Q3 2023 Banc of California Inc Earnings Call

Hello, and welcome to Banc 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 Touchtone phone this call is being recorded and a copy of the recording will be available later today on the company's Investor Relations website. Today's presentation will also include non-GAAP measures. The reconciliation for these and additional required information is available in the earnings press release, which is available on the company.

<unk> Investor Relations website. The reference presentation is also available on the company's Investor Relations website before we begin we will we would like to direct everyone to the company's safe Harbor statement on forward looking statements, including included in both the earnings release and the earnings presentation I would like now to turn the conference.

So call over to Mr. Jared Wolff Banc of California's Chairman, President and Chief Executive Officer. Please go ahead.

Good morning.

And welcome to Banc of California's third quarter earnings call.

Joining me on today's call is Joe counter our Chief Financial Officer, who will talk in more detail about our quarterly results as well as Bill block head of strategy for Pac West who will be joining banc of California in a similar capacity upon the closing of our merger with Pac West.

I'd like to start off by congratulating the teams at Banc of California, and Pac West on a terrific job obtaining regulatory approval.

It is worth noting that we obtained regulatory approval for the merger and also attained approval for the combined bank to become a member of the Federal reserve, which really has its own process altogether.

These approvals Didnt just happen.

And they required significant coordination.

The results reflect the dedication and hard work of our colleagues and advisors.

We also appreciate the dedication and equally hard work of our federal and state regulators, who had an important job to do.

With regulatory approvals in hand.

At our shareholder meeting set for late November .

We anticipate closing on or around November 30th.

We look forward to delivering a franchise poised to provide significant benefits to our shareholders.

Clients communities and colleagues.

Our two companies have made significant progress on integration planning.

Which is proceeding smoothly.

Along with the preparation for the balance sheet repositioning actions that will occur in connection with the closing of the merger.

I want to thank the banc of California, and Pac West team members for their tremendous efforts.

Planning and dedication towards a successful close.

Turning to our third quarter performance.

Our results reflect many of our strategic decisions to position our balance sheet ahead of our merger with pack last which include limiting certain long term fixed rate deposits resolving certain acquired credits and hedging the interest rate risk associated with various assets, we anticipate selling in connection with the closing of the merger.

As a result of these initiatives, we generated net income of $42 6 million during the quarter had.

We had increases in all of our capital ratios and grew tangible book value per share by 5%.

Joe is going to provide some details.

But our trends were positive and set us up well ahead of closing.

Expansion of our net interest margin.

Disciplined expense control and continued growth in new commercial relationships.

As I've discussed in the past.

Against the backdrop of economic contraction and overall decline in deposit levels across the banking industry.

We are focused on bringing new core deposit relationships to the bank.

Through the first nine months of the year.

We have generated over 200 million in new non interest bearing deposits from new commercial relationships.

New relationships offset deposit outflows today.

We will continue to benefit our company in the future.

Given the highly liquid balance sheet, we expect to have following the merger, including our loan to deposit ratio at closing that exit is expected to be in the low eighties.

We intentionally refrained from adding higher cost deposits to offset any deposit outflows.

We continue to see healthy loan yields and of note in this quarter an.

An increase in loan yields outpaced the increase in cost of funds.

Key asset quality ratios improved quarter over quarter and asset quality remains strong.

We recorded a $5 million provision for credit losses, which was primarily related to loans from the P. M B acquisition debt.

But we felt it was prudent to resolve ahead of the merger closing.

At the beginning of the year.

We indicated that one of our priorities was ramping up our new payments processing business, which we launched during the third quarter on track with our projected timeline.

As we have said all along we were being very prudent in the development of this business. We have steadily built our process and risk management systems as we have added clients.

We continue to expect this business to begin making meaningful contributions during 'twenty 'twenty, four which will be accelerated with the pack with merger.

And the larger client base to whom we can offer this highly differentiated payment solution.

In particular, we believe that there will be a high usage rate among clients and Pac west venture and HOA businesses.

Now, let me hand, it over to Joe who will provide some more color on the performance and then I'll have some closing remarks before opening up the line for questions.

Thank you Jared.

Please feel free to refer to our investor deck, which can be found on our Investor Relations website as I review, our third quarter performance.

I will start with some of the highlights of our income statement and then we'll move onto our balance sheet trends unless otherwise indicated all prior period comparisons are with the second quarter of 2023, our earnings release and Investor presentation provide a great deal of information. So I will limit my comments to some areas where additional discussion is warranted.

Net income for the third quarter was $42 6 million or <unk> 74 cents per diluted share.

On an adjusted basis net income totaled $17 1 million for the third quarter or <unk> 30 per diluted common share when we exclude impacts from certain credit.

Certain merger related items, including a pretax gain of $46 2 million on derivative instruments and $9 3 million of transaction cost related to the proposed merger with Pac West Bancorp, which we will discuss later.

This compared to adjusted net income of $18 4 million or <unk> 32 per diluted common share for the prior quarter.

Our interest income was almost flat with a 0.4 million decrease from the prior quarter, primarily due to a $364 million decrease in average, earning assets, partially offset by an eight basis point expansion of our net interest margin to $3 one 9%.

The decline in average, earning assets was driven primarily by the reduction in excess liquidity that the company carried through the first half of the year.

The improvement in our net interest margin to $3. One 9% was a result of the impact of a 16 basis point increase in the overall, earning asset yield 253, 6%.

While our total cost of funds increased by only nine basis points to 229%.

Our average loan yield increased 10 basis points to 538%.

Which was largely attributable to variable rate loans in the portfolio continuing to reprice and higher rates on new loan production.

Rates on new loan production increased 19 basis points to 836%.

Also the average yield on securities increased 34 basis points to 517%, mainly due to CLO portfolio resets.

Our average cost of deposits was 186% for the third quarter up 19 basis points compared to the second quarter.

Since the fourth quarter of 2021, our average deposit beta is 34%.

The average cost of interest bearing deposits increased 27 basis points compared to the prior quarter largely a result of overall higher rates.

Our noninterest income increased $44 8 million from the prior quarter, primarily due to a $46 2 million mark to market gain on the derivative instruments, we entered into in connection with the announcement of the proposed merger with Pac West.

Excluding this mark to market gain the other areas of noninterest income were relatively consistent with the prior quarter.

Our noninterest expense increased $7 million from the prior quarter, primarily due to transaction cost of $9 3 million related to our proposed proposed merger with Pac West.

Our adjusted noninterest expense decreased $2 2 million from the prior quarter due to lower salaries and benefit cost.

Turning to the balance sheet.

Our total assets were $9 2 billion at September 30, a decrease of approximately 1% from the end of the prior quarter.

Which reflects the impact of the strategies, we are employing to position our balance sheet prior to the closing of the merger.

Our total equity increased by $44 7 million during the quarter at $42 6 million in net earnings and $6 3 million and lower unrealized losses on a O S. A OCI were partly offset by common stock dividends.

Our lower I'm, sorry, our total loans decreased approximately $195 million from the end of the prior quarter.

Look for loan originations remain cautious in the current economic outlook environment.

Yeah.

Our total deposits also decreased 230 million from the end of the prior quarter as noted we've refrained from adding higher cost deposits to offset outflows given the highly liquid balance sheet that we expect to have following the closing of the merger.

Our credit quality remained solid in the third quarter.

And excluding our <unk> portfolio, which is anticipated to be sold in connection with the closing of the merger.

We had declines in all of our problem loan categories.

A large percentage of our delinquent and nonperforming loans continue to be asset bar loans that are well reserved for and have low loan to values. So we view the loss potential is low.

We recorded a provision for credit losses of $5 million related to loans as Gerry indicated the provision was mainly related to loans added in the Pacific Mercantile acquisition as.

As weather related charge offs that we had in the quarter.

In anticipation of closing the merger with Pac West we took the opportunity to accelerate resolution of these credits.

Our allowance for credit losses at the end of the third quarter totaled $78 4 million compared to $84 9 million at the end of the second quarter.

And our allowance to total loans coverage ratio stood at 1.13% compared to $1 one 9% at the end of the prior quarter.

Although the total loan coverage ratio declined the nonperforming loan and nonperforming asset coverage ratios each improved by three basis points in the quarter.

At this time I will turn the presentation back over to Jared.

Yeah.

Thanks, Joe.

Overall, our trends were strong and we liked the way it sets us up for the closing of the deal expansion of our margin.

Kris and loan yields outpacing increasing cost of funds improvement in core credit metrics strong buildup intangible book value per share and continued growth in new relationships to the bank.

Loan origination volume remained muted.

During the fourth quarter, while we continue to execute on our core fundamentals, we look forward to closing the merger and unlocking the power of the combined institution.

The thesis and the power of our deal remains unchanged, we will be the third largest bank headquartered in California.

