Earnings Call Transcript
Banc Of California, Inc. (BANC)
Earnings Call Transcript - BANC Q4 2023
Operator, Operator
Hello, and welcome to Banc of California's Fourth Quarter Earnings Conference Call. All participants will be in a listen-only mode. Today's call is being recorded, and a copy of the recording will be available later today on the Company's Investor Relations website. Today's presentation will also include non-GAAP measures. The reconciliation for these and additional required information is available in the earnings press release, which is available on the Company's Investor Relations website. The reference presentation is also available on the Company's Investor Relations website. Before we begin, we would like to direct everyone to the Company's safe harbor statement on forward-looking statements, included in both the earnings release and the earnings presentation. At this time, I would like to turn the floor over to Mr. Jared Wolff, Banc of California's President and Chief Executive Officer.
Jared Wolff, CEO
Good morning, and welcome to Banc of California's fourth quarter earnings call. Joining me on today's call is Joe Kauder, our CFO, and Bill Black, our Head of Strategy. Our investor presentation, along with our earnings release, is designed to provide a great deal of information given the unusual nature of the fourth quarter, which was impacted by the closing of the merger and several one-time items related to our balance sheet repositioning actions. We aren't going to do a detailed walkthrough of the changes in various line items from the prior quarter. Instead, we'll utilize the time on our call today to introduce the new Banc of California, provide an update on the progress we have made on the balance sheet repositioning, and lay out the timing for our integration and provide insight into the key financial metrics for Q1 and beyond. We will be happy to answer any specific questions regarding our fourth quarter results later in the call. I am truly thrilled that we delivered on so many of the key objectives that we outlined when we announced the deal. Thanks to the hard work of our talented colleagues and advisors and the work of the regulators. We received approval for our transaction in record time and closed the transaction on the front-end of our range. We delivered CET1 on top of our 10% target, notwithstanding a complicated rate environment and considerable moving items on the balance sheet, and we nearly hit $15 in tangible book value, after guiding to the mid-to-low $14 range when we announced Q3 earnings. Many other key metrics were delivered in line as well. Since closing the merger on November 30th, our team has been collaborating exceptionally well, and we've made excellent progress on the balance sheet repositioning actions that we indicated at the time of the merger announcement. As a result, we have created a well-capitalized, highly liquid financial institution with strong earnings power and a strong position in California, as we envisioned. Today, we are the third largest bank headquartered in California based on assets with an enviable presence up and down the state, clean credit, and an exceptionally talented team of colleagues focused on serving businesses with high-touch service and tailored solutions that our target clients aren't getting from others. The closing of our merger reflected the relentless execution that Banc of California has become known for. Among the most notable items, we completed the planned sales of legacy Banc of California's $1.7 billion SFR portfolio, approximately $700 million of the multifamily portfolio, and $1.2 billion of the investment portfolio as well as approximately $2 billion of PacWest securities. The proceeds, along with the excess cash from PacWest, were utilized to reduce the higher-cost wholesale funding on the balance sheet. We retired the $1.3 billion repurchase agreement and have also continued to reduce the volume of higher-cost broker deposits, which are down nearly $4 billion from the time of the merger announcement through the end of 2023. We also repaid $2.3 billion of the bank term funding program balance, choosing to retain a portion in order to maintain a higher level of liquidity and pay down higher-cost brokerage deposits. In total, we sold approximately $6 billion of assets with an average yield of 3.6% and paid down approximately $9 billion of wholesale funding with an average cost of 5.2%, contributing more than $90 million annually to the net interest margin. This was nearly all completed in the month of December. As mentioned, we decided to retain a portion of our multifamily portfolio rather than selling the entire portfolio as originally planned. These are well-performing loans, and after the purchase accounting mark, they have attractive yields in an approximately four-year effective duration that we determined was in our best interest to retain, given the outlook for potentially declining rates. As noted, we were able to execute on most of our planned balance sheet repositioning actions in a short period of time, strengthening our balance sheet, and repositioning the company for improved performance and enhanced flexibility. We will continue to evaluate all available options as we seek to optimize our balance sheet going forward. We have also started to see some of the potential benefits that we believed we would have following the merger. With the strength of the restructured balance sheet and superior level of service that we can provide, we have started to bring back many of the operating deposit accounts of PacWest clients that left the bank during the turmoil early last year. We also felt that there would be opportunities to further capitalize on our position as a talent magnet. We have already added a number of individuals and will look to continue adding exceptional banking talent that we believe can positively contribute to the profitable growth of our franchise in the coming years. Now let me hand it over to Joe, who will provide some additional financial information, and I'll have some closing remarks before opening up the line for questions.
