Q2 2025 Banc of California Inc Earnings Call

Operator 2: Good day, and welcome to the Banc of California Q2 2025 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ann DeVries, Head of Investor Relations at Banc of California. Please go ahead.

Good day and welcome to the Bank of California. Second quarter 2025 earnings 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 1 on your telephone keypad,

To withdraw your question. Please. Press star. Then 2

Please note this event is being recorded, I would now like to turn the conference over to Andy head of investor relations at banc of California. Please go ahead.

Ann DeVries: Good morning, and thank you for joining Banc of California's Q2 Earnings Call. Today's call is being recorded, and a copy of the recording will be available later today on our investor relations website. Today's presentation will also include non-GAAP measures. The reconciliations for these measures and additional required information is available in the earnings press release and earnings presentation, which are available on our investor relations website. Before we begin, we would also like to remind everyone that today's call may include forward-looking statements, including statements about our targets, goals, strategies, and outlook for 2025 and beyond, which are subject to risks, uncertainties, and other factors outside of our control, and actual results may differ materially.

Ann DeVries: For discussion of some of the risks that could affect our results, please see our safe harbor statement on forward-looking statements included in both the earnings release and the earnings presentation, as well as the risk factors section of our most recent 10-K. Joining me on today's call are Jared Wolff, President and Chief Executive Officer, and Joe Kauder, Chief Financial Officer. After our prepared remarks, we will be taking questions from the analyst community. I would like to now turn the conference call over to Jared.

Remind everyone that today's call may include 4 is looking statements, including statements about our targets goals, strategies, and outlook for 2025, and Beyond which are subject to risks, concerns and other factors outside of our control and actual results. May differ materially for discussion of some of the risks that could affect our results. Please see our Safe Harbor statement on forward-looking statements included in both the earnings release and the earnings presentation as well as the risk factors section of our most recent 10K.

Speaker Change: Joining me on today's call are Jared Wolfe president and chief executive officer and Joe counter Chief Financial Officer. After our prepared remarks, we will be taking questions from the analyst Community. I would like to now turn the conference call over to Jared

Jared Wolff: Thanks, Ann. Good morning, everyone, and welcome to our Q2 call. We delivered a strong Q2 with meaningful growth in core profitability. Pre-tax, pre-provision income grew 6% quarter over quarter as solid revenue growth outpaced a slight increase in expenses. Our core earnings drivers, which included loan growth, net interest margin expansion, and disciplined expense management, all remain firmly on track with our strategy. We achieved our third consecutive quarter of robust broad-based commercial loan production, which helped drive total annualized loan growth of 9%. Our team also continued to make steady progress in attracting new business deposit relationships. During the quarter, we opportunistically engaged in the sales process for approximately $507 million of commercial real estate loans, which we have transferred to held for sale with expected proceeds net of reserve release of 95%.

Speaker Change: Thanks an uh good morning everyone and Welcome to our second quarter call.

Speaker Change: We delivered a strong second quarter with meaningful growth in core profitability.

Speaker Change: Pre-tax pre-provision income grew 6% quarter over quarter.

A solid Revenue, growth outpaced, a slight increase in expenses.

Speaker Change: Our core earnings drivers which included loan growth, net interest, margin expansion, and disciplined expense management, all remained firmly on track with our strategy.

Speaker Change: We achieved our third consecutive quarter of robust broad-based commercial Loan Production.

Speaker Change: which helped Drive total annualized, loan, growth of 9%,

Speaker Change: Our team also continued to make steady progress in attracting new business deposit relationships.

Speaker Change: During the quarter, we opportunistically engaged in a sales process for approximately 507 million of commercial real estate loans.

Jared Wolff: We expect the strategic sales of these loans will further optimize our balance sheet and contribute to delivering high-quality, consistent, sustainable earnings growth for our shareholders. This move also helped to drive improvement across our credit quality metrics this quarter. We will touch on more about the loan sales later in the call. Our strong Q2 earnings helped us achieve our fifth consecutive quarter of growing tangible book value per share to $16.46. Our balance sheet remains strong with capital and liquidity at healthy levels. As mentioned on our Q1 call, we opportunistically repurchased $150 million of common stock, or about 6.8% of our shares, early in the Q2. We have $150 million remaining in our buyback program, which can be used toward both common and preferred stock. We will continue to be prudent with the remainder of this program and use it opportunistically.

Which we have transferred to held for sale with expected proceeds. Net of Reserve release of 95%.

Speaker Change: We expect the Strategic sales of these loans will further, optimize our balance sheet and contribute to delivering high-quality consistent, sustainable earnings growth for our shareholders.

Speaker Change: This move also helped to drive Improvement across our credit quality metrics to the quarter.

Speaker Change: We will touch on more of this.

Speaker Change: Uh, we'll touch on more about the loan sales, later in the call.

Speaker Change: our strong second quarter, earnings helped us achieve our fifth consecutive quarter of growing tangible book, value per share to 1646

Our balance sheet remains strong with capital and liquidity at healthy levels.

As mentioned on our first quarter call.

We opportunistically repurchased, 150 million of common stock or about 6.8% of our shares early in the second quarter.

We have 150 million remaining in our buyback program which can be used towards both common and preferred stock.