Out of the gate, we will have good and healthy capital ratios, a low loan to deposit ratio relatively high ACL coverage ratio high cash to assets low wholesale funding and expanded earnings.

We have reaffirmed our EPS range for 'twenty 'twenty four of about 65 to $1 80.

We've been monitoring Pac West performance closely and we remain on track from an earnings perspective.

Even if Aoc I as higher intangible book value per share it comes at a lower that create significant upside, especially.

Especially if you think we are at or near peak rates.

All of the cost saving opportunities and balance sheet repositioning remained positive and.

We along with our investors remain fully committed to closing around November 30th.

The fundamentals of the deal and the earnings and capital outlook remain very strong and we are excited to get this done.

Our track record of execution doing what we say we're gonna do will continue to be demonstrated now and going forward.

The strong market position that the combined institution will have has become even more apparent given the number of banks that have completely exited or significantly pulled back from the market over the past 18 months.

There is a tremendous amount of excitement through both organizations about the ability to capitalize in our various markets to add new clients and expand relationships with existing clients as well as to continue to attract the very best talent.

Given these opportunities we believe that we are extremely well positioned to steadily increase our client roster.

Generally long term profitable growth and enhance the value of our franchise in the coming years.

With that let's go ahead and open up the line for questions.

Ladies and gentlemen, we will now begin our question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

Our first question comes from Timur <unk> of Wells Fargo. Please go ahead.

Hi, good morning.

Good morning.

My first question is around pack West NII. It was a little bit softer than we were looking for I think some of that has to do with what's probably loan sales versus improvements on the funding side, but I guess as we're going into the deal close can we just kind of get an update on what you think pack less NII run rate is going into the deal.

And then are you still confident in the $90 million net benefit from further restructurings and is that 90 million now off of a lower base or has that entire number relatively stayed unchanged.

Yeah, thanks, Tim or rather than going through it because there are a lot of moving parts just achieving earnings I think the most important thing for us to do is to reaffirm specifically the earnings range that we said before.

And there are a lot of different ways to get there and.

Rather than going specifically through NII, which has a lot of implications for what we have for loan yields we were kind of updating our our pro forma as weekly I mean were that close to pack watch looking at their results and looking at the pro forma numbers, which is why we feel very comfortable reaffirming our range. We remain confident in the pro forma earnings power as we discussed on the merger call in July .

Hi.

Looking at the third quarter Bank earnings plus the significant benefits of the planned deleveraging of the pro forma balance sheet with the asset sales, reducing the high cost funding paying off the outlet facility at Pac west with existing cash plus the stated cost saves.

And importantly, the reduction in normalization of their FDIC assessment right. There. That's that's a very very high number that is going to be normalized out of the gate in Q4. So.

So the pack with balance sheet carry a lot of excess high cost liquidity impacting their overall numbers.

And they have not fundamentally executing on the cost saves, which is going to occur post close. So we feel excited about the kind of improving earnings power.

For the deal ahead, and so I think that's kind of the most I can give you about the specifics where absolute reaffirming the range of 165 to 180.

Okay, and then I guess, you know without delving too far into the specifics that you brought up the FDIC surcharge and talk about the expenses were a little bit elevated.

Given that I guess, what's the combined number for FDIC surcharge on a on a go forward basis, our FDIC expenses on a go forward basis.

What what is the number that we're projecting it to be.

Is that what you're asking.

How much of that.

Joe Joe or bill how much how much guidance or we're giving on that what's the range that were expecting off of where Pac west is today.

Yeah, I think we expect it to run annually going forward of around $36 million a year.

Okay, Great and then Jared you had brought up the OCI effect.

Can you guys provide what the unrealized loss position is on the mortgage book.

And for my father looked for well, let me, let me provide it more broadly which is that the a OCI that Pac west experienced.

You know through.

Recently, we think moves tangible book value from around 15 to around 14.

So that that's kind of where it is now interest rates are obviously moving.

It it could be higher than that it could be lower than that and there are some things that we can do to kind of affect it between now and closing, but that's kind of the impact of where it is it moved it about a buck.

From where we were and.

It Hasnt affected as I mentioned in my.

In my comments it has not affected the earnings power of the company at all.

It hasn't affected the key capital ratios that we're focused on.

And if anything it provides upside going forward because if you think we're at or near peak rates, then we're going to get the benefit of.

Improvement in.

See I going forward.

Okay, and then just a last one for me just seeing what the stock price is doing and I know that I think I know the answer to this but is there anything in the <unk> results now you think puts the shareholder risk at home or a shareholder vote at risk.

Operator: Hello and welcome to Banc 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.

Absolutely not and I I hope I was fundamentally clear in our in our in my comments that <unk>.

[noise] of California.

And our investors are fully committed to closing this deal on November 30th.

Operator: After today's presentation there will be an opportunity to ask questions. To ask a question you may press star then one on your touch tone phone. This call is being recorded and a copy of the recording will be available later today on the company's investor relations website. Today's presentation will also include non-gapped measures. The reconciliation for these and additional required information is available in the earnings press release, which is available on the company's investor relations website. The reference presentation is also available on the company's investor relations website.

I think the legal terms are on or around November 30th.

The vote is the 22nd and we're going to close it properly and you know, we're just kind of timing it to the to the Montana, which makes sense from an accounting perspective since we're all at the end of the year. So we're excited to get this deal done and if we're moving forward.

Right exactly.

No.

Thank you.

Our next question comes from Matthew Clark of Piper Sandler. Please go ahead.

Operator: Before we begin we would like to direct everyone to the company's safe harbor statement on forward looking statements, including included in both the earnings release and the earnings presentation.

Hey, good morning, everyone.

Good morning.

<unk>.

Maybe just.

Thinking through kind of Standalone bank here as we go into what will be you know well.

Operator: I would like now to turn the conference call over to Mr. Jared Wolfe, Banc of California's chairman, president and chief executive officer. Please go ahead.

A lot of moving parts, but.

On your NIM I mean, it was up nicely this quarter, but just trying to get a sense for.

Jared Wolfe: Good morning and welcome to Banc of California's third quarter earnings call.

I'm kind of the upcoming fourth quarter do you have the average NIM in the month of September I saw the spot rate on deposits in your deck, but just wanted to get a sense for whether or not there might be some additional lift in the NIM here in <unk>.

Jared Wolfe: Joining me on today's call is Joe Kauder, our chief financial officer who will talk in more detail about our quarterly results, as well as Bill Black, head of strategy for PAC West, who will be joining Banc of California in a similar capacity upon the closing of our merger with PAC West. I'd like to start off by congratulating the teams at Banc of California and PAC West on a terrific job obtaining regulatory approval.

Joe you want to take that.

Yeah.

We we generally don't give out monthly NIM amount.

I'll say that.

Jared Wolfe: It is worth noting that we obtained regulatory approval for the merger and also obtained approval for the combined bank to become a member of the Federal Reserve, which really is its own process altogether. These approvals didn't just happen and they required significant coordination. The results reflect the dedication and hard work of our colleagues and advisors. We also appreciate the dedication and equally hard work of our federal and state regulators who had an important job to do.

The continued pressure on the deposit side of the balance sheet is probably having that come in a little bit softer than what youre seeing in the in.

And in the third quarter, but not by not by significant amounts.

Yeah.

Okay.

<unk> expenses they were down on a core basis, I think a few million bucks to $46 million anything unusual or how do you think about that standalone run rate going into <unk>.

Yeah.

Jared Wolfe: With regulatory approvals in hand and our shareholder meeting set for late November, we anticipate closing on or around November 30th. We look forward to delivering a franchise poised to provide significant benefits to our shareholders, clients, communities and colleagues. Our two companies have made significant progress on integration planning, which is proceeding smoothly, along with the preparation for the balance sheet repositioning actions that will occur in connection with the closing of the merger. I want to thank the Banc of California and PAC West team members for their tremendous efforts, planning and dedication towards the successful close.

Well <unk> is gonna be a mess.

And because of the merger, but absent absent absent the deal I mean, I think it was just consistent it was nothing unusual it's.

He is just continuing to manage expenses.

And run this company as efficiently as we can in the market that we're in and so it was.

Nothing unusual there is what I would say Matthew and just to comment back on the margin I mean in looking at kind of you know a.

Month, and although we don't give them out I will say that the.

I would say the threat to deposit cost seems to be a declining quite a bit and we're not seeing the same pressure that we saw earlier.

Jared Wolfe: Turning to our third quarter performance, our results reflect many of our strategic decisions to position our balance sheet ahead of our merger with PAC West, which include limiting certain long-term fixed rate deposits, resolving certain acquired credits, and hedging the interest rate risk associated with the various assets we anticipate selling in connection with the closing of the merger. As a result of these initiatives, we generated net income of 42.6 million during the quarter, had increases in all of our capital ratios and grew tens of book value per share by 5%.