Joe Kauder, CFO
Thank you, Jared. I'm going to start by providing the spot rates for balance sheet items as of December 31st to provide some visibility into our net interest margin for the first quarter. As of December 31st, 2023, our estimated spot rate for loan yields was 6.18%. Our estimated spot rate for the yield of all interest-earning assets was 5.63%. Our spot rate for the cost of deposits was 2.69%. Our spot rate for the cost of funds was 2.99%, and our estimated spot rate for our net interest margin was 2.75% compared to 1.69% for the fourth quarter and 2.15% for the month of December of 2023. We are exiting the quarter with a much higher net interest margin due to the benefits of the merger and our balance sheet repositioning actions, and we expect our first quarter net interest margin to approach 3%. The expected increase in our net interest margin in the first quarter from December 31st spot rate will be driven by an approximate 15 basis point improvement in earning asset yields, driven mostly by loan repricing and new originations at higher rates currently between 7% and 8%, and an approximate 10 basis point improvement in cost of funds driven by the paydown of higher-cost wholesale funding, and an increase in the relative percentage of lower-cost core deposits. Putting aside changes in interest rates, we expect to see a steady decline in our interest expense as we move through 2024 and continue to replace higher-cost wholesale funding sources with lower-cost deposits acquired through our business development efforts. There are also some additional actions that we may take that could have a positive impact on our net interest margin, including asset sales and using off-balance sheet options for higher-cost customer deposits. At this point, we are moderately liability sensitive and will benefit from a reduction in interest rates. Once we have completed our balance sheet repositioning, including reaching our internal targets for low-cost deposits, we intend to manage the bank to a neutral or slightly asset-sensitive position. Looking at non-interest expense, it is reasonable to expect our first quarter 2024 OpEx ratio to be in the range of 210% to 220%. As we indicated previously, the expected cost savings in the merger will be phased in over the course of 2024. Major contributors to the cost savings include the completion of the systems conversion, which is scheduled to occur in May, a reduction in FDIC assessment expense, which we anticipate to start declining in the first quarter, and office consolidation with approximately 18% of the leases on PacWest offices expiring during 2024. By the fourth quarter of 2024, we expect our OpEx ratio to be down around 2.0%, and we are targeting the quarterly run rate for non-interest expense to be approximately or below 2% of total assets from that point forward. With all of the integration and balance sheet repositioning actions proceeding on schedule, the guidance we provided for our level of returns that we announced at the time of the merger has not changed. Rather than focusing on the full year, our primary focus is on ensuring our ending Q4 run rate is in line with our targets of approximately 1.10% ROAA, and 13% ROTCE. Given the timing of achieving cost savings throughout the year. At this time, I'll turn the call back over to Jared.
Jared Wolff, CEO
Thanks, Joe. I would like to wrap up with some comments around our vision for the company and the broader outlook. We are organized around two primary areas. First, the bulk of our assets are centered in our community bank, which is comprised of our talented bankers who focus on in-market relationship lending across California, in Denver, Colorado, in Durham, North Carolina, and a few other locations. We provide full-service commercial banking across real estate and C&I, including asset-based lending. Paired with our community bank, our specialty alliance provides expertise in specific verticals including homeowners and property management solutions, media and entertainment, warehouse lending, corporate asset finance, SBA, fund finance, and venture banking. Whether in our community or specialty areas, we offer best-in-class depository and treasury management solutions, corporate asset management, and the payments ecosystem we are building, which includes merchant processing card solutions as an issuer and third-party processing. We believe we have a great market position in California given the strength of our franchise and superior level of service and expertise that we can provide, particularly given the significant changes we have seen over the past few years in the California banking market. With so many of our competitors exiting or significantly pulling back from the market, we believe this presents us with significant opportunities to consistently add attractive new client relationships that provide low-cost deposits and high-quality loans. As we continue to build out our new payments ecosystem, which we believe will only further enhance our value proposition, it will differentiate us from competing banks and positively impact our business development efforts. As we've indicated, we expect to be a high-performing institution with strong earnings power. A portion of that will come from restoring the high level of profitability that PacWest businesses have historically generated. In recent years, there were some lower-yielding assets added that were funded with higher-cost funding sources that negatively impacted PacWest's historical profitability. With the balance sheet repositioning actions we have taken, we have significantly reduced these assets and funding sources, creating a path to a higher level of returns for the combined institution. As we start 2024, while there remains some degree of economic uncertainty, we are already seeing the positive impact of being a larger, stronger financial institution on our loan