Banc of California, Inc.

Good day, and welcome to the Bank of California second quarter of 2024 earnings conference call. All participants will be in a listen-only mode, and should you need any assistance during the call, please signal a conference specialist by pressing the star key followed by zero. After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. If you would like to withdraw a question, you may press star, then two. Please also note that this event is being recorded today. I would now like to turn the conference over to Ann DeVries, Head of Investor Relations. Please go ahead.

Good morning, and thank you for joining Bank of California's second quarter earnings call. Today's call is being recorded, and a copy of the recording will be available later today on our Investor Relations website. Today's presentation will also include non-GAAP measures, the reconciliations for these measures, and additional required information is available in the earnings press release and earnings presentation, which are available on our Investor Relations website. Before we begin, we would like to remind everyone that today's call may include forward-looking statements, which are subject to risks, uncertainties, and other factors outside of our control, and actual results may differ materially. For discussion of some of the risks that could affect our results, please see our safe harbor statement on forward-looking statements included in both the earnings release and the earnings presentation, as well as the risk factor section of our most recent 10-K. Joining me on today's call are Jared Wolf, President and Chief Executive Officer, and Joe Cowder, Chief Financial Officer. After our prepared remarks, we will be taking questions from the analyst community. I would like to now turn the conference call over to Jared.

Thank you, Anne. Good morning, everyone, and welcome to Bank of California's second quarter earnings call. I'd like to start off by highlighting our successful core system conversion that was completed this past weekend. As we have previously discussed, We made the decision to move on to the Legacy PacWest system, FIS, and convert Bank of California customers. Our rationale was threefold. First, we would control risk by converting the smaller customer base. Second, we were able to negotiate with FIS to deliver some outstanding enhancements that would benefit all of our customers and ensure we maintain a leadership position with our digital offerings. And third, the overall price was compelling and resulted in key savings for the combined company. Our team, in collaboration with FIS, has dedicated an extraordinary amount of effort over the past seven months and has successfully converted nearly 20,000 clients and over 55,000 accounts. We've had minimal disruptions to date and while we continue to be vigilant, I'm very pleased with the conversion and I want to congratulate our teams on another successful effort. We effectively integrated a $10 billion bank onto a new system and our team did an outstanding job. With this important merger milestone behind us, We are energized about bringing the full power of our platform to our expanded client base prospects. Additionally, last week, we completed the sale of approximately $1.95 billion of civic loans to a process we ran with Morgan Stanley, who had deep familiarity with the portfolio. Due to the quality of the portfolio, we received numerous bids and ultimately sold it at a price above 98% of the underpaid principal balance, which was at the higher end of our target range. As a result, we have received net proceeds of approximately $1.9 billion and have freed up approximately $100 million in Tier 1 capital. We used about $545 million of the proceeds to pay down the outstanding portion of the BTFP and expect to use remaining proceeds to retire expensive funding and support growth. Additionally, we expect that some of the capital may be used to help us reposition a portion of our securities portfolio into higher yielding securities. We have several options we are evaluating, and we'll be able to share this more fully when we announce third quarter earnings. Again, I want to congratulate our team on the terrific execution of this sale. As we turn to discussing the quarter, these two initial efforts highlight our active transformation efforts, doing the work necessary to create a strong, well-positioned balance sheet that generates high quality and sustainable earnings. During the second quarter, we continued to execute well. It made solid strides toward driving long-term profitability. We paid down $1 billion in higher-cost BTFP funding, which contributed to our NIM expansion during the quarter. Our bankers' efforts to deepen and expand client relationships have resulted in steady growth in new non-interest-bearing deposits from new relationships to the bank, with $230 million generated in just two quarters. Our bankers also originated over $1 billion in loan commitments during the second quarter alone. We are on track to realize our expense saving targets, and we expect our operating expenses to continue to come down through the remainder of the year, with the greatest part of this impact showing up in Q4. Restructurings take time, and we are moving at a fairly good pace. During the second half of the year, we will continue to optimize the balance sheet, bring down expenses to achieve our cost targets, build pipelines, and maintain strong credit quality, all while building up capital and growing earnings. We expect these efforts will position us well to generate profitable, consistent growth as we look into next year. With respect to pipelines, while the overall climate for lending remains sluggish, we are seeing growth in certain areas and pipelines are building, notably warehouse, fund finance, construction, and some core C&I continue to show momentum while traditional real estate lending remains slower. As was the case in the prior quarter, new loans are coming into books at higher rates than what is paying off, So our loan production is accretive to our net interest margin. Our efforts to bring new relationships to the bank and capitalize on our market position continues to bear fruit as we grew average NIB 3% quarter over quarter. Our end of period balances of NIB were slightly lower than the prior quarter as we saw some volatility late in the quarter. But so far in the third quarter, we have seen balances continue to grow. During the second quarter, we also made the decision to move lender finance back to our core portfolio and resume efforts to grow this business line. Historically, the lender finance book performed well with strong credit quality. PacWest made the decision to discontinue the portfolio due to some liquidity issues, as we all know. But this is an asset class that provides attractive risk-adjusted yields, and we have ample opportunities to steadily grow the portfolio by adding loans that meet our discipline pricing criteria and underwriting. The movement of civic loans to held for sale had a positive impact on nearly all of our asset quality metrics in the quarter, with significant declines in non-performing loans and delinquencies, as our loan portfolio continues to perform well on a broad basis. We did see an increase in criticized and classified loans, as we downgraded several rate-sensitive loans in light of the current environment, and as we had forecasted we were likely to do. Past due and delinquent loans have remained at a relatively low level, which reflects the solid underlying credit quality that we have. We're being vigilant and will continue to monitor our credit portfolio carefully to look for signs of stress. Our net charge-offs were elevated in the second quarter due to charge-offs related to the civic portfolio moving to held for sale as the sale price discount to book value runs through charge-offs. We also had $27 million in other net charge-offs, which were primarily related to several commercial real estate loans secured by office properties that had previously largely been reserved for in prior quarters. We maintain a solid level of reserves at 1.19% of total loans, which together with the decline in non-performing loans resulted us ending the quarter with an NPL coverage ratio of 235%. Importantly, our ACL coverage ratio of 1.19% reflects an improvement from 1.15% at March 31st if you adjust for the civic loan sale. I think it's also important to note that our economic coverage ratio, which incorporates the lost coverage from our credit link notes, as well as the unearned credit mark from purchased accounting, is substantially higher at 1.83% of loans. Now let me hand it over to Joe, who's going to provide some more financial information, and then I'll have closing remarks before opening up the line for questions. Joe.