Our margin.

The average margin was not terribly far off from where we ended up I think joe's appropriately being conservative that saying that marching it slipped a little bit but.

We're just seeing less less pressure overall on deposits right now.

Obviously, when we close the deal.

Our margin is going to go down because we're going to be absorbing Pac west margin and now we're gonna be improving it by getting rid of all of their high cost deposits with all the liquidity, we're creating through the deal. But then we're gonna be building it back up pretty aggressively as we execute on our strategy on the deposit side.

Jared Wolfe: Joe is going to provide some of details, but our trends were positive and set us up well ahead of expansion of our net interest margin, discipline expense control, and continued growth in new commercial relationships. As I have discussed in the past, against the backdrop of economic contraction and overall decline in deposit levels across the banking industry, we are focused on bringing new court deposit relationships to the bank. Through the first nine months of the year, we have generated over 200 million in new non disparate deposits from new commercial relationships.

Yep, Okay, and then just I know, it's kind of taken a back seat here since the deal was announced but any update on deep stack with the with our going live with some customers.

Yeah.

Just that we're on track I mean, as I've said before I don't want to give out numbers of customers and volume of transactions because I think it's too low to be meaningful we still believe that on a standalone basis.

Jared Wolfe: These new relationships offset deposit outflows today, and will continue to benefit our company in the future. Given the highly liquid balance sheet, we expect to have following the merger, including a loaned deposit ratio at closing that is expected to be in the low 80s. We intentionally refrained from adding higher cost deposits to offset any deposit outflows. We continue to see healthy loan yields and have note in this quarter an increase in loan yields outpace the increase in cost of funds.

Deep stack in 'twenty 'twenty, four would contribute meaningfully to fee income.

And meaningfully enough that we would call it out and say what it is that's where we're going to get to buy.

Mid late 2024, and we think the Pac west deals only can accelerate that obviously in the combined company it'll be less material.

But I think to provide context, we said it would be material on a standalone basis.

And we're excited to begin sharing that as we ramp it up.

Okay and then.

The the.

The acquired credits that you addressed here in the quarter through the provision where all those P. C D loans or enroll them Mark to some degree just trying to get a sense for whether or not they were identified at the time of the deal.

Jared Wolfe: Key asset quality ratio has improved quarter over quarter and asset quality remains strong. We recorded a $5 million provision for credit losses, which was primarily related to loans from the PMB acquisition, that we felt it was prudent to resolve ahead of the merger closing.

No they weren't all identified at the time of the deal two out of the three.

So there were three charge offs two out of three were marked at the time of the deal.

And then I'm, sorry, and then there was one.

Jared Wolfe: At the beginning of the year, we indicated that one of our priorities was ramping up our new payments processing business, which we launched during the third quarter, on track with our projected timeline. As we have said all along, we are being very prudent in the development of this business, and we have steadily built our process and risk management systems as we have added clients. We continue to expect this business to begin making meaningful contributions during 2024, which will be accelerated with the backlash merger, and the larger client base to whom we can offer this highly differentiated payment solution. In particular, we believe that there will be a high usage rate among clients in backlash venture and HWA businesses.

There were there was one that wasn't a charge off but we substantially wrote it down and had to provide a provision for it that one also was marked at the time of the deal. So three out of the four overall.

And three out of the four were pack Merck credit. So the three out of four were marked one wasn't I think it's notable though that you know we recorded a $5 million provision when we still had consensus earnings.

And you know.

We just decided to accelerate stuff and we could've cared along that part of what I believe in this transparency and in the course of the deal and the Q4, obviously everything is gonna get jumbled together and theres going be a lot less transparency and so part of it for me was being transparent about what we're doing and just saying, okay, let's move it along now.

Joe Kauder: Now let me hand it over to Joe who provides some more color on the performance, and then I'll have some closing remarks before opening up the line for questions. Thank you, Jared. Please feel free to refer to our investor deck, which can be found on our investor relations website as I review our third quarter performance.

And you know, we're still going to have a great quarter.

Got it okay. Thanks again.

Thank you.

Joe Kauder: I will start with some of the highlights of our income statement, and then we'll move on to our balance sheet trends. Unless otherwise indicated, all prior period comparisons are with the second quarter of 2023. Our earnings release and investor presentation provide a great deal of information, so I will limit my comments to some areas where additional discussion is warranted. Net income for the third quarter was 42.6 million or 74 cents per diluted share.

Our next question comes from Gary Tenner of D. A Davidson. Please go ahead.

Thanks, Good morning.

Good morning, I wanted to Hey wanted to ask about the planned disposition.

Within the Pac West NFS portfolio, the $2 3 billion, obviously as you pointed out a moment ago with regard to OCI.

You got a bigger mark against it now.

You know is there.

You were selling or the plan was to sell about half of that portfolio that would be greater hit obviously, the regulatory capital. If you would do it at current.

Joe Kauder: On an adjusted basis, net income total 17.1 million for the third quarter, or 30 cents per diluted common share, when we exclude impacts from certain credit, certain merger related items, including a pre-tax gain of 46.2 million on derivative instruments, and 9.3 million of transaction cost related to the proposed merger with PAC West Bank Corp, which we will discuss later. This compared to adjusted net income of 18.4 million, or 32 cents per diluted common share for the prior quarter.

The fair value Mark. So would you is the plan still to go forward with that full amount or would you adjust that and kind of manage to regulatory capital impact versus the previous plan.

So our pro forma is currently have are still heading our see tier one targets.

With the sale of the plant.

Securities at closing.

So.

Based on their marks they currently have.

We can retain full flex it it's just a timing question so.

Joe Kauder: Our interest income was almost flat, with a 0.4 million decrease in the prior quarter, primarily due to a 360.4 million decrease in average earning assets, partially offset by an 8-bases quit expansion of our net interest margin to 3.19%. The decline in average earning assets was driven primarily by the reduction in excess liquidity that the company carried through the first half of the year. The improvement in our net interest margin to 3.19% was a result of the impact of a 16 basis point increase in the overall earning asset yield to 5.36%.

We can retain flexibility and sell that stuff later, if we choose to if we if the marks accelerate and where like all right well, let's hold a little more capital. That's all of it a little later, but as of today or yesterday or whatever the last measurement date was very recently, we were still hitting our CET one ratio.

And executing day, one on all the sales that we had announced that we plan to do Joe. Please correct me if that's wrong.

No. That's that's correct and you know the what we've been doing in addition to tracking the interest rates as we've been updating all sorts of assumptions and estimates and the model and I was wondering reiterate what break what Jerry said that we we forecast that are even with the sale that.

Joe Kauder: While our total cost of funds increased by only 9 basis points to 2.29%. Our average loan yield increased 10 basis points to 5.38%, which was largely attributable to variable rate loans in the portfolio, continuing to reprise and higher rates on new loan production. Rates on new loan production increased 19 basis points to 8.36%. Also, the average yield on securities increased 34 basis points to 5.17% mainly due to COLO portfolio resets. Our average cost of deposits was 1.86% for the third quarter of 19 basis points compared to the second quarter.

That we can hit our targeted our projected regulatory capital levels.

Alright, great. Thank you.

And then you kind of hit on my My second question was which is with the kind of earlier timing of the sale relative to the range that you put out initially.

Other than the Atlas repurchase agreement.

Which I think comes up in December there's everything else happened concurrent with closing or are there any out or other kind of timing items.

Items as far as the sales and dispositions.

It's it's a round closing I mean, it's it's it's pretty pretty fluid whether it's you know sometime in December I think we'd like to take the risk off the table and things that we can execute on and we just will because it'll allow us to reduce higher cost.

Joe Kauder: And since the fourth quarter of 2021, our average deposit beta is 34%. The average cost of interest bearing deposits increased 27 basis points compared to the prior quarter largely result of overall higher rates. Our non-interesting income increased 44.8 million from the prior quarter, primarily due to a 46.2 million mark-to-market gain on the derivative instruments, we entered into a connection with the announcement of the proposed merger with PAC West. Excluding this mark-to-market gain, the other areas of non-interesting income were relatively consistent with the prior quarter.

Borrowings at pack last much much quicker on the on the term funding facility you know Atlas as you mentioned is.

It's something that we can take out a you know in December the bank term funding program is interesting, which is another you know kind of borrowing that they have that everybody's familiar with because it's a positive carry and they get that that benefit I believe until March bill isn't that right.

You guys have.

That facility can be repaid through March so.

That might be something even though we plan to pay it off at closing since it's a positive carry because it's a lower cost funding, we could carried a little longer make a little bit more money in paid off later, so we're looking at all of those things.