production with a greater volume of opportunities for us to consider. We're seeing a reasonable level of loan demand, which is enabling us to generate a meaningful level of new loan production, while continuing to be conservative and highly selective in the loans we choose to make. In most cases, loans coming on the books are being done at the same or higher rates than those paying off. Given the volume of runoff we anticipate, while there is some uncertainty regarding the pace and timing. At this point, we are expecting to end 2024 with total loan balances that are flat to slightly down from the year-end 2023 level and then growing during 2025 as economic conditions improve. As we move through 2024, we will provide an update to our expectations based on any changes we see in economic conditions that have a material impact on loan demand and loan production. Regardless of the rate curve and pace of changes in interest rates, we are well-positioned to capitalize on such opportunities, given the highly liquid balance sheet that we now have. I want to note that we feel very good about the credit quality of the loan portfolio. The merger process dictated that we take a close look at every loan in the portfolio of each legacy bank and make sure that they were appropriately rated as well as resolve some of the weaker credits. As a result, the bank has cleaner credit and a higher level of reserves following the provision that we recorded in the fourth quarter. From an asset quality standpoint, we are comfortable with where we stand. It's fair to say that based on our Q4 actions, the new Banc of California has cleaner credit today than either of its predecessors. I want to specifically thank the dedicated and talented colleagues at Banc of California for their amazing efforts, contributions, and many sacrifices for helping to create this new and exciting franchise. I have witnessed heroic undertakings, and I feel very privileged to be leading such an incredible group of colleagues. Thanks to all of them, I'm confident in what we have set out to accomplish this year and beyond. In closing, we believe we are well-positioned to deliver strong financial performance for our shareholders in '24 as well as to capitalize on our great market position that we have built in California to consistently enhance the value of our franchise in the coming years. With that, operator, let's go ahead and open up the line.
Operator, Operator
Our first question today comes from Matthew Clark from Piper Sandler.
Matthew Clark, Analyst
Just wanted to start on expenses for the upcoming quarter and in the related run rate. I know you had a kind of partial quarter in 4Q and you get a kind of another month of legacy BANC or two months of legacy BANC. But can you speak to not only kind of where that run rate might shake out ex-merger charges, but how much in the way of cost saves have you realized so far and how much are left?
Jared Wolff, CEO
We have a lot left to do, which is why we think that in the first quarter the OpEx ratio is going to be between 210% and 220%, and the glide path will be getting down to by the end of Q4. The conversion isn't going to take place until May, and there's a number of things that come out after that across the company. Joe mentioned the facilities; we are going to get a lift from the FDIC assessment that we think will reduce beginning in the first quarter, but there's a lot to take out that's going to come later in the year. Joe, I don't know if you have more color there.
Joe Kauder, CFO
No, I think you captured it correctly. We manage a detailed list of savings initiatives. Our plans are in place, and the major initiatives that Jared mentioned are some of the larger ones. We do expect to receive favorable FDIC assessment results in the first quarter, and we will see a positive impact from that going forward.
Jared Wolff, CEO
Matthew, we literally have a list of like 30 things with a person assigned, the deadline by which it's supposed to get done, and the impact, and we're going through that list and checking them off as we go, and we're not going to lose track of them, all of which is within our control. In addition to that, we obviously have the expense savings we think we can realize on the interest side by being proactive about making sure deposit costs are appropriate. We don't need to pay necessarily the same levels we were paying in the past, given the strength of the franchise, but we want to protect relationships, and a lot of that is going to be based on the volume of new relationships that we bring in and new deposits that come back to the bank. I solicited feedback for this call from a number of our colleagues and I asked them to share client wins and stories of clients coming back beyond what I already knew about, and my inbox was full of stories like this: people talking about this client had $2 million and they with tears in their eyes, they moved it out during the problems of early 2023 and they just brought it back. They weren't happy at BofA or wherever they went and they brought it all back. And so there's a lot of stories like that, but that's going to take place over the course of the year, and that will impact our ability to improve our interest expense as well.
Matthew Clark, Analyst
And then just on earning assets, trying to get a better sense of where those balances might be coming into the year here. You spoke to the loan piece of it for the year, but just knowing that you still have BTFP and some more brokered CDs than you probably would like to have, how should we think about overall average earning assets this year?
Jared Wolff, CEO
Well, the Fed made our decision really easy on BTFP, right, with the announcement yesterday in terms of jacking the cost at the end of March. So, I'm sure we'll probably get out of it by then, if not before. Joe, what's your sense for where our average earning assets will be?
