lines of business, whether it's related to law firms, trustees, escrowed title, a number of different areas.

(Operator Instructions) And our next question comes from Gary Tenner with D.A. Davidson.

I was hoping to see if you could elaborate on just the thought process with regard to commercial real estate heading into the Grandpoint deal. What you're wanting to see, what you saw. And the reason I ask is, as it relates to your own production, I would've suspected, given if you may be were a little bit uncertain as to the acquired portfolio, you'd feel certainly more comfortable with your own production. So can you talk about what you saw? What you're wanting to see? And then, the other part of it is with your express willingness to be a little more competitive on the pricing side, do feel even that much better about commercial real estate that you may have previously?

I think that we could say it's a very competitive market, obviously, but I don't know that that's any different than it's ever been. It's always competitive. We had begun moving up pricing on CRE in Q4 and had continued that in Q1. And we may have just gotten a little too aggressive, however, you want to position it or call it, or just a little bit too high and that really slowed things down. And as we do, we refined it here towards the latter part of Q2 and sat down and really discussed it with the team. Also, just looking at Grandpoint, they had a pretty -- they had a sizable, they do have a sizable concentration in CRE. And although, we were comfortable coming out of due diligence, we wanted to get in even further from a granular level meet with many of the clients, talk with them, hear their thoughts. And as we did, coming out of those various meetings that took place during the second quarter, I felt more comfortable. So it's a combination of factors. And then, CRE is something that we've done for a long period of time, I'm very comfortable with our process around being able to identify structure and price for the risks in the product type. And so I'm hopeful and cautiously optimistic that we'll be able to resume growing those portfolios.

Great. I appreciate the color there. And then, Ron, just a follow-up on the question about the just kind of accretion outlook. I understand that's too early to tell in terms of the initial impact from Grandpoint. But in terms of what you had in the first quarter from the previous deals, is there any reason to suspect there be a material step down in Q3 from 2Q on that? Was that a pretty clean number or was there a lot of accelerated pay downs there?

There was a little bit -- go ahead, Ron.

Tell him, That's okay.

No, I -- you wouldn't expect anything more -- you're talking about 1Q versus 3Q CRE?

I'm talking about 1Q versus -- I'm talking about the step down from 1Q versus 2Q, would there be...

Yes, we had some accelerated in 1Q, which gave rise to a little bit larger number and then, of course, when it accelerates takes away from subsequent quarters. So we saw that difference a little bit magnified there. But for the most part, again, we've seen that with other deals maybe not as pronounced as this one in particular. But as Steve has indicated, you're talking about loans and prepayments, we've seen quite a bit of prepayment activity even on the acquired bank portfolios that we've done recently.

I would not expect to see a step down from $3.7 million, it's what we had in the first quarter to $1.9 million in the second quarter. It could come in a little bit lighter than $1.9 million, could come in a little bit more. And that will naturally decline over time as well.

Okay. But that $1.9 million is a pretty clean number in terms of passive accelerated finance?

Yes, it is.

Our next question comes from Don Worthington with Raymond James.

Looks like ag loans were down about 8% in the quarter. Was this just seasonal variation in that portfolio?

It was.

Okay, okay. And then, it looks like the gain on sale premium was up on SBA loans. Was that market issue or related specifically to the loans that you were selling?

No, I think it just really the mix of loans. I don't think that there was any substantive change in the marketplace. It's just from quarter-over-quarter depending upon the mix of loans that we're selling. The gain can vary a little bit.

Okay, okay. And I guess, lastly, on the prepayments, could you tell how much was related to, like, liquidity events where people were selling properties versus refinancing somewhere else?

It was a mix. I don't -- we don't have a specific number but it was a mix of those 2 events and then, just also, businesses that are sitting on excess liquidity. Paying down loans or paying them off. Not related to the sale of the property or the refinance of the loan.

I'm showing no further questions. This concludes our question-and-answer session. I'd like to turn the conference back over to management for any closing remarks.

Thank you, Steven. And I want to thank all of you for joining us again this morning. If you have any additional questions please feel free to give either Ron or myself a call and we'd be happy to talk with you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.