Joe Kauder: Our non-interesting expense increased 7 million from the prior quarter, primarily due to transaction cost of 9.3 million related to our proposed proposed merger with PAC West. Our adjusted non-interesting expense decreased 2.2 million from the prior quarter due to lower salaries and benefit cost.

As of right now that we haven't been paid off pretty quickly.

Yep.

Okay. Thanks, guys.

Thank you.

Our next question comes from Kelly Motta of K B W. Please go ahead.

Joe Kauder: Turning to the balance sheet, our total assets were 9.2 billion at September 30, a decrease of approximately 1% from the end of the prior quarter, which reflects the impact of the strategies we are employing to position our balance sheet prior to the closing of the merger. Our total equity increased by 44.7 million during the quarter, as 42.6 million in net earnings, and 6.3 million in lower unrealized losses on AOCI, were partly offset by common stock dividends.

Hi, Thanks for the question good.

Good morning, Kelly good morning.

Yeah.

Well.

I was going through.

And I just wanted to confirm I couldnt see any.

Provisions in there that would allow or permit private equity to potentially renegotiate any of them what they've committed from what I can gather that capital can you just enlighten us any any sort of thresholds or any.

Joe Kauder: Our total loans decreased approximately 195 million from the end of the prior quarter, as our outlook for loan originations remained cautious in the current economic outlook environment. Our total deposits also increased 230 million from the end of the prior quarter. As noted, we have refrained from adding higher cost deposits to offset outflows, given the highly liquid balance sheet that we expect to have following the closing of the merger. Our credit quality remained solid in the third quarter, and excluding our SFR portfolio, which is anticipated to be sold in connection with the closing of the merger, we had declines in all of our problem loan categories.

Hum.

Potential opportunity that could come from that tie to change the terms of the deal.

Sure.

So.

We are fully committed to the deal as our investors.

We talked to them about the closing date, we all circled around the closing date and agreed on the closing date.

We're all excited to get this deal done the agreements are publicly available and people can read them, but as a reminder.

Private equity.

The partners that we have we're Bergen Centerbridge don't have outs that we don't have ourselves.

And I don't see any outs anytime soon we're all excited to get this deal done.

Joe Kauder: A large percentage of our delinquent and non-performing loans continue to be SFR loans that are well reserved for and have low loan devalued, so we view the loss potential as low. We recorded a provision for credit losses of 5 million related to loans. As Jared indicated, the provision was mainly related to loans added in the Pacific Mercantel Acquisition, as were the related charge offs that we had in the quarter. In anticipation of closing the merger with PAC West, we took the opportunity to accelerate resolution of these credits.

The outside of a very very narrow.

Very hard to hit because we were all committed to this deal and as we've said even with the marks that exists we're still hitting our target capital and the other fundamentals of the deal are strong.

And you know all of the expense savings are there for us to do we believe if you can absorb a deal at the high watermark of a OCI marks you know that's the only upside going forward, which means we properly structured the deal we properly size the deal we bought enough capital to the deal and so.

There's we don't see any outs that anybody could exercise at this point and we're fully committed to the deal.

Joe Kauder: Our allowance for credit losses at the end of the third quarter totaled 78.4 million compared to 84.9 million at the end of the second quarter. And our allowance for total loans coverage ratios stood at 1.13 percent compared to 1.19 percent at the end of the prior quarter. Although the total loan coverage ratio declined, the non-performing loan and non-performing asset coverage ratios each improved by three basis points in the quarter.

Thank you for elaborating on that.

Hum.

Hoping to touch a bit about.

The run rate of expenses I appreciate the color on the FDIC charge, that's on the outside that a Pac west.

They're released and tangible book value might be later, because it's early.

Jared Wolfe: At this time, I will turn the presentation back over to Jared. Thanks, Joe. Overall, our trends were strong, and we like the way it sets us up for the closing of the deal. Expansion of our margin, increasing loan yields, outpacing increasing cost of funds, improvement in court credit metrics, strong build up intended book type per share, and continued growth in new relationships to the bank. Loan regionation volume remained muted.

<unk> came in.

That light relative to what you had been expecting and I think one of that was expenses.

I just how much of that was related to timing and how are you feeling it seems like.

You still are on track for the $130 million of coffee, but I was hoping you could touch on.

Just the run rate.

Combining the first the first combined quarter at that mine company and just the trajectory of full realization.

Jared Wolfe: During the fourth quarter, while we continue to execute on our core fundamentals, we look forward to closing the merger and unlocking the power of the combined institution. The thesis and the power of our deal remains unchanged. We will be the third largest bank headquarter in California. Out of the gate, we will have good and healthy capital ratios, a low loaned deposit ratio, relatively high ACL coverage ratio, high cash to assets, low wholesale funding, and expanded earnings.

Yeah.

Sure Joe do you want to you want to take that.

Yeah. So we are we're still on track for the cost saves that were in the original investor presentation and in fact, we hope to exceed those.

D I see normalization as we talked about early about the pack I actually I think we are are are saves versus the investor presentation will probably be a little bit in excess because Pac west assessments went up in the third quarter related to.

Jared Wolfe: We have reaffirmed our EPS range for 2024 of $1.65 to $1.80. We have been monitoring PAC West performance closely, and we remain on track from an earnings perspective. Even if AOCI is higher, intangible value per share comes in lower, that creates significant upside, especially if you think we are at or near peak rates. All of the cost saving opportunities and balance sheet repositioning remain positive, and we, along with our investors, remain fully committed to closing around November 30th.

The FDIC so those two things together puts us on a really good run rate.

With respect to the first quarter and by that I would think he would say the first quarter of 2024, we'll start to.

Realized cost savings than but really the cost savings can be realized throughout.

And the assessments will happen immediately but on the other cost savings those will come in.

Throughout the year.

Really.

It's really the back half of the year when they really start to pick up starting to start in the first and second quarter gain steam in the third and fourth quarter when the core cost savings really kick in hard.

Jared Wolfe: The fundamentals of the deal and the earnings and capital outlook remain very strong, and we are excited to get this done. Our track record of execution, doing what we say, we are going to do, will continue to be demonstrated now, and going forward. The strong market position that the combined institution will have has become even more apparent, given the number of banks that have completely exited or significantly pulled back from the market over the past 18 months.

Yeah, that's a good point.

Kelly where were.

Our conversion date is at this point likely going to be in May.

Which is which is pretty quick and we want to do it right, but it's a big deal and so you know that's why some of that stuff won't kick in until the second half.

Jared Wolfe: There is a tremendous amount of excitement through both organizations about the ability to capitalize in our various markets, to add new clients, and expand relationships with existing clients, as well as to continue to attract the very best talent. Given these opportunities, we believe that we are extremely well positioned to steadily increase our client roster, generate long-term profitable growth, and enhance the value of our franchise in the coming years.

There are people that are staying through transitions.

Like conversion there are a lot of costs that come out after you get the conversion done.

And so that's going to trigger a whole bunch of stuff and as of now that's targeted for me.

Got it maybe maybe a last one for me.

New DDA accounts.

And a huge part of the bank of Canada.

Story and it was nice to see you know.

Operator: With that, let's go ahead and open up the line for questions. Ladies and gentlemen, we will now begin our question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speaker phone, please pick up your handset before pressing the key- to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster.

The new accounts, you laid out about $50 million this quarter.

I'm wondering if there's any kind.

Kind of themes there in terms of its.

This new client, you're winning them as well.

The Pac west side with that the D. D D D. A run off that has been seen there if you've.

Identified any opportunities to.

Timur Braziler: Our first question comes from Timur Braziler of Wells Fargo. Please go ahead. Hi, good morning. My first question is around Pack West NII. It was a little bit softer than we were looking for. I think some of that had to do with probably loan sales versus improvements on the funding side. But I guess as we're going into deal clothes, can we just kind of get an update on what you think, Pack West NII run rate is going into the deal. And then are you still confident in the $90 million net benefits from further restructuring? Is that $90 million now off of a lower base or has that entire number relatively stayed unchanged?

Perhaps went back on some core operating accounts there.

Sure.

Yeah. So let me start with the Pac West personal I'll come back to Banc of California. So we we look at their daily deposit results daily and they're doing an excellent job and you know without getting into their specifics because it's for them to report.

The trends are very positive, including at the community Bank and you know, it's a big part of their growth engine and so I'm.

I'm very pleased with what I'm, saying.

They've put in place some programs that are going to jumpstart. The combined company I asked him and Paul has been very cooperative and collaborative as has the entire team in terms of.

Jared Wolfe: Yeah, thanks Timur. Rather than going through kind of because there are a lot of moving parts just achieving earnings. I think the most important thing for us to do is to reaffirm specifically the earnings range that we said before. And there are a lot of different ways to get there. And, you know, rather than going specifically through NII, which has a lot of implications for what we have for Loneos, we were kind of updating our our performance weekly.