Jared Wolff: While our outlook may change, we do not expect to deploy all this remaining capacity in the near future. Our Q2 loan production including unfunded commitments was $2.2 billion and included our highest level of originations of $1.2 billion since the closing of our merger. Strong production levels drove 9% annualized growth in our total loan portfolio, while core held for sale loans were up 12% annualized. Growth was broad-based, led by continued momentum in lender finance and fund finance originations, and complemented by expansion in our purchase single-family residential portfolio. Our loan origination volumes reflect strong execution by our team and our ability to capitalize on our attractive market position. Partially offsetting this growth was a decline in construction loans due to payoffs and completed projects, some of which moved to permanent financing in our CRE portfolio, and some of which were included in the loan sale.

Speaker Change: We will continue to be prudent with the remainder of this program and uses opportunistically.

And while our Outlook may change, we do not expect to deploy all this remaining capacity in the near future.

Speaker Change: Our second quarter Loan, Production included unfunded commitments. With 2.2 billion and included our highest level of originations of 1.2 billion since the closing of our merger.

Strong production levels, drove, 9% annualized growth in our total loan portfolio, while core core held for sale loans were up, 12% annualized.

Speaker Change: Growth was broad-based.

Speaker Change: Led by continued momentum and lender finance and fund Finance. Originations

Speaker Change: And complemented by expansion in our purchased single family residential portfolio.

Speaker Change: Our loan origination volumes reflects strong execution by our team.

Speaker Change: And our ability to capitalize on our attractive Market position.

Speaker Change: Partially offsetting this growth was a decline in construction loans due to payoffs and completed projects.

Jared Wolff: We have remained disciplined in our pricing and underwriting standards. The rate on new production averaged 7.29%, which was up from 7.2% in Q1. That helped drive expansion in our average loan yields and our margin. You've heard us emphasize many times now that proactively managing credit risk and quickly identifying any credit concerns is a key priority for us. In accordance with that philosophy, we took decisive action during the quarter to opportunistically sell the commercial real estate loans that I mentioned earlier. While many of these loans are money good and well collateralized, they exhibited characteristics that contributed to credit migration that were not guaranteed to resolve in the near term. Rather than have the potential overhang while we continue to work through the credits, we took the opportunity to reset and align our balance sheet with our focus on growing high quality, consistent, and sustainable earnings.

Speaker Change: Some of which moved to permanent financing in our CR CRA portfolio as some of which were included in the loan sale.

We have remained disciplined in our pricing and underwriting, standards the rate on new production, average 7.29%, which was up from 7.2% in q1, and that helped Drive expansion in our average loan yields and our margin.

You've heard us emphasized many times now that proactively managing credit risk and quickly. Identifying, any credit concerns is a key priority for us.

In accordance with that philosophy, we took decisive action during the quarter, topper opportunistically sell the commercial real estate loans that I mentioned earlier.

Speaker Change: While many of these loans are money. Good. And while collateralized

They exhibited characteristics that contributed to credit migration that were not guaranteed to resolve in the near term.

Jared Wolff: Our Q2 credit quality metrics improved meaningfully from Q1, mainly driven by the loan sale process. Otherwise, our credit was stable. Non-performing loans, classified loans, and special mention loans as a percentage of total loans declined by 19, 46, and 115 basis points, respectively, from Q1. Q2 net charge-offs, excluding the impact from the loan sale actions, were at just 12 basis points of loans. Proactive credit risk management will remain a top priority as we strive to maintain strong credit quality metrics. Our headline reserve level is at 107 of total loans. Our economic coverage ratio is substantially higher at 161 of loans, which incorporates the unearned credit mark on the Banc of California loan portfolio acquired in the merger, as well as coverage from our credit-linked notes.

Speaker Change: Rather than have the potential. Overhang while we continue to work through the credits, we took the opportunity to reset and align our balance sheet with our focus on growing high, quality consistent, and sustainable earnings.

Speaker Change: Our second quarter credit quality metrics improved meaningfully from q1, mainly driven by the loan sale process but otherwise our credit was stable.

Non-performing loans classified, loans, and special mentioned loans.

Speaker Change: as a percentage of total loans declined by 1946, and the 115 basis points respectively from q1,

Speaker Change: Proactive credit risk management will remain a top priority as we strive to maintain strong. Credit quality metrics.

Jared Wolff: Our investor deck does a good job of laying out how our loan portfolio has changed over the last 12 to 18 months and how our coverage ratios reflect that migration to a much higher percentage of loans with short duration and no historical losses in warehouse, lender finance, and fund finance. Along with SFR, these loans now account for almost 30% of our loan book. While some uncertainties remain in the broader macroeconomic environment, we have been encouraged by the resiliency of the market and continued strong demand from our clients for our products and services. We remain confident that the great work of our team members, our continued execution, strong balance sheet and differentiated market position will drive growth and profitability, tangible book value per share, and long-term value for our shareholders.

Speaker Change: Our headline Reserve levels at 107 of total loans and our economic coverage ratio is substantially higher at 161 of loans which incorporates the under and credit mark on the Bank of California Loan portfolio, acquired in the merger as well as coverage from our credit length notes.

Speaker Change: Our investor deck does a good job of laying out how our loan portfolio has changed over the last 12 to 18 months.

Speaker Change: And how our coverage ratios reflect that migration to a much higher percentage of loans, with short, duration, and no historical losses in Warehouse lender, finance and fund Finance.

Speaker Change: Along with sfr, these loans now account for almost 30% of our loan book.