Joe Kauder, CFO
I think they're going to be pretty flat for the year. And you may see the balance sheet just shrinking a little bit with the excess liquidity that we have coming into the New Year being deployed against the BTFP or high-cost deposits, depending on what the right decision is as we move forward. But the earning assets should be pretty stable.
Jared Wolff, CEO
Yes. We are going to prioritize profitability, as Joe rightly pointed out in the call. And so, while our earning assets, while our assets say, are total about $38.5 billion, it wouldn't be surprising to get lower by the end of the year. But we're not really focused on that. We're focused on hitting our profitability targets regardless of the size of the balance sheet. If it means we should be smaller, then we'll be smaller. If it means we should – we're comfortable being a little bit larger because we have the ability to earn at the profitability levels, we said, then we won't focus on it. But profitability is the number one goal.
Matthew Clark, Analyst
And then for my final question, you currently have CET1 over 10%, 12%, and tangible commons are likely rebuilding quickly. I'm curious about the potential for a buyback with the stock trading below tangible book value.
Jared Wolff, CEO
Well, we obviously believe that we're going to be building up capital at a very healthy pace. And once we get to a level where we believe we have sufficient excess capital and that it's sustainable at that level, we will certainly have a variety of options. And they're not mutually exclusive. We're going to obviously continue to reinvest in our company while also looking at ways to reduce share count, whether it's preferred or common. But I think it's important that we demonstrate the sustainability of our capital and earnings, and that we build it up to levels that we consider excess. From there we'll have plenty of options.
Operator, Operator
Our next question comes from Brandon King from Truist.
Brandon King, Analyst
So could you just give us some thoughts on how you're thinking about the level of deposits? You mentioned legacy PacWest customers; you're bringing the operating deposits back, but then you also have customers with excess liquidity. And I know you're trying to manage the deposit costs pretty prudently. So if you could kind of give us a sense of how you think the level of deposits should trend as we go throughout the year?
Jared Wolff, CEO
Yes, it's a good question. And what I focus on, and historically have at Banc of California, was on our level of non-interest bearing deposits along with our loan to deposit ratio. So, we'd like to maintain our loan to deposit ratio below 90%, preferably in the mid-80s, and we will see how that goes. As we watch our non-interest bearing percentage rise, it gives us flexibility for other deposits that are of different types. So we have a whole bunch of initiatives in place here at Banc of California to grow our non-interest bearing deposits, which is bringing over operating accounts from businesses, and we expect to grow from 26%. Eventually, over time, I'm not going to put a date on it, but we'll get to 30% and then to 35%, and eventually to 40%. At Banc of California legacy, we went from 12% to approximately 40% non-interest bearing deposits. We have a roadmap to do this, and how we do it, and the pace at which we do will dictate what happens with all these other deposits. We're not going to ask customers to leave. We value our customers and the relationships we have. The one thing I will focus on, though early, and we've already started focusing on it, is concentration risk. And I think we've all learned that we have to live within our means and not become too reliant on any one customer on the loan or the deposit side. And so that's something that we're going to manage very carefully. We have tools to help our clients keep their relationship at the bank, but bring it off-balance sheet, so we're not relying on it for lending. We have asset management, a great team of people here that can help with corporate asset management should we need it. And for some clients, that's the right solution. So, Brandon, there's kind of a delicate balance of how we move all these things together. We did it at Banc of California historically. I would say that the things that we look at are the loan to deposit ratio and our percent of non-interest bearing, and that provides the flexibility for everything else.
Brandon King, Analyst
And then in your prepared remarks, you mentioned how you are adding individuals and talent. Could you elaborate on that, what types of talent are you adding? And how should we think about that as far as how it could impact expenses? I know you have a pretty tight range you are expecting this year, but just going forward?
Jared Wolff, CEO
Yes. Well, there were some positions in some areas that we want to grow. We just added a talented leader to head of venture in California to lead our team here. We have, before we announced the acquisition, we brought in a new Head of Corporate Communications from City National, Debora Vrana, who is doing a great job for us. We have a head of underwriting on the Community Bank side that we brought in recently. There is a whole host of talented leaders and players at all levels that we're bringing in. We obviously are going to have to manage it within our expense targets, and getting down to that 2% OpEx ratio is going to require us to exercise some discipline. But we are confident that we can do it.
Brandon King, Analyst
And then just lastly, you gave us the spot yields, which is very helpful. Could you give us the spot yield on the securities portfolio?
Jared Wolff, CEO
Joe, do you have that?
Joe Kauder, CFO
You know, I do. Just give me one second. No, I got it here, Jared. It's 2.75%. I apologize for the confusion.
Operator, Operator
Our next question comes from Gary Tenner from D.A. Davidson.