Putting in place programs that focus back on bringing in operating accounts as opposed to selling right I mean, they're in the low eighties and loan to deposit ratio now so.

There's no need to worry about.

Some of these higher cost deposits is as necessary funding.

And you know the deposit base has stabilized.

Remarkably well and so I think that theres going to be a lot of opportunity to.

Jared Wolfe: I mean, we're that close to Pack West looking at their results and looking at the performance numbers, which is why we feel very comfortable reaffirming our range. We remain confident in the performance earnings power as we discussed on the merger call in July. And looking at the third quarter bank earnings, plus the significant benefits of the plan, the leveraging of the performance balance sheet with the asset sales, reducing the high cost funding, paying off the Atlas facility at Pack West with existing cash, plus the stated cost saves.

Bring back some deposits on the other hand.

They have some deposits that probably need to be moved off balance sheet.

At our higher cost deposits as well as deposits that might be more flexible that are more liquid that they carry that like on the venture side and I've talked about that that there's no reason to carry.

These highly liquid excess deposits on the balance sheet and make you think that there they're available for you at all times and so they have an off balance sheet vehicle that I think is gonna be effective to use it keeps it in the family. It keeps you within the company and.

Jared Wolfe: And importantly, the reduction and normalization of their FDIC assessment, right? That's that's a very, very high number that is going to be normalized out of the gate and Q4. So the Pack West balance sheet is carrying a lot of excess high cost liquidity, impacting the overall numbers. And they have not fundamentally executed on the cost saves, which is going to occur close close. So we feel excited about the kind of improving earnings power for the deal ahead.

And you are providing a very good option for the client, but you don't have to Kid yourself about whether it's true liquidity and a true stable deposit that you could lend against it that's part of the conservatism that we're we're we're we're gonna built in here.

And I think will provide a benefit from an operating perspective to the company in terms of living within our means and making sure that we don't have outsized deposits that pose concentration risk I've talked about that from the day, we announced this deal that we want to limit concentration risk equally.

Jared Wolfe: And so I think that's kind of the most I can give you about the specifics. We're absolutely reaffirming the range of 165 to 180. Okay. And then I guess, you know, without delving too far into the specifics, but you brought up the FDIC surcharge and Pack West expenses were a little bit elevated, given that I guess what's a combined number for FDIC surcharge on a go forward basis or FDIC expenses on a go forward basis.

Equally on the deposit side as we do on the lending side and that's something that they've been I would say the folks at Pac West are are very focused on in there they're very good at it.

Dressing these sorts of things that we're doing it together.

So that combined with the programs that they've put in place.

Very pleased with the momentum that we're seeing and then at Banc of California.

Jared Wolfe: What is the number that we're projecting it to be? Is that what you're asking? How much of a reduction on Joe or Bill? How much how much guidance are we giving on that? What's the range that we're expecting off of where Pack West is today? Yeah, I think we expect it to run annually going forward around 36 million a year. Okay. Great.

We're not in a high growth lending environment right now.

I think that we will see some lending expansion. After the merger are there some whole bunch of stuff, we're looking at but given our loan to deposit ratio I've been holding back a little bit.

And prioritizing other lending for clients and so that's been holding US back that's an opportunity for the combined company and so to generate these sorts of deposits. When we're not lending the way that we were is a real bright spot that proves out our deposit gathering engine that we can bring in new commercial relationships well you asked about the type that we're bringing in.

Jared Wolfe: And then Jared, you had brought up the the AOCI effect. Can you guys provide what the unrealized law position is on the mortgage book at quarter end for? Yeah, let me, let me, let me provide it more broadly, which is that the AOCI that Pack West experience, in the past, you know, through recently we think moves, tangible books I have from around 15 to around 14. So that's kind of where it is, now interest rates are obviously moving.

We're bringing in businesses that are frustrated with a lot of them are at larger banks.

And a lot of them are at some of our mid sized competitors.

You are not getting into tailored solution that we can provide on the deposit side in terms of providing really dedicated treasury management, if you're a property management company and you've got 50 accounts and you can't see them on a single screen and you can move money.

Jared Wolfe: If it could be higher than that, it could be lower than that, and there are some things that we can do to kind of affect it between now and closing. But that's kind of the impact of where it is. It moved it about a buck from where we were, and you know, it has an effect as I mentioned in my comments. It has not affected the earnings power of the company at all.

Seamlessly between accounts and you can't get statements printed the way you like and you've just been grinding it out we can provide a better solution.

You know if you're a a lot of commercial companies have multiple accounts when they need them handle the right way. We don't overcharge are clients for Treasury management services, we have a very competitive product and we realize that there is some scale involved here and it doesn't cost us every time somebody writes a check the way the big banks might make you feel like it does.

Jared Wolfe: It has an effected the key capital ratios that were focused on. And if anything it provides upside going forward because if you think we're at or near peak rates, then we're going to get the benefit of, you know, improvement in AOCI going forward.

So we're trying to be efficient here and helping our clients and as a result, I've said in the past, we're not going to run with as much fee income off the deposit account side, we're going to get our fee income elsewhere, and our payments business is going to be a big part of that.

Jared Wolfe: Okay, and then just a last one for me, just seeing what the stock price is doing. And I know I think I know the answer to this, but is there anything in the three key results that you think puts the shareholder risk at vote or shareholder vote at risk? Absolutely not. And I hope I was fundamentally clear in our in our in my comments that Bank of California and our investors are fully committed to closing this deal on November 30th.

It is a tough environment I mean deposits are our our contracting.

But I I I firmly believe in the strategy of bringing new relationships to the bank every day and those relationships will grow with our banks, we are not losing clients, we're seeing deposit balances shrink as accounts shrink due to the economy contracting and we track. It weekly we see what sort of deposits are leaving what sorts are going out.

And whether we're losing accounts.

Jared Wolfe: I think the legal terms are on or around November 30th. The shareholder vote is the 22nd, and we're going to close it properly. And you know, we're just kind of timing it to the to the month end, which makes sense from an accounting perspective since we're at the end of the year. So we're we're excited to get this bill done and we're moving forward.

And fundamentally we're not we're growing our relationships.

Timur Braziler: Great. Thanks for that, Color. Thank you.

And so given the low lending that we've had relative to.

Kind of the last.

Year end and in quarters in the past I'm pleased with the deposit results.

Thanks for all the color I really appreciate it I'll step back. Thank you Kelly. Thank you.

Our next question comes from Andrew <unk> of Stephens. Please go ahead.

Matthew Clark: Our next question comes from Matthew Clark of Piper's Handler.

Hey, good morning.

Matthew Clark: Please go ahead. Hey, good morning, everyone. Good morning. Um, maybe just thinking through kind of standalone bank here as we go into what will be, you know, a lot of moving parts. But on your name, I mean, it was up nicely this quarter, but just trying to get a sense for kind of the upcoming fourth quarter, you know, do you have the average name in the month of September? I saw the spot right on the province in your deck, but just want to get a sense for the, there might be some additional lift in the name here in 4Q.

Hey, Andrew.

Hey, Darren quick question on the somebody asset dispositions I know that the single family I think it was for the VA and see single family was forward sold when you announce but.

Any status update on the multifamily portfolio.

Joe you want to take that.

Yeah, we continue to are.

In the process of marketing that portfolio, the timing trying to get the timing of that right in conjunction with the close now that we have a little bit more line of sight to the to the closing date a lot of interest in the portfolio. Obviously, we were in a slightly different interest rate environment than we were.

Joe Kauder: Joe, you want to check that? We generally don't give out monthly, you know, name amounts. I will say that, you know, the the the continue pressure on the deposit side of the balance sheet is probably having that come in a little bit softer than what you're seeing in the in the in the third quarter, but not by not by significant amounts.

When we entered into the process, but we had a hedge on that portfolio for the interest rate component.

So we feel we feel pretty good about it and we'll see how things play out here as we.

As we get to the get to the close date.

I'm surprised how much interest there has been Andrew it's been a robust chose downplaying it a little bit I mean, it's been a robust.

Process with with tons of interest and so we're confident we're going to get it sold and obviously the hedge was a good idea.

Joe Kauder: Okay, and on expenses, they were down on a core basis, I think a few million bucks to 46 million, anything unusual or how do you think about that standalone run rate going into 4Q? Well, 4Q is going to be a mess. Hey, because of the merger, but absent the deal. I mean, I think it was just consistent. It was nothing unusual. I just continue the managed expenses and run this company as efficiently as we can in the market that we're in.

Yeah absolutely.

Absolutely and so I guess that the right way to think about the hedge and the gain you took this quarter is.

When you close the deal, but the pricing on the multifamily it could be a little bit worse, so technically it'll kind of wash out the gain that you saw this quarter is that fair.

Yes, exactly where and I I E. There is a possibility.

