BANC OF CALIFORNIA, INC. Q1 FY2025 earnings call

• Loan Growth: First quarter loan production was $2.6 billion, up from $1.8 billion in Q4, with 6% annualized loan portfolio growth. Strong growth in warehouse, lender finance, and fund finance areas, but construction loans declined due to payoffs and permanent financing moves.
• Net Interest Margin: Increased 4 basis points to 3.08% due to a 13 basis point decline in cost of funds, partially offset by a 9 basis point decrease in yield of average earning assets. Cost of deposits declined 14 basis points to 2.12%.
• Share Buyback: Announced a $150 million share buyback program in Q1, repurchased 6.8% of shares, then upsized to $150 million to $300 million to cover common and preferred stock.
• Credit Risk: Classified loans increased due to repricing risk in multifamily loans, but 84% of inflows to classified were current, and 81% of classified loans were current. ACL coverage ratio was 1.1% of total loans, with economic coverage ratio at 1.66% including CreditLink notes and purchase accounting marks.
• Market Positioning: Benefiting from California market void left by other banks, filling the gap as a go-to business bank, and recent merger with Columbia Pacific Premier validates market attractiveness.

During the first quarter, Banc of California showed positive trends in core earnings. Net interest margin expanded by 4 basis points to 3.08%. Loan production was $2.6 billion, up from $1.8 billion in the fourth quarter, with 6% annualized loan portfolio growth. Broad-based commercial loan production continued, and NIB deposit relationships were attracted. Loan portfolio mix shifted to lower risk and lower duration categories like warehouse, fund finance, etc., which now make up 25% of total loans. Net income was $43.6 million or $0.26 per share.

• Loan Growth Outlook: Adjusted 2025 loan growth outlook to mid-single-digit growth from high single-digit due to macroeconomic uncertainties like tariffs.
• Share Buyback: Upsized buyback program to $150 million to $300 million to cover common and preferred stock, will be opportunistic.
• Expense Outlook: Expect noninterest expense to increase to $190 million to $195 million per quarter in Q2, with positive operating leverage expected as loan growth continues.

• Macroeconomic Uncertainties: Volatility in markets due to tariffs and broader economic impacts.
• Credit Risks: Potential migration of loans to classified status if repricing risk continues, though reserves are healthy.
• Market Volatility: Impact on stock prices and buyback program decisions.

Q: Ben Gerlinger on credit, capital, and buybacks A: Jared Wolff addressed credit coverage ratios, conservative CECL models, and opportunistic share buybacks considering capital levels and market conditions.

Q: Jared Shaw on allowance ratio and DDA target A: Jared Wolff discussed allowance ratio health, target of 30% NIB deposits, and efforts to reach that target through relationship building.

Q: Gary Tenner on ACL, accretion income, and buyback A: Joe Kauder and Jared Wolff addressed ACL calculation, accretion income expectations, and strategic approach to share buybacks and capital management.

Q: Matthew Clark on risk rating changes and HOA deposits A: Jared Wolff explained conservative risk rating approach and HOA deposit growth efforts, focusing on relationship building and competitive landscape.

Q: David Feaster on client pipeline and underwriting A: Jared Wolff discussed client pipeline strength, underwriting adjustments for volatility, and focus on local sourcing and stable clients.

Q: Anthony Elan on loan growth outlook and expense levers A: Jared Wolff and Joe Kauder addressed loan growth moderation due to uncertainty, and expense levers like bonus accruals and project spend management.

Q: Chris McGratty on NII and loan growth impact A: Joe Kauder explained NII impact from day count and loan growth, expecting mid-single-digit NII growth in Q2.

Q: Timur Braziler on DDA pipelines and multifamily loans A: Jared Wolff discussed flat DDA balances due to economic outflow, and multifamily loan classified moves, noting disciplined management and spread pickup potential.

Q: Andrew Terrell on multifamily loan repricing A: Jared Wolff provided color on multifamily loan repricing, ongoing monitoring, and expectation of spread pickup as loans reprice.