Gary Tenner, Analyst
A couple of questions. One, the NIM guide of approaching 3%, just confirming that's inclusive of the expected loan discount accretion that you laid out on an annualized basis in the slide deck?
Jared Wolff, CEO
Yes.
Gary Tenner, Analyst
Okay. And Jared, you kind of answered part of this with your comment around the BTFP and repaying that probably before the end of the quarter. But in the deck, one of your checklist items was to complete the restructuring of the balance sheet. Now, I know there's going to be ongoing, obviously, for some period of time, kind of optimizing the balance sheet, but just wanted to get a sense of any kind of clear discrete items outside the BTFP repayment that are still planned for the first quarter?
Jared Wolff, CEO
I believe the key factor here is expense reductions. There are parts of the discontinued loan portfolios that we might consider selling if capital allows. If the yield is too low, it becomes a negative carry compared to other funding sources we could pay off. We are continuously evaluating this alongside market pricing, which is fluctuating as people adjust their expectations about future rates. We are aware that there are other assets we could sell, but we haven't made any definitive decisions yet except for a couple of exceptions. You can expect that we might consider selling some loans. There is significant uncertainty in the economic landscape, and many banks are trying to navigate their way forward amid challenges. However, we feel fortunate to have a clear path ahead. If we successfully execute our plans, we believe we can meet our earnings and profitability goals. This may include some loan sales, but we also have other strategies in place if we choose not to sell those loans. Joe, do you or Bill have anything else to add?
Joe Kauder, CFO
I would just say on the balance sheet, in addition to BTFP, with other broker deposits as they come due, we'll look at the market and we'll look at all the various options we have. Do we let the wholesale funding ratio drift up or down, do we loan, deposit ratio, etc. So, there are lots of options we have, and we're going to make those decisions as they come to us based on the economic environment and what's best for shareholders at that time.
Gary Tenner, Analyst
If I could ask one more, Jared, you mentioned that you've got several stories about former PacWest depositors coming back into the fold, as it were, post deal. You talked about the experiences of how those are coming back. Are they kind of utilizing a sweep or a shared deposit product? What kind of format are those balances coming back?
Jared Wolff, CEO
It's all different formats. I mean, I got a story right here from someone in one of our offices during the liquidity crisis. So a long-time small business client withdrew $1.3 million out of his account, and he was incredibly apologetic. He took the $1.3 million cashier's check to BofA and opened the account. Our client quickly realized that he did not receive the same service that he always enjoyed, as he continued to bank with us with much smaller balances. We continued to encourage him to bring the money back after the renewed strength of the bank and the merger and how dissatisfied he was with the impersonalized service at this other bank. The client brought back $1.1 million and attributed it to our service and our particular banker that took care of them every week. I mean, I have pages of stories like this. It is obviously very gratifying, and it's not surprising to me at all. We did this at Banc of California when I joined; we really focused on service and solutions. PacWest is really good at it. They had outflows based on fear that were unfounded, but they had a very, very loyal client base. I know that if we do what we say we're going to do, and we do it on time, and we continue to execute the way we always have, we will be very successful in that effort.
Operator, Operator
Our next question comes from Andrew Terrell from Stephens.
Andrew Terrell, Analyst
Just a couple of quick ones for me. One, just to confirm on the kind of balance sheet size expectations, it sounds like from an average earning asset and then total asset standpoint, I mean, relatively kind of stable expectations throughout the year. Is that fair?
Jared Wolff, CEO
Yes.
Andrew Terrell, Analyst
What's the comfortable level of cash you'd be willing to run at?
Joe Kauder, CFO
I think about 8%. Is that right, Jared?
Jared Wolff, CEO
Yeah, I think 8% to 10%. I mean, we're higher than we want to be right now, but I think 10% would be the high watermark. As we bring it down, and historically we ran with 2%, 3%. I think banks today are running with a little bit more, especially because you can get such a good yield on liquidity. It's a function of what we can get right now. I think Joe's targets are right.
Andrew Terrell, Analyst
If I could ask that all the commentary is super helpful in terms of, I know there's a lot of moving pieces here, so I want to appreciate all the color. Just wanted to ask on kind of the exit ROAA for 1.10% in Q4 '24. I'm trying to get a better sense of just what type of exit margin you would expect. The expense part is helpful, but it seems like the one kind of detail that I'm trying to get to here is the NIM. So any kind of color you could provide on an exit for NIM that would underpin the 1.10% ROAA would be helpful.
Jared Wolff, CEO
We haven't defined the NIM yet, have we Joe?