That we could given the.

Given the interest and activity level that we're seeing through the marketing of the portfolio it's possible.

Joe Kauder: And so it was, Nothing unusual there is what I would say, Matthew. Just to come back on the margin, I mean, in looking at kind of, you know, a month and although we don't give them out, I will say that the, I would say the threat to the positive cost seems to be declining quite a bit, and we're not seeing the same pressure that we saw earlier. Our margin, the average margin was not terribly far off from where we ended up.

That we could come out a little bit better.

And then you know what the hedge is fully provided for us and so we could get a little extra capital out of it.

Right now we're assuming the hedge is just going to cover it and so it's gonna be a wash.

Yeah understood Okay.

And then another question maybe just on on the margin and I get there's a lot of moving pieces, but I wanted to go back to a comment you made.

Joe Kauder: I think Joe's appropriately being conservative at saying the margin that slipped a little bit, but we're just seeing less, less pressure overall on deposits right now. Obviously when we close the deal, our margin is going to go down because we're going to be absorbing Pac-West margin, and then we're going to be improving it by getting rid of all their high cost deposits with all the liquidity we're creating through the deal. But then we're going to be building it back up pretty aggressively as we execute on our strategy on the deposit side. Yeah, okay.

A minute ago about the margin would clearly be down when when you immediately close the deal, but the plan would be to work it off pretty quickly thereafter with some of the balance sheet repositioning efforts do you have just on that on a pro forma basis. What do you think the margin kind of could shake out once those balance sheet actions are taken in assuming no real changes in rates.

I think that.

We're gonna start off below three.

And I think.

Jared Wolfe: And then just, I know it's kind of taken a back seat here since the deal was announced, but any update on DeepStack with going live with some customers? Just that we're on track. I mean, as I've said before, I don't want to give out numbers of customers and volume of transactions because I think it's too low to be meaningful. We still believe that on a standalone basis, DeepStack in 2024 would contribute meaningfully to fee income.

Through the end of Q4.

You know, we're gonna, we're gonna start moving up and we will be above three by the end of 2024.

But that's going to be a function of rates and a whole bunch of things. So just we're gonna start off you know in the upper twos.

And then we will start growing above three call it halfway through the year and we'll go from there.

I don't I don't know that I should provide you more color than that because I don't I don't actually know I mean, like we think we know where we think there's a lot of things that we can flex, but if if loan yields aren't as high than deposit costs are probably lower too right. So all of that stuff is moving around and it's just that it did then it becomes a volume question. So I think I hopefully that's helpful.

Jared Wolfe: And, you know, meaningfully enough that we would call it out and say what it is. And I think that's where we're going to get to by, you know, mid-late 2024. And we think the Pac-West deals only going to accelerate that. Obviously, in the combined company, it will be less material. But I think to provide context, we said it would be material on a standalone basis. And we're excited to begin sharing that as we ramp it up.

Yeah, no I'm not trying to back into anything I was just trying to spot check my model, maybe but not that that's very helpful and I really appreciate it that's it for me. Thank you.

Matthew Clark: Okay. And then the acquired credits that you addressed here in the quarter, through the provision, were all those PCD loans, or were all of them marked to some degree, just trying to get a sense for whether or not they were identified at the time of the deal. No, they weren't all identified at the time of the deal. Two out of the three, so there were three charge offs. Two out of the three were marked at the time of the deal.

Our last question comes from David Feaster of Raymond James. Please go ahead.

Hey, good morning, everybody.

Good morning.

Look the timing of the closing has been incredibly fast it's great to see a testament to your team's hard work.

And as as we think about the closing of a deal this size and getting everything set in plate place does essentially having a four month lead time pose any challenges for your integration team I'm. Just curious you know, especially with all the balance sheet moves that you have I guess, what processes and procedures. I mean, you got a lot of experience doing this.

Matthew Clark: And then, I'm sorry. And then there was one, there was one that wasn't a charge off, but we substantially wrote it down and had to provide a provision for it. That one also was marked at the time of the deal. So three out of the four overall and three out of the four were Pac-Mark credit. So the three out of the four were marked. One wasn't. I think it's notable though that, you know, we recorded a $5 million provision and we still had consensus earnings.

But I'm just curious what parts of the procedures that you put in place to help ensure a seamless integration as close approaches quickly.

Well the the conversion and integration formerly take place in May so.

Matthew Clark: And, you know, we just decided to accelerate stuff and we could have carried it along, but part of what I believe in is transparency. And in the course of the deal, in the Q4, obviously everything's going to get jumbled together and there's going to be a lot less transparency. And so part of it for me was being transparent about what we're doing. And just saying, okay, let's move it along now.

We're closing in the books.

And the two banks or are kind of running as one but there are things that will remain separate and you in fact by keeping it till may were substantially minimizing the risk of there was a there was a chance we were going to do it in March.

And we pushed it to may for to make sure that we do it right.

And so I think that's part of the experience of the team, saying no. That's too fast we're going to wait we're going to do it in March and we're going to do it in may and make sure we get it right and it's going to cost us a little bit more but we're good at.

Matthew Clark: And, you know, thank you.

Gary Tenner: Our next question comes from Gary Tenor of DA Davidson. Please go ahead. Thanks, good morning. Good morning. What did I, what did I ask about the planned disposition of within the pack less AFS portfolio, the 2.3 billion? Obviously, as you pointed out a moment ago, with regard to AOCI, you know, it's got a bigger mark against it now. You know, is there, you were selling, or the plan was to sell about half of that portfolio, it would be greater hit, obviously, the regulatory capital, if you were to do it at current, fair value mark.

And so I think our teams are are are doing a great job working very closely together, we got a senior management committee of twenty-five people. That's the leadership of the combined company and that's been meeting every week, we have a larger work stream that meets every week as well and our teams have worked incredibly closely together and it's made up of a mix.

People from both companies. So I think that risk is well managed there's risk in every deal.

We actually had a third party consultant come in.

Look at our process on the outside.

And make sure there weren't any gaps and we got we got very high marks and so couldn't be more pleased with the combined effort of the teams.

Gary Tenner: So, would you, is the plan still to go forward with that full now, or would you adjust it and kind of manage to regulatory capital impact versus the produce plan? So our, our pro foremost currently have us still heading our CT1 targets with the sale of the planned securities at closing. So, based on the mark they currently have, we can retain full flex, it's just a timing question. So, you know, we can retain flexibility and sell that stuff later if we choose to, if we, if the marks accelerate, and we're like, all right, we'll pull a little more capital, let's sell it a little later.

That's great.

And I guess as you.

You've gotten deeper into this and with the deal closed now approaching it sounds like maybe that there's some additional cost saves that you've got in your back pocket, but are there any other.

Balance sheet restructuring opportunities that you've identified or even just you know these companies really well is there anything that you're maybe more excited about today with the deal and then when you even initially announced just a couple of months ago.

Well as I said at the outset, I think Pac West did a remarkable job of.

Gary Tenner: But as of today, or yesterday, or whatever the last measurement day was very recently, we were still hitting our CT1 ratio, and executing day one on all the sales that we had announced that we plan to do. Joe, please correct me if that's wrong. No, that's, that's correct. And, you know, the, the, what we've been doing in addition to tracking the interest rates is we've been updating all sorts of assumptions and estimates in the model, and I was going to reiterate what, what Jared said that we, we forecast that are, you're even with the sale, that we can hit our targeted, our projected regulatory capital levels.

Of repositioning their company and Paul and his team.

Really you know and everybody at Pac West worked really hard to reposition that company under very difficult terms.

And Bill Black and everybody, who is involved in and really trying to figure out a way to restructure that company and get asset sold they did it in a remarkable time.

And that really derisk that back.

And so you know we've been.

Through that company exhaustively, I, just had an hour and a half call with their team. The other day on a whole bunch of things and I had to I don't know 45, or an hour call and credit and things are what we think they are and what we think they are you know.

Gary Tenner: All right, great. Thank you. And then you kind of hit on my, my second question was, which is with the kind of earlier timing of the sale, rolls it to the range that you'd put out initially, they're then the Atlas Repurchase Agreement, which I think comes up in December. Does everything else happen concurrently closing, or are there any other, other kind of timing items as far as the sales and decisions? Yeah, it's around closing.

It is much better than other people, but I think that they are I mean, we're looking at definitely and our our investors know because they were in there.

Granular level the background of the merger is clear how long the investors were in there before we work and you know so.

So I think the company is much better positioned than people see on the outside and I'm, Okay with holding some of that upside for US you know there's going to be things that don't go the way. We think we're going to go so I'm not prepared to give away all the upside yet.