Speaker Change: While some uncertainties remain in the broader macroeconomic environment, we have been encouraged by the resiliency of the market and continued strong demand from our clients, for our products and services.

Speaker Change: We remain confident that the great work of our team members are continued execution.

Speaker Change: Strong balance sheet and different differentiated Market positions, will drive growth in profitability.

Jared Wolff: Now I'll hand it over to Joe, who will provide some additional information, and then I'll have some closing remarks before opening up the line for questions. Joe.

Speaker Change: Tangible book value per share, and long-term value for our shareholders.

Speaker Change: Now I'll hand it over to Joe, who will provide some additional information and then I'll have some closing remarks before opening up the line for questions. Joe.

Joe Kauder: Thank you, Jared. For Q2, we reported an income of $18.4 million, or $0.12 per share, and adjusted net income of $48.4 million or $0.31 per share. Adjustments this quarter included $20.2 million after-tax provision expense related to the sales process of $507 million of commercial real estate loans with expected proceeds net of reserve release of 95%. During the quarter, we completed sales totaling $30.4 million, with the remaining $476.2 million transferred to held for sale. The loss we took during the quarter through the provision line item is the net mark on the loans that were either sold or transferred to held for sale and reflects our estimate of market value based on either active bids or other market inputs.

Joe Counter: Thank you, Jared.

Joe Counter: For the second quarter, we reported an income of 18.4 million or 12 cents per share and adjusted net income of 48.4 million or 31 cents per share.

Joe Counter: Adjustments this quarter included, 20.2 million after tax, provision expense related to the sales process of 507, million of commercial real estate loans with expected proceeds. Net of Reserve release of 95%.

Joe Counter: During the quarter, we completed sales totaling 30.4 million with the remaining 476.2 million transferred to health for sale.

Joe Kauder: We anticipate $243 million of loan sales to close in Q3 and expect the remaining $233 million of loans to be sold over the next several quarters. We also recorded a one-time non-cash income tax expense of $9.8 million, primarily related to the revaluation of deferred tax assets following changes to California state tax apportionment methodology. This change in methodology positively impacts our tax rate going forward and retrospective to the beginning of 2025. However, the day one impact of the lower tax rate on our deferred tax asset position resulted in the negative charge. Going forward, we expect our effective tax rate to be approximately 25%. Moving to our core results, net interest income of $240 million was up 3.4% from the prior quarter, driven by strong growth in loan balances and higher loan yields.

Joe Counter: The loss we took during the quarter through the provision line item, is the net mark on the loans that were either sold or transferred to health or sale and reflects our estimate of market value based on either active bids or other Market inputs.

We anticipate 243 million of loan sales to close in 3Q and expect the remaining 233 million of loans to be sold over the next several quarters.

Joe Counter: We also recorded a 1-time non-cash income tax expense of 9.8 million. Primarily related to the revaluation of deferred tax assets. Following changes to California state tax, abortion me methodology,

Joe Counter: this change in methodology positively impacts, our tax rate going forward and retrospective to the beginning of 2025.

However, the day 1 impact of the lower tax rate on our deferred tax asset position, resulted in the negative charge

Joe Counter: going forward. We expect our effective tax rate to be approximately 25%.

Joe Kauder: Net interest margin expanded in the quarter to 3.10%, driven by a 3-basis-point increase in average loan yields to 5.93%. The increase in loan yields was due to the full quarter impact of strong growth in higher-yielding loan categories. The rates on new loan production averaged 7.29%, total loans grew by 9% annualized, led by growth in lender finance, fund finance, and purchased single-family residential loans. As of quarter end, our spot loan yield was 5.94%. Total cost of funds of 2.42% remained flat quarter over quarter as a 41-basis-point decline in average cost of borrowings to 4.93% was offset by a 1-basis-point increase in cost of deposits to 2.13%. The decline in borrowing cost was driven by the redemption of $174 million of 5.25% senior notes, which we replaced with lower-cost long-term FHLB borrowings.

Joe Counter: Moving to our core results and interest income of 240 million was up 3.4% from the prior quarter driven by strong growth and Loan, balances and higher loan yields.

Joe Counter: Net, interest margin expanded in the quarter to 3.100% driven by a 3 basis. Point increase in average loan yields to 5.93%

The increase in loan yields was due to the full quarter impact of strong growth and higher yielding loan categories.

Joe Counter: The rates on new Loan Production, averaged 7.29% and total loans grew by 9% annualized. Led by growth and lender Finance, fund, finance and purchasing a family residential loans.

Joe Counter: As a quarter end our spot loan yield was 5.94%.

Joe Counter: Total cost of funds of 2.42% remained flat quarter over quarter, as of 41 basis, point decline in average cost of borrowings to 4.93% was offset by a 1 basis. Point increase in cost of deposits to 2.13%.

Joe Kauder: Average core deposits were up 5% annualized, and the average cost of deposits increased slightly as the need to fund strong loan growth drove a mix shift towards interest-bearing deposits. While we continue to steadily grow the number of new NIB business relationships, the average balance per account has been under pressure, which we believe is attributable to both seasonal and macroeconomic factors. As of 30 June, our spot cost of deposits was 2.12%, and our spot net interest margin was approximately 3.11%. The interest rate sensitivity of our balance sheet for net interest income remains largely neutral as the current repricing gap is balanced when adjusted for repricing betas. From a total earnings perspective, however, we remain liability sensitive due to the impact of rate-sensitive ECR cost on HOA deposits, which are reflected in non-interest expense.