Joe Kauder, CFO
Well, we haven't defined what we did. Our exit, we did say our estimate spot rate for net interest margin was 2.75% at 12.31%.
Andrew Terrell, Analyst
No. He's asking for Q4 2024 where we're going to be. So, Andrew, the reason why we're not there is because the NIM is pretty much an output for us. If we're a little bit larger, or a little bit smaller, it will obviously affect the NIM, and kind of the mix of our portfolio. So, we just haven't guided to it yet. We have all these levers; we have all these models. We've looked at three different ways to get there, and the NIM is different in these different models, but we still achieve the same ROA, so we haven't provided guidance there yet. Okay.
Bill Black, Head of Strategy
Andrew, the easy way to back into that, though, is that if you think about it, of the three main income statement components, fees, net interest income, and expenses, if you're comfortable with your estimate for fees and expenses, you can essentially in some cases you go through that and back into it. So just to give your own, I mean, to pressure test it on your own?
Andrew Terrell, Analyst
Yes, I was running that analysis, Bill, and it just seemed like the margin that I had to plug in was pretty high. So I just was trying to spot check it. I can move on. The one other I wanted to ask about was the $16.8 million of additional expense you guys called out as related to the HOA business this quarter. Can you talk about specifically what drove that and was that more transitory in nature? Should we view it as one time?
Jared Wolff, CEO
It was one time. It was a catch-up expense for a specific client, and we took care of it in the fourth quarter.
Andrew Terrell, Analyst
And then actually last one the borrowing facility termination for $19.5 million, did that come through operating expense or was it in your interest expense?
Joe Kauder, CFO
Operating expense.
Operator, Operator
Our next question comes from Timur Braziler from Wells Fargo.
Timur Braziler, Analyst
Jared, you had made a comment regarding loan balances more or less flat as demand is okay. But you're continuing to see some runoff or maybe expecting some runoff. I'm just wondering, as we're looking at the categories today, where could we see some additional trimming off of loan balances?
Jared Wolff, CEO
So in the discontinued portfolio premium finance loans, like we laid this out on a table in the deck of what the discontinued portfolios are versus kind of what we consider core portfolios going forward. You have premium finance, lender finance, all those things. Lender finance is coming off at about $100 million quarter-over-quarter is what it was last quarter. And I don't know if it's going to continue at that pace, but that 7.32% is running down and it's a lower yield, a little below 3.5%. We have some good yields on some of the other stuff; civic is coming down for sure. Half a portion of that is bridge, and the other portion is kind of for rent single family. So, those are two of the categories that I think student loans. There's barely any national lending left, but the stuff's running down. We think the loan portfolio overall will be flat to slightly down. This is obviously an environment where you can get reasonable yields with your liquidity relative to the stuff that's paying off. But obviously, we want to deploy the funds in good loans because the rates right now are very good for lending. As Joe said, 7% to 8% is what we're getting, and in many cases higher than that. So we want to deploy any good loans. We're being conservative and we're making sure that with the right relationships, we really want to use our balance sheet for our clients and for full relationships. We're ensuring that when we are lending today, it comes with a real relationship. With the reduction in banks overall, it's been easier for us to require larger components of the overall relationship to bank with us and to lend. In the past, it was much more complicated. Given the position of our bank and the options available to the clients that are speaking to us, we're in a much better position to demand more. It's not to say that every client is going to have a single relationship. I talked to somebody yesterday; I ran into at a restaurant, a well-known real estate guy. He said, can I call you after lunch? I said, of course. He called me as he said he would. He said, look, we've been with First Republic, which is now Chase. We've been with City National, and they're pulling back. Are you open to talking to us? We have about $40 million to $50 million in balances. We're not going to put it all at one bank, but we do need to put our operating account somewhere. I said, we'd love to talk to you. I want to make sure that we can serve you with what you need and how you need it. Let us look at all that and then come back to you to make sure we can meet you where you're going. But there's a lot of opportunities like that.
Timur Braziler, Analyst
And then maybe again just circling back to your comments about bringing back legacy PacWest deposits that left last year. I'm just wondering what industries those are in and to what extent you're getting some of the venture tech related deposits reengaging with the bank?