Gary Tenner: I mean, it's, it's pretty, pretty fluid, whether it's, you know, sometime in December, I think we'd like to take the risk off the table and things that we can execute on, we just will, because it'll allow us to reduce higher cost borrowings at Pac-West, much, much quicker. On the, on the term funding facility, you know, Atlas, as you mentioned, is, is something that we can take out, you know, in December. The bank term funding program is interesting, which is another, you know, kind of borrowing that they have that every is familiar with, because it's a positive carry.

I am very comfortable reaffirming our range of earnings and feel very good about it.

Okay, that's terrific and last one just you know you talked about origination.

It kind of slowing and it sounds like a lot of that is is just strategic from your standpoint, you kind of pumping the brakes, just given some of the funding challenges in the longer deposit ratio, but I'm. Just curious maybe how demand is trending from your perspective, where you're seeing good opportunities and you know once the balance sheet optimization occurs in funding.

Gary Tenner: And they get that, that benefit, I believe, until March Bill is not right. I think you guys have that facility can be repaid through March. So that might be something even though we plan to pay it off at closing, since it's a positive carry, because it's a lower cost funding, we could carry it a little longer, make a little bit more money and pay it off later. So we're looking at all of those things. As of right now, though, we have it being paid off pretty quickly. Okay, thanks, guys. Thank you.

You know kind of frees up where do you see the most immediate opportunities for you to start really driving growth.

Yeah, I I see lending actually given that the fed recently seems to have paused a bit and.

Palace comments suggested that.

They're going to take a wait and see approach.

And he was much more cautious on rate rises then he's been in the past.

Kelly Motta: Our next question comes from Kelly Mata of KBW. Please go ahead. Hi, thanks for the question. Good morning, Kelly. Good morning. [inaudible] for your approvals as well.

I think that gave the market a little bit of a more positive outlook and if rates stabilize I think youre going to see a return to economic activity. I think there were some real concerns about what people were getting themselves into and so we see kind of a built up demand.

Kelly Motta: I was going through DS4 and I just wanted to confirm I couldn't see any provisions in there that would allow or permit private equity to potentially renegotiate any of what they've committed from what I can gather that committed capital. Can you just enlighten us any sort of threshold or any potential opportunity that could come from that side to change the terms of the deal? Sure, so we are fully committed to the deal as our investors.

And that economic activity is going to start returning even at these rates, there's plenty of business to do.

Especially if people think that they can absorb rates at this level knowing that there are probably peaking won't be going down from there and so also if you have visibility that rates are rising.

It allows people to fixed rates for a reasonable period of time as well and so all of those things you know banks can make decisions about what a good you know fixed rate loan looks like because once you stabilize the market I, just think that theres going to be a lot more opportunity that appears and so the timing is going to be very good.

I think it's gonna be across all sectors, David I think you know obviously I E.

Kelly Motta: We talked to them about the closing date. We all circled around the closing date and agreed on the closing date. We're all excited to get this deal done. The agreements are publicly available and people can read them. But as a reminder, the private equity partners that we have were Bergen Centerbridge don't have outs that we don't have ourselves and I don't see any outs anytime soon. We're all excited to get this deal done and the outs are very, very narrow and very hard to hit because we were all committed to this deal.

Service activity has flown with with real estate activity slowing those things all intertwined.

Transactions move our economy and transaction volume is down except for consumers man restaurant business seems to be humming.

In our neighborhood I don't know what it's like where you are but we're not seeing any slowdown in spending on the consumer side, but business has slowed and we expect it across the board to pick up as rates stabilize.

Alright, that's helpful color. Thank you.

Kelly Motta: And as we've said, even with the marks that exist, we're still hitting our target capital and the other fundamentals of the deal are strong. And all the expense savings are there for us to do. We believe if you can absorb a deal at the high water mark of AOCI marks, that's only upside going forward, which means we properly structure the deal. We properly size the deal. We brought enough capital to the deal. And so we don't see any outs that anybody could exercise at this point and we're fully committed to the deal. Thank you for elaborating on that, Tara. I appreciate it.

Thank you.

Ladies and gentlemen, this king this does conclude today's teleconference. You may disconnect. Your lines at this time and thank you for your participation.

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Joe Kauder: I was hoping to touch a bit about just the run rate of expenses. I appreciate the color on the FDIC charge that's some outsized at PAC West. I think the release cited tangible but value might be lighter because of PAC West earnings came in that light relative to what you had been expecting. And I think one of that was expenses. Just how much of that was related to timing and how are you feeling?

Joe Kauder: It seems like you're still on track for the $130 million cost aid. But I was hoping you could touch on just the run rate as you combine in the first combined quarter as a combined company and just the trajectory of full realization of the cost aid. Sure, Joe, do you want to take that? Yeah, so we are still on track for the cost saves that were in the original investment presentation. And in fact, we hope to exceed those.

Joe Kauder: The FDIC normalizations we talked about a couple of early about, you know, actually, I think we are our saves versus the investment presentation will probably be a little bit in excess because PAC West assessments went up in the third quarter related to the FDIC. So, you know, those two things together put us on a really good run rate. With respect to the first quarter, and by that, I would think you would say the first quarter of 2024, we'll start to realize cost savings then, but really the cost savings are going to be realized throughout.

Joe Kauder: And the assessments will happen immediately. But on the other cost savings, those will come in throughout the year. Really, it's really the back half of the year when they really start to pick up, you know, starting to start in the first and second quarter gains team in the third and fourth quarter, when the the core cost savings really kick in hard. You know, that's a good point. You know, Kelly, where our conversion date is at this point likely going to be in May, which is pretty quick and we want to do it right, but you know, it's a big deal.

Joe Kauder: And so, you know, that's why some of that stuff won't kick into the second half. There are people that are staying through transitions, like conversion. There are a lot of costs that come out after you get the conversion done. And so, that's going to trigger a whole bunch of stuff. And as of now, that's targeted for May. Got it.

Jared Wolfe: Maybe, maybe the last one for me. The new DDA accounts, I mean, it's been a huge part of the Bank of Cal story, and it was nice to see, you know, the new accounts you laid out about 50 million this quarter. Just wondering, if there's any kind of themes there in terms of types of new clients you're winning, as well as on the PAC West side with the DDA runoff that has been seen there, if you've identified any opportunities to perhaps win back some core operating accounts there that have left the group.

Jared Wolfe: Sure. So, let me start with the PAC West person. I'll come back to Bank of California. So, we look at their daily deposit results daily and they're doing an excellent job. And, you know, without getting into their specifics because it's for them to report, the trends are very positive, including at the community bank and, you know, which is a big part of their growth engine. And so, I'm very pleased with what I'm seeing.

Jared Wolfe: They've put in place some programs that are going to jumpstart the combined company. I asked them, and Paul's been very cooperative and collaborative as has the entire team in terms of, you know, putting in place programs that focus back on bringing in operating accounts as opposed to selling rate. I mean, they're in the low 80s and low in the deposit ratio now, so there's no need to worry about some of the entire cost deposits as necessary funding.

Jared Wolfe: And, you know, their deposit base has stabilized remarkably well. And so, I think that there's going to be a lot of opportunity to bring back some deposits. On the other hand, they have some deposits that probably need to be moved off balance sheet that are higher cost deposits as well as deposits that might be more flexible that are more liquid that they carry, like on the venture side. And I've talked about that, that there's no reason to carry these highly liquid excess deposits on the balance sheet and make you think that they're available for you at all times.

Jared Wolfe: And so, they have an off balance sheet vehicle that I think is going to be effective to use. It keeps it in the family, it keeps it within the company, and you're providing a very good option for the client. But you don't have to kid yourself about whether it's true liquidity and a true stable deposit that you could lend against. And so, that's part of the conservatism that we're going to build in here.

Jared Wolfe: And I think we'll provide a benefit from an operating perspective to the company in terms of living within our means and making sure that we don't have outsized deposits that pose concentration risk. I've talked about that from the day we announced this deal, that we want to limit concentration risk equally on the deposit side as we do on the lending side. And that's something that they've been, I would say, the folks at PacWest are very focused on, and they're very good at addressing these sorts of things, and we're doing it together. So, that combined with the programs that they put in place, I'm very pleased with the momentum that we're seeing.

Andrew Tyrell: And then at Bank of California, we're not in a high growth lending environment right now. I think that we will see some lending expansion after the merger. There's some whole bunch of stuff we're looking at, but given our loan to deposit ratio, I've been holding back a little bit and prioritizing other, you know, lending for clients. And so, that's been holding us back. That's an opportunity for the combined company. And so, to generate these sorts of deposits when we're not lending the way that we were, is a real bright spot that proves out our deposit gathering engine that we can bring in new commercial relationships.

