Banc of California, Inc.

Hello and welcome to Bank of California's first quarter earnings conference call. If you need operator assistance, please press star then zero. I'll now turn the call 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 first 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, strategy, and outlook for 2025 and beyond. which are subject to risk, uncertainties, and other factors outside of our control, and actual results may differ materially. For discussion of some of the risk factor results, please see our safe harbor statement on four 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'll 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 first quarter earnings call. Our first quarter results came in pretty much as we forecast, reflecting both strong execution by our team and our ability to capitalize on our attractive market position. During the quarter, we showed positive trends in our core earnings, including net interest margin expansion, strong loan growth, and prudent expense management. We achieved our second consecutive quarter of broad-based commercial loan production while continuing our steady growth and attracting new NIB deposit relationships. As a result, we built up capital during the quarter and increased both book value and tangible book value per share while maintaining strong liquidity levels. Given our healthy balance sheet and commitment to deploying capital in a way that benefits shareholders, we announced $150 million share buyback program during the first quarter. We benefited from the market volatility and opportunistically repurchased 6.8% of our shares and have completed the program. We announced yesterday that we are upsizing our buyback program with an additional $150 million to $300 million, and we'll expand it to cover both common and preferred stock. We will be prudent with this program and use it opportunistically, and while our outlook may change, currently I do not expect us to deploy all of this remaining capacity immediately. In the first quarter, our loan production, including unfunding commitments, was $2.6 billion, up from $1.8 billion in the fourth quarter, resulting in loan portfolio growth of 6% on an annualized basis. Much of the loan growth came late in the quarter and has continued so far in Q2, which will provide a benefit to our net interest income in the second quarter. Strong loan production volume was broad-based, but we saw our strongest growth in our warehouse, lender finance, and fund finance areas. Loan portfolio growth was also impacted by utilization rates, which have been trending up over the last year. Loan growth was partially offset by a decline in construction loans due to payoffs on completed projects, some of which moved to permanent financing in our multifamily portfolio. While our loan growth has been strong year to date, given the uncertainties that exist in the current environment around tariffs and the broader impact to the economy, we are adjusting our 2025 outlook for loan growth to mid single digit growth. While we still strive to achieve high single digit growth, this is merely a reflection of the unknown for the back half of the year, given the ongoing tariff noise. Importantly, we are maintaining our discipline pricing and underwriting criteria while growing our loan portfolio. Our average rate on new production was 7.2%, which helped our average loan yields and margin. Let me touch on credit for a moment. During the quarter, we showed an uptick in classifieds as well as MPAs. These changes reflect some of the guidance I provided during our last earnings call when I shared that we've adopted a fairly conservative posture on risk-grading loans and that when we see signs of weakness in any credits, we are going to be quick to downgrade and careful to upgrade. This approach resulted in some additional credit downgrades during the quarter. The increase in NPLs was mainly driven by one CRE loan, a hotel property where we believe the risk is isolated specific to the borrower, The loan is full recourse, and we have adequate collateral coverage. The increase to our classified loans this quarter is mostly driven by migration of multifamily rate-sensitive loans that are still current, have strong collateral values, and are in attractive California markets. Despite these attributes, the impact of repricing risk in the current rate environment resulted in performance metric deterioration and subsequent downgrade. I believe this discipline is particularly important in an uncertain environment, like the one we are in right now. It does not mean that such downgrades will result in losses. In fact, 84% of the inflows to classify this quarter are current with no change in borrower behavior. And across all classified assets, 81% of all those loans are current. Furthermore, downgraded loans have strong collateral and low loan to values, which would also help to mitigate any potential losses. Historical performance of multifamily loans in California has been very strong, as we have discussed. With regard to credit losses, our charge-offs in the quarter were mostly driven by a loan that we had previously partially charged off. We had full reserve for the remainder of the loan and decided to charge it off in the first quarter. Our headline reserve level is 1.1% of total loans, and our economic coverage ratio is substantially higher at 1.66% of loans, which incorporates the unearned credit mark on the Bank of California loan portfolio acquired in the merger, as well as coverage from our credit link notes. While uncertainties facing the macroeconomic environment have created volatility in the markets, we remain steadfast in our focus to help our customers through these turbulent times. Our strong balance sheet and attractive market positioning differentiate us and position us to perform well in a variety of outcomes. We are confident in our ability to continue executing for our clients, while maintaining healthy capital and liquidity positions. Now I'll hand it over to Joe, and as usual, I'll bring back with some closing remarks before opening the line for questions. Joe.