The decline in borrowing cost was driven by the Redemption of 174 million of 5.25% senior notes, which we replaced, which with lower cost long-term fho borrowings.

Joe Counter: Average core deposits were up, 5% annualized and the average cost of deposits increased slightly as the need to fund. Strong long growth.

Strong loan growth drove a mixed shift, towards interest-bearing deposits.

Joe Counter: While we continue to steadily grow the number of new nib business relationships, the average balance per account has been under pressure, which we believe is attributable to both seasonal and macroeconomic factors.

Joe Counter: 3.11%.

Joe Kauder: We expect fixed-rate asset repricing to continue to benefit NIM as we remix the balance sheet with high quality and higher-yielding loans. We have $1.8 billion of total loans maturing or resetting through the end of 2025 with a weighted average coupon rate of 5%, offering good repricing upside. Our multifamily portfolio, which represents 26% of our loan portfolio, has approximately $3.2 billion repricing or maturing over the next two and a half years at a weighted average rate that will offer significant repricing upside. Total non-interest income was $32.6 million, down 3% from the prior quarter, primarily due to mark-to-market fluctuations on CRA-related equity investments and credit-linked notes. Non-interest income remains in line with our normalized run rate of $10 million to $12 million per month. Non-interest expense of $185.9 million increased $2.2 million from Q1 while remaining below our target range of $190 million to $195 million per quarter.

The interest rate sensitivity of our balance sheet for net interest. Income remains largely neutral as the current repricing Gap is balanced when adjusted for repricing. Bettas from a total earnings perspective. However, will remain liability sensitive due to the impact of rate. Sensitive ECR cost on HOA deposits, which are reflected in non-interest expense.

Joe Counter: We expect fixed rate asset repricing to continue to benefit Nim. As we remixed, the balance sheet with high quality and higher yielding loans.

Joe Counter: We have 1.8 billion of total loans maturing or resetting through the end of 2025.

With a weighted average coupon rate of 5% offering, good repricing upside.

Joe Counter: Our multi family portfolio with which represents 26% of our loan portfolio.

Joe Counter: As approximately 3.2 billion repricing or maturing over the next 2 and a half years at a weighted average rate that will offer significant repricing upside.

Joe Counter: Total non-interest income was 32.6 Million down 3% from the prior quarter. Primarily due to mark-to-market fluctuations on CRA related Equity Investments and crediting notes.

Not interesting. Come remain in line with our normalized run rate of 10 to 12 million per month.

Joe Kauder: The quarter-over-quarter increase was primarily driven by a $2.1 million increase in insurance and assessments and a $1.9 million increase in compensation expense, which were lower in Q1 due to a one-time FDIC expense reversal related to prior periods and Q1 compensation expense reversals related to some staff exits. However, we do expect positive operating leverage to continue as higher expenses are expected to be more than offset by continued revenue growth. Excluding the impact of loan sales actions, our core provision for credit losses totaled $12.3 million, an increase of $3 million quarter over quarter.

Joe Counter: 9 interest expense of 185.9 million increase 2.2 million from q1 or remaining below. Our target range of 190 to 195 million per quarter.

Joe Counter: The quarter over quarter. Increase was primarily driven by a 2.1 million increase in insurance and assessments, and a 1.1 million increase in compensation expense, which were lower in 1 Q due to a 1-time, FDIC expense reversal related to Prior periods and 1 Q. Compensation expense, reversals related to some staff exits.

Joe Counter: Looking ahead.

Joe Counter: We expect our quarterly expenses in the back half of 2025 to settle into the low end of the aforementioned range of 1 of 190 to 195 million.

Joe Counter: as we increase comp expense and invest in our infrastructure to support growth,

Joe Counter: We however, we do expect positive operating leverage to continue as higher expenses. Are expected to be more than offset by continued Revenue growth.

Joe Kauder: We added to the quantitative reserve to reflect updates to our economic forecast and also increased the qualitative reserve related to our office loan portfolio. As our loan portfolio continues to expand, our credit reserves remain well aligned with the risk profile of that growth. As Jared mentioned, we've seen meaningful shifts towards loan categories with historically lower losses, including warehouse, fund finance, lender finance, and residential mortgages. These lower loss loan portfolios as a percentage of our total loans increased to 29% of total loans, up from 26% in Q1 and 20% a year ago. Under CECL, these portfolios require lower reserves due to the historically low loss content and shorter duration, and their growing share will continue to influence overall reserve levels.

Joe Counter: Excluding the impact of loan sales actions. Our core provision for credit losses, total 12.3 million and increase of 3 million quarter over quarter.

We added to the quantitative Reserve to reflect updates to our economic forecasts and also increase the quality of Reserve related to our office loan portfolio.

As our loan portfolio, continues to expand our credit reserves remain well aligned with the risk profile of that growth as Jared mentioned. We've seen meaningful shifts towards loan categories. With historically lower losses including Warehouse

Joe Counter: Fund Finance, lender, finance and Residential Mortgages.

Joe Counter: These lower loss loan portfolios as a percentage of our total loans increased to 29% of total loans up from 26% in q1 at 20% a year ago.

Under Cecil, these portfolios require lower reserves, due to the historically low loss content and shorter duration.

