Banc of California, Inc.

Good day and welcome to the Bank of California's third quarter earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note this event is being recorded. I would like now to turn the conference over to Anne DeVries, head of investor relations at Bank of California. Please go ahead.

Anne DeVries Good morning and thank you for joining Bank of California's third 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-GAP 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, unfairness, 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 Calder, Chief Financial Officer. After our prepared remarks, we will be taking questions from the analyst community. For the Q&A portion of the call, we ask that each participant ask just one question and one follow-up before returning to the queue. 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 third quarter earnings call. I'd like to start off by highlighting our team's strong execution during the quarter to actively transform and reposition our balance sheet. We delivered on numerous strategic actions as we continued to make progress on our transformation efforts. I am very proud of the intense focus and efforts put forth by our team to create a strong, well-positioned balance sheet that generates high quality and sustainable earnings. Let me start off just by listing the accomplishments of the quarter to put into context the volume of actions that our team pulled across the finish line. We sold 1.95 billion of civic loans at 98% of par. We deployed the 1.9 billion of liquidity to pay down 545 million of bank term funding and also paid down approximately 1.85 billion of broker deposits and expensive borrowings. We used approximately 60 million of the 100 million of capital we created from the civic sale to reposition about 740 million of securities and pick up over 270 basis points of incremental yield. We bought back approximately 320 million of lender finance loans at par and hired a team to grow that business. We completed our core system conversion in late July, converting over 20,000 customers and over 50,000 accounts onto a single core platform. And we continue to run our bank business as usual, serving clients, bringing in new relationships, and growing loans and deposits in key areas. And that's just the start of the list. We like to keep our head down and do our work and push through, but this was a quarter where I thought our team really shined and I'm extremely proud of all of our colleagues here at Bank of California. We are really hitting on all cylinders right now, and our quarterly results demonstrate the power of the franchise we are building. These balance sheet repositioning actions, along with a few other items we executed on during the quarter, resulted in strong net interest margin expansion and higher tangible book value in capital. I really feel good about how much we have accomplished and strengthened our balance sheet. I also feel good about the growth in our core earnings power and our positioning for future growth. Slide seven in the investor presentation lays out a lot of these recent actions in more detail. I'm very pleased with the progress we made in the third quarter reducing non-interest expenses. We achieved our previously communicated target range for non-interest expenses of 195 to 200 million a quarter earlier than expected. Importantly, we received the benefit of normalized FDIC assessment expenses in the third quarter, which significantly reduced our non-interest expense, and we should benefit from that new lower baseline going forward. While reducing our operating expenses, We're also continuing to make investments in both talent and technology that will further elevate the client experience, enhance efficiencies, and contribute to the further growth of our client roster. It's also important to note that a portion of our operating expenses are customer-related expenses, which are mainly driven by our HOA business. These expenses are tied to Fed funds and have 100% beta and will decline as interest rates go lower. We have included some new disclosures on customer-related expenses which you can find on slide 16 of the investor presentation. While economic conditions remain somewhat challenging, we continue to see good results from our bankers' efforts to expand client relationships and add new relationships. Over the past three quarters, we have added over 1,700 new relationships to the bank. Our end-of-period non-expiry deposits for the quarter were essentially flat from the second quarter, as we saw some volatility late in the quarter. Our deposit mix has become more favorable, however, as our quarter-end non-expiry deposits as a percentage of total deposits grew to 29%, given our efforts to reduce higher-cost broker deposits. Moving on to loans, while industry activity levels remain relatively tepid in the current environment, we added $1.6 billion in loans during the quarter, which includes production, unfunded new commitments, and purchase loans. Importantly, we are continuing to be conservative in new loan production and have maintained our disciplined underwriting and pricing criteria. We continue to see growth in warehouse balances where we are adding new clients and seeing increased line utilization among existing clients, as well as growth and increasing line utilization in construction and commercial loans. The growth in these areas, along with the reacquired lender finance portfolio, offset the continued runoff of lower yielding multifamily and CRE loans and resulted in a modest amount of growth in our total loan balances in the third quarter. New loans continue to come on the books at higher rates than those that are paying off, which is accretive to our average loan yields and to our margin. Our loan portfolio continues to perform well on a broad basis. However, we remain cautious in the current economic environment, and when we see signs of weakness in any credits, we have been quick to downgrade and slow to upgrade. We downgraded several credits to non-performing status in the quarter, including two commercial loans and a remaining civic loan. we believe that the credit migration of the two commercial loans were specific to those loans, and we are not seeing any indications of broader weakness across the portfolios. During the quarter, we also had an increase in classified loans, which was primarily reflective of our continued conservative approach to managing credit, the policies that we have put in place to get frequent updates on borrowers' financial performance and collateral valuations, and proactively downgrading certain rate-sensitive loans in light of the current environment. We expect these loans to return to non-classified status as we work through the credits. Importantly, our overall loan portfolio continues to benefit from our strong underwriting standards and borrower strength. While our net charge-offs for the quarter were relatively low at $2.4 million or 0.04% of loans, the commercial real estate market remains uncertain, and accordingly we remain cautious and conservative in our portfolio management. We continue to be prepared for a variety of economic environments, and will balance our drive to increase returns and grow with protecting our balance sheet and capital. We remain prudent by maintaining robust reserves at 1.2% of total loans. I think it's also important to note that our economic coverage ratio, which incorporates the loss coverage from our credit link notes, as well as the unearned credit mark from our purchase accounting, is substantially higher, above 1.8% of total loans. Let me make a few comments on the interest rate environment before I turn it over to Joe. We believe our balance sheet is well positioned for declining rate environment with our balance sheet being more liability sensitive and set to reprice or mature over the next year. With the Fed starting the cutting cycle in September, we have started to reduce deposit pricing and we're closely monitoring market conditions and customer behavior. On the asset side, about half of our fixed rate and hybrid loans will reset or mature within the next three years and are expected to reprice at higher rates even in a declining rate environment. we'll be making competitive adjustments, of course, as appropriate. Now I'll hand it over to Joe, who will provide some additional financial information, and then I'll have some closing remarks before opening up the line for questions.