Jared Wolff, CEO
I would say the deposit outflows that PacWest had and that Banc of California had as well; they were obviously more dramatic at PacWest. We're in all areas. So there isn't an area where we're not looking to bring deposits back. But the headline, of course, was the deposits that went out on the venture side and how PacWest classified those. My observation and the data that we have is that those relationships are very, very strong. We've been able to positively promote the strength of our bank. This combination really, really gave people a lot of comfort. Our credit ratings came out obviously very strong. We've been successful at bringing back relations and deposits that left in those areas. We're going to continue to do that. The area where I want to be careful is we've all agreed that we're going to manage concentration better so that we don't end up with depositors that are too large for our balance sheet. We have corporate asset management. We have a great tool that we can use to have balances in the family but not on the balance sheet. We might be successful by bringing back relationships, even if they don't show up in our deposit numbers, because they are in asset management off-balance sheet. We want them back; we want them in the family, we want them here. We think we can serve them better than others, but we're going to be careful what we keep on balance sheet and what we lend against.
Timur Braziler, Analyst
And then, I guess, just last from me and again, you touched on this a little bit, but looking at the payment rollout and where Deepstack fits into all of this. Originally when that was introduced, the update was kind of revenue contribution back end of '23. I'm wondering if A, the PacWest deal delayed that a little bit? And then B, if you can provide some update on the magnitude of what the payment vertical might look like and what PacWest does to that run rate?
Jared Wolff, CEO
Absolutely. So we said, regarding PacWest, we said that Deepstack on a standalone basis, Old Banc of California, we said that Deepstack would start contributing meaningfully to fee income in 2024. PacWest has fee income historically at $10 million to $12 million per month. That is continuing. So the ability of Deepstack to make an impact on a fee basis, on a revenue basis to the combined company is no longer there in 2024 to the same magnitude it would have done on a standalone Banc of California. Just to put it in context: on a standalone basis, it would have contributed meaningfully but it's obviously diluted now. The payments business that we're building consists of three components: its merchant processing, which is our ability to go direct to merchants and process credit cards without any third-party intermediaries, issuing credit cards directly on our balance sheet to clients to whom we have credit. This isn't selling consumer credit cards broadly; this is giving card solutions to our existing clients to whom we already provide credit and benefiting from the interchange as the issuer of those cards. Third is using our rails, our infrastructure that we've built, and the bins, the identification numbers that we have with Mastercard and Visa to process third-party transactions for trusted partners like Worldpay and others well-known in the business. Those are the three layers of our ecosystem, and those are all rolling out now. I'm hoping that later this year or by the end of the year, it's making enough that we want to call it out specifically and making enough to call it out specifically means meaningful enough on this combined balance sheet. That doesn't mean it's not contributing anything, but we're not going to call it out until we think we have something to talk about that is of a good enough number. It's obviously going to have to be a bigger number now, but there are many ways in which we think this is going to accelerate the merger. For example, the HOA business is going to be using Deepstack as a digital payment acceptance tool for their clients. It's got $4 billion in deposits; it's got hundreds of clients, and they think Deepstack is a great feature to allow them to accept payments and provide a tool that their clients really would like to make their payments acceptance easier. The venture business has embedded clients interested in our payment tools. PWB was actually further along than we were at Banc of California in digital account opening, which is a huge part of rolling out our payments business. There are lots of positive synergies that we are going to realize through the year that I think will benefit us, hopefully this year, but certainly in 2025. We're also focused on optimizing the FIS integration and setting up payments in a truly optimal way. I'm meeting with the FIS CEO and Worldpay executives at their headquarters in Jacksonville in February to discuss this. They've been very focused on what we're doing in payments. We're very unique. Worldpay is obviously the 100-pound gorilla out there, and we're excited to partner with them and see if we can find some ways to accelerate our progress.
Operator, Operator
Our next question comes from Kelly Motta from KBW.
Kelly Motta, Analyst
I wanted to discuss fees in a broader sense, beyond just Deepstack. As you combine two banks with differing capabilities, I'm curious about the complementary opportunities you see to potentially cross-sell products to either PacWest or Bank of, which you may not have had previously. Additionally, what does your projected fee income look like as we approach next year, and how might that contribute to overall earnings?
Jared Wolff, CEO
I’ll begin with cards. PacWest was significantly ahead of us in terms of their card partnerships. They didn’t issue cards themselves; instead, they resold other companies' cards, but they executed it well with a virtual card program. I reviewed some materials this morning that I found impressive. Susan Tang is in charge of that group, and they did an excellent job. We are exploring ways to accelerate our efforts and capitalize on the progress they made. The $10 million to $12 million per month in fee income was not solely derived from that. PacWest managed to collect fees through various channels, but we currently believe this monthly fee income represents the expected level. We hope to build on it from there. We still need to do some retooling as an issuer. Our approach to expanding this will involve shutting down the partner programs to introduce our new offerings. While this won’t hinder fee income, we don’t anticipate any acceleration until later in the year.