Joe Kauder: Excluding these lower risk categories, the remaining portfolio would carry an ACL coverage ratio of 1.44% compared to 1.07% for the total portfolio. Including the impact of credit-linked notes and purchase accounting marks, our total economic coverage ratio stands at 1.61%. We believe the assumptions and economic scenarios embedded in our ACL models remain appropriately conservative. Our Q2 results reflect the substantial progress we've made in successfully growing core profitability through our consistent and strong execution. We have continued to strengthen core earnings drivers, including high quality loan growth, stable funding and deposit cost, net interest margin expansion, and prudent expense and risk management. We remain on track with our 2025 guidance with tweaks to our outlook for margin and NIB percentage.

Joe Counter: And their growing share will continue to influence overall Reserve levels.

Excluding these lower risk categories, the remaining portfolio would carry an ACO coverage ratio of 1.44% compared to 1.07% for the total portfolio.

Joe Counter: including the impact of credit linked notes and purchased accounting marks, our total economic Co coverage ratio stands at 1.61%

And we believe the assumptions and economic scenarios embedded in our ACO models remain appropriately conservative.

Our 2q results reflect their substantial progress. We've made and successfully growing core profitability through our consistent and strong execution.

Joe Counter: We have continued to strengthen core earnings drivers, including high-quality loan growth.

Joe Counter: Stable funding and deposit cost that interest margin and expansion and prudent expense and risk management.

Joe Kauder: We see good balance sheet and earnings growth continuing with mid-single-digit growth and average earning assets for H2. We also expect mid-single-digit increases in quarterly net interest income in H2 2025 and achieving our margin target range in Q4. As we look forward for H2 2025, we expect to continue to drive consistent and meaningful growth in our core profitability. At this time, I'll turn the call back over to Jared.

Joe Counter: For remain on track with our 2025 Guidance, with tweaks to our outlook for margin and nib percentage.

We see good balance sheet and earnings growth continuing

Joe Counter: With mid single digit growth and average, earning assets for the back half of the year.

Joe Counter: We also expect mid single digit increases in quarterly. Net interest income in the back half of 2025 and achieving our margin target range in Q4.

Joe Counter: As we look forward for the second half of 2025, we expect to continue to drive consistent and meaningful growth in our core profitability.

Jared Wolfe: Call back over to Jared.

Jared Wolff: Thanks, Joe. Our Q2 results clearly demonstrate our success in pivoting our business toward profitable growth following our substantial transformation last year. We are growing adjusted EPS at a double-digit rate quarter over quarter. Our loan engine is working. We are moving out credits to try to eliminate noise for the benefit of future earnings. We're expanding our lending relationships in areas that have historically lower areas of loss where we have some great niches. We are bringing new relationships to the bank. Our loan-to-deposit ratio has remained very comfortable. We have been opportunistically growing all types of deposits to fund our loan growth. NIB did not expand this past Q2. As I've shared in the past, it's not necessarily a straight line.

Jared Wolfe: Thanks Joe.

Our second quarter results. Clearly demonstrate our success in pivoting, our business toward profitable growth, following our substantial transformation last year.

Jared Wolfe: We are growing adjusted EPS at a double-digit rate quarter over quarter.

Our loan engine is working.

Jared Wolfe: And we are moving out credits to try to eliminate noise for the benefit of future earnings.

We're expanding our lending relationships in areas that have historically. Lower areas of loss, where we have some great niches.

Jared Wolfe: And we are bringing new relationships to the bank.

Our loan to deposit ratio has remained very comfortable.

We have been opportunistically growing all types of deposits to fund our loan growth,

Jared Wolff: We are doing the right things the right way for the long term, and we have confidence that our results will pay off over time. To that end, we've continued to expand market share in key attractive markets, particularly California, which is now the fourth largest economy in the world. We're continuing to capitalize on the dislocation in California's banking landscape and are the go-to business bank for people, including clients who want to bank with us and talented individuals who want to join our team. Our teams execute with consistency and discipline, bringing in new deposit relationships and originating high-quality loans while maintaining prudent operating and risk management practices. We continue to move the ball down the field every day, growing our profitability, scaling our business, and providing high-quality, reliable earnings growth. We are optimistic about our growth trajectory for the remainder of 2025.

Jared Wolfe: Nib did not expand this past quarter, but as I've shared in the past it's not necessarily a straight line.

We are doing the right things, the right way for the long term.

Jared Wolfe: And we have confidence that our results will pay off over time.

To that end, we've continued to expand market share in key attractive markets, particularly California, which is now the fourth largest economy in the world.

We're continuing to capitalize on the dislocation in California, and its banking landscape. And our the go-to business bank for people.

Including clients, who want to bank with us and talented individuals who want to join our team.

Jared Wolfe: Our teams execute with consistency and discipline.

Jared Wolfe: Bring in new deposit relationships and originating high-quality loans while maintaining prudent operating and risk management practices.

Jared Wolfe: We continue to move the ball down the field every day.

Jared Wolfe: growing our profitability, scaling, our business and providing high-quality reliable earnings growth,

Jared Wolff: Indeed, our estimates for 2026 are only growing higher. I want to take a moment to thank our exceptional team at Banc of California. Their unwavering commitment to our clients, communities, and our shareholders is remarkable. I'm very proud to work alongside such a dedicated and talented team. Thank you. With that, let's open up the line for questions.

