Banc of California, Inc.

Good day and welcome to the Bank of California First Quarter 2024 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, and to withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Anne DeVries, Head of Investor Relations for Bank of California. Please go ahead, Anne.

Thank you. Good morning and thank you for joining Bank of California's fourth 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 also like to remind everyone that today's call may include forward-looking statements, including statements about our targets, goals, strategies, and outlook for 2025 and beyond, 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.

Thanks, Anne. Good morning, everyone, and welcome to our fourth quarter earnings call. Before we dive into our quarterly results, I'd like to take a moment to express our support and sympathies for all who have been impacted by the devastating wildfires in Los Angeles. Many of our clients and several of our colleagues lost their homes, and countless more were evacuated and severely disrupted, and the effect is much larger when we extend this to our families and friends. As a bank deeply rooted in our community, we are committed to supporting the relief and rebuilding efforts. Our charitable foundation has launched the Bank of California Wildfire Relief and Recovery Fund and donated $1 million to the fund. Our efforts will be ongoing as we work with local leaders to ensure the funds are directed in a way that will have the greatest impact. We are grateful that our team members are safe and accounted for and for the first responders who are working heroically and tirelessly to save our communities. as the fires continue to burn. To date, we have not suffered damage to our facilities, and we are not aware of any material impact on our loan portfolio or collateral from the wildfires. But of course, we continue to monitor and assess the situation for potential exposure. Undoubtedly, the impact will be felt for quite some time, and I will comment on this a bit later in my remarks. Moving on to our performance, we had a strong fourth quarter, which marked the end of a transformational year for our company. We made significant progress executing our strategy, optimizing our balance sheet, and achieving operational efficiencies to set us up well for growth in 2025. These efforts resulted in meaningful growth in core profitability and a significantly strengthened balance sheet. A few accomplishments that I want to highlight. We grew NIB to 29.1% of total average deposits, up nearly 7% from a year ago. We reduced wholesale funding down to 10.3% of assets. compared to nearly 17% in the fourth quarter of 23. And C&I loans grew to 30.1% of the core loan portfolio, up from 25.6% one year ago. Our NIM expanded 135 basis points year over year, and our non-interest operating expenses decreased by 36% from a normalized fourth quarter of 23 as we achieved our cost targets from the merger. As a result of these actions and many others, we achieved strong growth in EPS, tangible book value per share, and CET1 in 2024. Moving on to more of the specifics for our fourth quarter, we continue to execute well by realizing additional cost synergies from our merger, as well as the full quarter benefit of our balance sheet repositioning that we executed on in the third quarter and earlier. This resulted in strong growth in core earnings with EPS increasing to 28 cents and higher profitability metrics across the board. As expected, we reduced our cost of deposits through both an improvement in our mix of deposits and reducing rates on interest-bearing deposits following the Fed rate cuts. These actions, of course, led to an expansion of our margin that we anticipated, which contributed to our high level of profitability in the quarter. On our last earnings call, we indicated that with the major integration milestones behind us, we had reached an inflection point and could now shift our focus to external growth, taking advantage of the strength of the franchise we have built We are starting to see economic optimism, and our bankers did an excellent job expanding client relationships and bringing in new relationships to grow both loans and deposits in the fourth quarter. In the quarter, our loan production, including unfunding commitments, was $1.8 billion, resulting in portfolio growth of 1.5% or about 6% of our core portfolio on an analyzed basis. Warehouse continues to perform well, driven by new clients and also increased line utilization among existing clients. We also had good loan growth in our fund finance business during the quarter, and this growth was partially offset by declining construction loans due to payoffs on completed projects, some of which moved to permanent financing in our CRE portfolio. New loans continue to come on the books at higher rates than those that are paying off, with fourth quarter loan production rates above 7%, which is accretive to our average loan yields and net interest margin. As we look ahead into 2025, we expect continued growth in warehouse, fund finance, and lender finance portfolios, and a pickup in growth in all other core loan areas. With regards to credit, our loan portfolio continues to perform well on a broad basis. However, we have maintained our conservative approach, and when we see signs of weakness in any credits, we have been quick to downgrade and slow to upgrade. The increase in most of our problem loan categories was largely driven by a single borrower relationship. We believe the risk is isolated to this specific situation, and do not expect any losses given our collateral coverage. We also decided to charge off two NPL loans. One was in Life Sciences and the other was in the Civic Portfolio. The circumstances around each loan were very specific to those credits. Our reserve levels were at 1.13% of total loans and 142% coverage of our non-performing loans. I think it's important to note that our economic coverage ratio is substantially higher at 1.72% of loans. which incorporates the loss coverage from our credit link notes, as well as the unearned credit mark on the Bank of California loan portfolio acquired in the merger. We believe our coverage levels are appropriate under CECL given our portfolio mix, which is shifting with recent loan growth coming from low-risk and low-duration segments such as warehouse, fund finance, and lender finance. Under the CECL rules, these loans attract very low reserves due to low historical losses and short duration of the loans. Let me hand it over to Joe And then I'll have some closing remarks, and we'll open up the line for questions. Joe.