Kelly Motta, Analyst
It was great to see the tangible book value come in higher than expected last quarter. I would like to ask Joe for clarification on how we should approach AOCI in relation to the securities book duration and the expectations regarding its excess over time. I'm trying to understand the progression of tangible book value growth.
Joe Kauder, CFO
On the AOCI, we've come down significantly to $434 million, compared to where PacWest was on a standalone basis, which was, I think, $800 million and some change in the third quarter. Our duration of that portfolio is north of five years up in the six-year period. We'd like to over time bring that duration down and add higher yielding securities to that portfolio. We feel pretty good about where we are on the unrealized loss. These are high-quality securities and as interest rates, if they continue to come down, as the forward curve suggests, the unrealized loss in AOCI will continue to come down as well.
Jared Wolff, CEO
Yes, I should have mentioned, we have got a whole team working on this payments ecosystem. I have mentioned before, it's led by Jagdeep Sahota, who is our Chief Payments Officer. What I have been so impressed with is how, as we brought the banks together, we found the best pieces of each to kind of move this forward. There is a development team that PacWest has that we didn't have at Banc of California that has really jumped in and done a great job of helping to build the user interfaces and the things that we want to move forward on payments. There are a lot of good things going on, and I wish I can mention them all, but we'll be excited to see how this rolls out later in the year.
Operator, Operator
Our next question comes from Tim Coffey from Janney.
Tim Coffey, Analyst
So, I appreciate all the details in the press release today, especially the spot rates. If I were to look at the spot rates and apply them to period end balances, I started getting a net interest income number closer to $300 million. Is that a reasonable estimate for the profitability of that company today?
Jared Wolff, CEO
I don’t think we’re ready to provide that information just yet. It's challenging to determine if that number is low or high because there are many factors at play. We only have one month of combined balance sheet data, which complicates things. Our aim is to present a balance sheet and income statement for Q1, as that will give us a clearer basis for guidance. For now, we’re hesitant to project what the run rate for Q1 might be for TPNR and other elements. We prefer to make more progress first. I hope people feel more confident after seeing our accomplishments in Q4. We achieved significant milestones at Banc of California and often completed tasks more quickly than expected. While I can’t guarantee the same here, I am fully confident in our execution and success. I would prefer to wait until we finish Q1 before providing further guidance.
Tim Coffey, Analyst
And I also appreciate the cadence of the cost savings throughout the year. I'm wondering as it comes to the recession of the balance sheet, redoing the balance sheet, is there anything coming up in Q1 of significance?
Jared Wolff, CEO
The FDIC assessment is pretty big. Isn't it, Joe?
Joe Kauder, CFO
Yes. So, on the cost, the FDIC assessment, assuming we get that, is a very big run rate item. There are some other initiatives we have that come in throughout the year. There are other things that will happen in the first quarter. But I think were you asking about the balance sheet restructuring in the first quarter; because on that, I think you could see us deploying some of our excess liquidity against, for example, the BTFP, which is going to come due in March.
Tim Coffey, Analyst
Yes, that’s actually what I was asking about; it was on the balance sheet side. Is it just the BTFP then that you're, that's front end of?
Joe Kauder, CFO
Well, there are other higher-cost broker deposits which are coming due in the first quarter, and I made a comment earlier about how we evaluate them as they come due. We look at the situation, the economic environment at the time, and we make decisions what's best to kind of manage the portfolio optimally on a day-by-day basis.
Jared Wolff, CEO
Tim, one other thing we did mention that we are constantly looking at loan sales. I don't know that we're going to execute it; it depends on the price, but I wouldn't be surprised if we did because we have opportunities to do that. If we don't get the right price, we obviously won't do it.
Tim Coffey, Analyst
And let me be clear that the multifamily is off the market now, right? You're going to hold onto that?
Jared Wolff, CEO
Yes. We're going to hold onto that.
Joe Kauder, CFO
I would say there might be a very small subset of the multifamily that seems to have a lot of interest; we may, but it would not be a large portion.
Operator, Operator
And our final question is a follow-up from Timur Braziler from Wells Fargo.
Timur Braziler, Analyst
Just one quick one. What are the assumptions for purchase accounting that are embedded in your estimates for '24?
Jared Wolff, CEO
I know that question wasn't directed to me, so I'll let Joe answer that.
Joe Kauder, CFO
In the deck, we included a page showing how the accretion, we estimate the accretion will roll off. I think on Page 29 of the deck, our current assumption is that we'll have about a $0.15 EPS impact for the year, which includes loan marks consistent with an aggregate way consistent with the yields that we're seeing on our new originations.
Operator, Operator
And ladies and gentlemen, with that, we'll be concluding today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.