Jared Wolfe: We are optimistic about our growth trajectory for the remainder of 2025.

Jared Wolfe: And indeed our estimates for 2026.

Jared Wolfe: Are only growing higher.

Speaker Change: I want to take a moment to thank our exceptional, team at banc of California.

Speaker Change: Their unwavering commitment to our clients, communities, and our shareholders is remarkable.

I'm very proud to work alongside such a dedicated and talented team.

Speaker Change: Thank you. And with that, let's open up the line for questions.

Operator 2: Your first question comes from Matthew Clark with Piper Sandler. Please go ahead.

Speaker Change: We will now begin the question and answer session to ask a question. You may press star then 1 on your telephone keypad. If you are using a speaker-phone please pick up your handset before pressing the keys. If any time your question has been addressed and you would like to withdraw your question, please press star. Then 2 at this time we will pause momentarily to assemble our roster.

Speaker Change: And your first question comes from Matthew Clark with Piper Sandler. Please go ahead.

Matthew Clark: Good morning, everyone. Thank you.

Jared Wolff: Morning.

Matthew Clark: Hey, good morning everyone. Thank you. Um morning.

Matthew Clark: Just on the loan sales, the loan assets and held for sale. Looks like they're kind of range in that 5.3% to 6% yield range. I guess, what's the plan on the other side of the balance sheet? What do you plan to unwind and at what rate?

Matthew Clark: just on the on the loans sales, you know, the the

Matthew Clark: The loan City in hell for sale, looks like they're kind of range in that 5.3 to 6%.

Yield range. I guess. What's the what's the plan on the other side of the balance sheet? What do you plan to unwind? And at what rate

Jared Wolff: Matthew, I'm not sure I fully understand what you're asking when you say on the other side of the balance sheet. You're talking about the deposits that we plan to. Maybe just clarify a little bit.

Matthew Clark: uh,

Speaker Change: Matthew. I'm not sure I fully understand what you're, what you're asking. When you see a on the other side of the balance sheet,

Speaker Change: you're talking about the deposits that we plan to.

Matthew Clark: Maybe just clarify a little bit.

Matthew Clark: Now with the loan sales, I assume you're going to unwind some wholesale funding as well.

Now, with the loan sales, I assume you're going to unwind some some wholesale funding as well.

Jared Wolff: Well, we've been growing, right? We've been growing pretty fast. I don't know that we kind of match funded it that way. We also are providing some leverage on those loans that we're selling. There's not really a one-to-one relationship. I'll let Joe comment on that as well to see if there's anything specific that I missed. Let me just say as well, I got a couple questions offline about what we sold and whether it was a rate mark or a credit mark, and I would say that I think we were pretty pleased with a 95 price for the loans. I think that reflects probably, it's truly in the hands of the buyer to decide what the purpose of their price was. From our perspective, it was really more rate than credit.

Joe Counter: Um, well we've been we've been growing right. We've been growing pretty fast and so I don't know that. Um, we kind of match funded it that way. We also are providing some leverage on those loans that we're selling and so we don't need, there's not a really a 1 to 1. I'll let Joe comment on that as well to see if there's anything specific that I missed. But let me just say as well, you know, I I got a couple questions offline about what we sold and whether it was a rate Mark or a credit Mark and I would say that, I think we were pretty pleased with with a 95 price.

Jared Wolff: As I mentioned in my comments, we just didn't want to hold the loans on our balance sheet for as long as we would have to. Many of them, close to $300 million, were kind of construction projects that were completed, and we had appraisals as is that were above the value of our loan substantially, but they were taking much longer to lease up. There are private credit out there who have much longer duration and willing to work with it, and we provided them some leverage and the rates on the notes themselves, the underlying notes allowed them to get a good return. We feel good about the 95% that we got. Specifically to your question about funding that $500 million. Joe, is there anything specific that we're letting go, related to that $500?

Joe Counter: For the loans, I think that reflects probably, you know, it's truly in the hands of the buyer to decide whether you know what, the the purpose of their, their price was. But from our perspective, it was really more rate than credit.

Joe Counter: As I mentioned in my comments.

Joe Counter: We just didn't want to hold the loans on our balance sheet for as long as we would have to, many of them were close to 300 million were kind of construction projects that were completed and we had appraisals as if that were above the value of our loan substantially but they were taking much longer to lease up.

Joe Kauder: No, I think you hit the nail on the head. We intend to provide leverage on these transactions, which will kind of offset some of the balance sheet impact. For example, the one deal that we closed by 30 June, it was a $30 million tranche. We provided leverage in the 80% to 85% range, just to give you an example.

Joe Counter: Specifically to your question about funding that 500 million? Joe. Is there anything specific that we're letting go uh related to that 500?

No, I think, I think you hit the nail on the head. We're providing, you know, we're providing we intend to provide leverage on these transactions, which will, you know, kind of offset some of the balance sheet impact, for example, the, the 1, um, deal that we closed in 20 in, in by June 30th, it was a 30 million dollar charge we provided leverage in the 80 to 85% range. Just to give you an example.

Matthew Clark: Got it. Okay. That's helpful. Your loan growth guide, is that kind of all in or is that just HFI?

Got it, okay, that's helpful.

um and so your loan growth guide is that is that kind of all in or is that just HFI

Jared Wolff: That is held for investment.

Joe Counter: Uh, that is uh, held for investment.