Andrew Tyrell: Well, you asked about the type that we're bringing in. We're bringing in businesses that are frustrated with a lot of them are at larger banks and a lot of them are at some of our mid-sized competitors who are not getting the tailored solution that we can provide on the deposit side in terms of providing really dedicated treasure management. If you're a proper management company and you've got 50 accounts and you can't see them on a single screen and you can't move money seamlessly between accounts and you can't get statements printed the way you like.

Andrew Tyrell: And you've just been grinding it out, we can provide a better solution. If you're a lot of commercial companies have multiple accounts and they need them handled the right way. We don't overcharge our clients for treasure management services. We have a very competitive product and we realize that there is some scale involved here and it doesn't cost us every time somebody writes to check the way the big banks might make you feel like it does.

Andrew Tyrell: And so we're trying to be efficient here in helping our clients and as a result I said in the past we're not going to run with as much fee income off the deposit account side. We're going to get our fee income elsewhere and our payments business is going to be a big part of that. It is a tough environment I mean deposits are contracting but I firmly believe in the strategy of bringing new relationships to the bank every day and those relationships will grow with our bank.

Andrew Tyrell: We are not losing clients. We are seeing deposit balances shrink as accounts shrink due to the economy contracting and we track it weekly. We see what sort of deposits are leaving what sorts are going out and whether we're losing accounts. And fundamentally we're not we're growing our relationships. And so given the low lending that we've had relative to kind of the last year and quarters in the past I'm pleased with the deposit results. Thanks for all the color Jared. I really appreciate it. I'll step back. Thank you Kelly. Thank you.

Andrew Tyrell: Our next question comes from Andrew Tyrell of Stevens. Please go ahead. Hey, good morning. Hey Andrew. Hey Jared. Quick question on the some of the asset dispositions. I know the single family I think was forward the B.A, and C single family was forward solving you announced but any status that they own a multi-family portfolio. Joe, you want to take that? Yeah, we continue to in the process of marketing that portfolio. You know the timing trying to get the timing of that right in conjunction with the clothes now that we have a little bit more line of sight to the to the closing date.

Andrew Tyrell: A lot of interest in the portfolio obviously we're in a slightly different interest rate environment than we were when we entered into the process but we had a hedge on that portfolio for the interest rate component. So, you know, we feel we feel pretty good about it and we'll see how things play out here as we as we get to the get to the close date. I'm surprised how much interest there's been Andrew.

Andrew Tyrell: It's been a robust to chose downplaying it a little bit. I mean, it's been a robust process with with tons of interest and so we're confident we're going to get it told and obviously the hedge was a good idea. Yeah, absolutely. So I guess the right way to think about the hedge and the game you took this quarter is, when you close the deal, the pricing on the multifamily could be a little bit worse.

Andrew Tyrell: So, technically, it'll kind of wash out the game that you saw this quarter. Is that fair? Yes, exactly. There's a possibility that we could, given the interest in activity level that we're seeing through the marketing of the portfolio, it's possible that we could come out a little bit better than what the hedge is fully provided for us. And so, we could get a little extra capital out of it. Right now, we're assuming the hedge is just going to cover it.

Andrew Tyrell: And so, it's going to be a wash. Yeah, understand. Okay. And then another question maybe just on on the margin. And I get there's, there's a lot of moving pieces. But, Jared, I wanted to go back to a comment you made just a minute ago about the margin would clearly be down when you immediately close the deal. But the plan would be to work it up pretty quickly thereafter with some of the balance sheet repositioning efforts.

Andrew Tyrell: Do you have just on a on a pro forma basis where you think the margin kind of could shake out once those balance sheet actions are taken and assuming no real changes and rates? I think that we're going to start off below three. And I think through the end of Q4, you know, we're going to we're going to start moving up and we'll be above three by the end of 2024. But that's going to be a function of rates and a whole bunch of things.

Andrew Tyrell: So just we're going to start off, you know, in the upper twos. And then we'll start growing above three. Call it halfway through the year and we'll go from there. I don't know that I should provide you more color than that because I don't actually know. I mean, like, we think we know when we think we know there's a lot of things we can flex. But if, if lone yields aren't as high, then deposit costs are probably lower too.

Andrew Tyrell: Right. So all that stuff is moving around. And it's just that it then it becomes a volume question. So I think I hopefully that's helpful. Yeah, I'm not trying to back end anything. Just trying to spot check my model maybe, but no, that's very awful. And I really appreciate it. That's it for me. Thank you.

David Feaster: Our last question comes from David Feister of Raymond James. Please go ahead. Hey, good morning, everybody. Good morning. Um, you know, look, the timing of the closing has been incredibly fast. It's great to see a testament to your team's hard work.

Jared Wolfe: And as we think about the closing of a deal this size and getting everything set in place plays, does essentially having a four month lead time pose any challenges for your integration team. I'm just curious. You know, especially with all the balance you move that you have, I guess what processes and procedures. I mean, you've got a lot of experience doing this. But I'm just curious what processes procedures that you put in place to help ensure a seamless integration as close approaches quickly.

Jared Wolfe: Well, the conversion and integration formally take place in May. So, you know, we're closing the books. And the two banks are kind of running as one, but there are things that will remain separate. And you, in fact, by keeping it till May, we're substantially minimizing the risk. There was a chance we were going to do it in March, and we pushed it to May for to make sure that we do it right.

Jared Wolfe: And so I think that's part of the experience of the team saying no that's too fast we're going to wait we're going to do it in March and we're going to do it in May and make sure we get it right and it's going to cost us a little bit more but we're good. It's a dream that meets every week as well and our teams have worked incredibly closely together and it's made up of you know a mix of people from both companies so I think that risk is is well managed there's risk in every deal.

Jared Wolfe: We actually had a third party consulting come in and look at our process on the outside and make sure there weren't any gaps and we got we got very high marks and so you know couldn't be more pleased with the combined effort of the teams. That's great and I guess as you've gotten deeper into this and with the deal close now approaching it sounds like you know maybe that there's some additional cost saves that you've got a got your back pocket but are there any other you know balance sheet restructuring opportunities that you've identified or even just you know you know these companies really well is there anything that you're maybe more excited about today with the deal and then when you even initially announced it just a couple months ago.

Jared Wolfe: Well as I said at the outset I think Pac-West did a remarkable job of of repositioning their company and Paul and his team really you know when everybody at Pac-West worked really hard to reposition that company under very difficult terms and you know Bill Black and everybody who was involved and and really trying to figure out a way to restructure that company and get assets sold they did it in remarkable time and that really de-risked that bank. And so you know we've been through that company exhaustively I just had an hour and a half call with their team the other day on a whole bunch of things and I had a I don't know 45 or an hour of calling credit and things are what we think they are and what we think they are you know is much better than other people I think that they are I mean we're looking at this and our investors know because they were in there at a very granular level the background of the merger is clear how long the investors were in there before we were.

Jared Wolfe: And you know so I think the company is much better position than people see on the outside and I'm okay with holding some of that outside for us you know there's going to be things that don't go the way we think we're going to go so I'm not prepared to give away all the upside I'm very comfortable to reaffirming our range of earnings and feel very good about it.

Jared Wolfe: Okay let's turn it and in the last one just you know you talked about origination and kind of slowing and it sounds like a lot of that is just strategic from your standpoint you kind of pump in the brakes just given some of the funding challenges and a lot of deposit ratio but I'm just curious maybe how demands trending from your perspective where you see and good opportunities and you know once the balance sheet optimization occurs and funding you know kind of frees up where do you see the most immediately. You need opportunities for you to start really driving growth.

Jared Wolfe: Yeah I see lending actually given that the Fed recently seems to have paused a bit and you know how those comments suggested that. They're going to take a wait and see approach, and he was much more cautious on rate rises than he's been in the past. I think that gave the market a little bit of a more positive outlook, and if rates stabilize, I think you're going to see a return to economic activity.

Jared Wolfe: I think there were some real concerns about what people were getting themselves into. And so we see kind of a built-up demand, and that economic activity is going to start returning. Even at these rates, there's plenty of business to do, especially if people think that they can absorb rates at this level knowing that they're probably peak and will be going down from there. And so, also, if you have visibility that rates aren't rising, it allows people to fix rates for a reasonable period of time as well.

Jared Wolfe: And so all of those things, you know, banks can make decisions about what a good fix rate loan looks like, because once you stabilize the market, I just think that there's going to be a lot more opportunity that appears, and so the timing is going to be very good. I think it's going to be across all sectors, David. I think, you know, obviously, you know, service activity is loaned with real estate activity slowing those things all intertwined.

Jared Wolfe: You know, transactions move our economy, and transaction volume is down. Except for consumers, man, the restaurant business seems to be humming in our neighborhood. I don't know what a fight where you are, but we're not seeing any slowdowns spending on the consumer side. But business has slowed, and what we expected across the board to pick up as rates stabilize.

David Feaster: All right, that's the ultimate color. Thank you.

Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation.

Operator: Thank you.