Matthew Clark: Okay. On the expense run rate guide, the kind of low end of the range of $190 to $195, came in well below that this quarter. Sounds like you continue to make investments. On the ECR side, I know you're not assuming any rate cuts in your outlook, which obviously would help, but it did look like the rate on those ECRs did come down. Just can you speak to what you did there and what your plan is going forward?

Joe Counter: Okay.

Joe Counter: Okay, okay.

and then, on the um, on the expense of run rate,

Joe Counter: Guide, the kind of low.

Joe Counter: End of the range of 1 191.95.

Joe Counter: Um, came in well below that this quarter.

Jared Wolff: We work it hard. We're trying to manage those costs as much as we can. On the ECR, you're right. We don't have any cuts in our forecasts. Each 25 basis point cut provides $6 to $7 million in annual pre-tax income from a reduction in ECR. The ECR shows up really the quarter after the cut is announced since you're not going to get the full benefit in the quarter. The impact of 2 cuts fully baked in in a quarter would be reducing ECR costs of about $3 million per quarter. There's a lot of benefit there for us should rates get cut, although we don't have it in our forecast.

Joe Counter: Sounds like you, you know, you continue to make investments but on the ECR side I know you're not assuming any rate Cuts in your outlook, which you obviously would help but um, it did look like the rate on those ecrs did come down. Just can you speak to what you did there and you know what your plan is going forward?

Joe Counter: I mean we're just we, we we work it hard. I mean, we're trying to manage those costs as much as we can.

On the ECR. You're right. We don't have any any uh, any Cuts in our forecasts.

Joe Counter: But each 25 basis point cut provides 6 to 7 million in annual pre-tax income from a reduction in ECR.

Joe Counter: And you know the ECR shows up really the quarter after the cut is announced and you know you're not going to get the full benefit of the quarter so the impact of 2 Cuts fully baked in in a quarter would be reducing ECR costs.

Joe Counter: Um, of about 3 million per quarter.

Joe Counter: so it's, it's a, um,

Joe Counter: it's a, it's

Joe Counter: there's a lot of benefit there for us should rates get cut, although we don't have it in our in our forecast.

Joe Kauder: Yeah. Matthew, the decrease, we do work it hard there is exactly right. Some of that decrease was just the timing of the way the rate cuts that happened at the end of 2024 flowed through the way some of the contracts worked. There's a little bit of delay till we get the benefit. That was just full quarter benefit of some of those rate cuts in Q2.

Joe Counter: Yeah.

Joe Counter: And and Matthew that the the decrease we do work at hard here is exactly right. But some of that decrease was just the timing of the way. The rate cuts that happened at the end of 24 flow through the way, some of the contracts work, there's a little bit of delay. Do we get the benefit? And so that was just, you know, full quarter benefit of some of those rate cuts and

Do you?

Matthew Clark: Understood. Thank you.

Understood, thank you.

Operator 2: Your next question comes from Ben Gerlinger with Citi. Please go ahead.

Ben Gerlinger: Hi. Not to beat a dead horse. For the loan sale, I know you guys gave quite a bit of commentary, and it is kind of broken up the remaining $233 over the next several quarters. Do you have the buyer? Is it the timing, or is it just held for sale hoping to find a buyer?

Speaker Change: And your next question comes from Ben gerlinger with City, please go ahead.

All right, that's a beat a dead horse Queen for the loan sale. Um, I know you guys gave quite a bit of commentary and there's it's kind of broken up.

Speaker Change: the remaining 233 over the next several quarters is, is the is this

Speaker Change: Like do you have the buyer in this just the timing or is it just held for sale hoping to find a buyer?

Jared Wolff: We have not identified buyers. We had bids on all of it. Some of the stuff we decided to put out for sale rather than sell it to an individual buyer. Some we actually have contracted or we're drafting the contract now. We have determined who the buyer is, or we've drafted the contract, and we will sell it. We wanted to provide ourselves more time to sell some of the other ones. We think our mark is. Look, we marked it at 95. We think that's conservative. We might end up at 96. We could end up at 94. I think the range is right. It's going to be around there.

Speaker Change: Uh, we don't we have not identified buyers for every we had bids on all of it.

Uh some of the stuff we decided to uh put out for sale rather than sell it to an individual.

Speaker Change: Buyer. And some we actually have contracted or is we're drafting the contract. Now we have determined who the buyer is, or we've drafted the contract and, you know, we will sell it, but we wanted to provide about ourselves more time to sell some of the other ones.

Speaker Change: but we think our, we think our Market is, you know, it look at we we we marked it at 95,

Ben Gerlinger: Got you. Okay. Then it looks like a majority was construction. Were these bank loans or potentially PacWest loans? I am just kind of curious who underwrote them originally.

Speaker Change: uh, we think that's conservative. We might end up at 96, we could end up at 94, but I think it's, it's, it's the range is, right? It's, it's going to be around there.

Speaker Change: Gotcha. Okay, and then it looks like a majority was construction. Were these

Jared Wolff: Yeah. The reason I don't want to differentiate is because as a company, we've worked really hard to make sure that we all own everything today. Let me just say that these were larger loans. I'm not sure we would do these size loans again. 2 of the loans were industrial construction out of California. They're projects that have really big sponsors behind them. We have as-is appraisals that are well above our loan value. There's tons of equity in the projects. They're competing for lease up and it was going to take a while. While we weren't going to lose any money, they were going to sit there as kind of classified loans. We just took the opportunity to move them off our balance sheet.

Speaker Change: Bank loans or potentially Pac West Loans. I just kind of curious who want to roam originally. Yeah. So they were, I don't

The reason I don't want to differentiate is because as a company we've worked really hard to make sure that we all loan everything today. And so let me just say that these were larger loans.

Speaker Change: I'm not sure we would do these size loans again.

Speaker Change: You know, 2 of the loans were industrial construction, uh out out of out of California.

Um, their projects that have really big sponsors behind them.

Speaker Change: They have we have as is appraisals that are well above our loan value, there's tons of equity in the projects but they're competing for lease up and it was going to take a while.

And so we while we weren't going to lose any money, they were going to sit there as kind of, you know, classified loans.

Jared Wolff: We didn't think we were going to lose money, but why not free up the capital and use them for something else? That's kind of a common theme with a lot of the loans that we let go.

Ben Gerlinger: Got you. That's helpful. Then if I could sneak one more in. Expenses came in under guide again. You guys kind of reiterated the range. Should we expect a tick up or is it conservatism? I'm just kind of curious, like, you're beating your own guide, but are you previewing expenses going up?

Jared Wolff: Yeah. Joe, you want to address that?

Speaker Change: Gotcha, that's helpful. And then if I could sneak 1 more in expenses, came in under the guide again. Um, yeah, you guys kind of reiterated, the the range it should we expect to pick up or is it conservatism? I'm just kind of curious. Like, you're beating your own guide but are you, are you previewing expenses going up?

Joe Kauder: Yeah. I think as I said in my remarks, we do expect to settle in in the lower end of the range, the 190 to 195 range. Really, it's just making investments, both comp and infrastructure, really to support our growth going forward. We were pretty disciplined in H1 in terms of the timing of some of that. The plans was always a little back-end loaded. I think we'll see a little bit of increase here in H2.

Joe Counter: Yeah. Joe. You want to address that? Yeah.

Jared Wolff: David, I'll give you-

Joe Kauder: Maintaining positive operating leverage.

Jared Wolff: I'll give you a little more color there. Through last year, I was approving every single hire in the company. I wanted to see it. I wanted to make sure it was necessary. I wanted to challenge people. This year, we gave all of our business unit leaders and all of our function leaders, we gave them their own budget and said, Go hire whoever you want. Just stay within your budget. If you're growing faster, you can have more expenses. If you're growing slower, then we expect your expenses to be down. The teams are just doing a really good job of managing their budgets. Our revenues are higher, but their expenses are coming in, and some of it's timing, and some of it is just discipline. The reason we're coming in lower is not because we intended to, really.

Yeah, I I think we, you know, as I said in the, um, in my remarks, we do expect to settle in in the lower lower end of the range, the 190 to 195 range and really, it's just, you know, it's making Investments, but both competent infrastructure really, to support our growth going forward. And we were, you know, we were pretty disciplined in the in the first half of the year in terms of the timing of some of that. But, you know, it's uh, with the plans that was always a little back-end loaded and so we'll I think we shall, we'll see a little bit of an increase here in the the back. David. I'll give you maintenance positive, operating budget. Leverage. I'll give you a little more color there. I mean so

Joe Counter: Through last year, I was approving every single higher in the company.

Joe Counter: Just I wanted to see it. I wanted to make sure it was necessary. I wanted to challenge people this year we gave all of our business unit leaders and all of our functional leaders. We gave them their own budget.

Joe Counter: And said go hire. Whoever you want just stay within your budget and if you're growing faster, you, you know, you can have more expenses. If you're going slower, then we expect your expenses to be done. The teams are just doing a really good job of managing their budgets. Our revenues are higher.

Joe Counter: But their expenses are coming in and it's some of its timing.

Jared Wolff: It's because our teams are doing a really good job. Some of it is timing.

Joe Counter: And some of it is just discipline. And so the reason we're coming in lower is not because we intended to really, it's because our teams are doing a really good job. And so some of it is timing.

Ben Gerlinger: Got you. That's helpful. Thank you.

Jared Wolff: Yep. Thanks.

Joe Counter: Yeah, this is helpful. Thank you.

Joe Counter: Yep. Thanks.

Operator 2: Your next question comes from Jared Shaw with Barclays. Please go ahead.

Joe Counter: In your next question comes from Jared, Shaw with Barclays. Please go ahead.

Jared Shaw: Hey, guys.

Jared Wolff: Morning.

Jared Shaw: Should we assume that there's no more sort of loan restructurings coming out of the portfolio and that you're focused on growth opportunities from here almost exclusively?

Jared Wolff: I think that's right, Jared. We certainly tried to take as much as possible in the quarter. What I don't want to say is kind of we've cleared the decks because stuff always comes up, right? That's just going to bite you. We have to leave space for the idea that something else could pop up somewhere. We certainly tried to take the opportunity to make this a one-time event, and hopefully it is.

Jared: Hey, guys. Um, good morning. So, should we, should we assume that there's no more, uh, sort of loan, restructuring coming out of the portfolio and that you're that you're focused on, on growth opportunities. Uh, from here almost exclusively.

Jared: I think that's right. Jared we we certainly tried to take as much as possible in the quarter.

Jared: What? I don't want to say is kind of we've cleared the decks because stuff always comes up, right? You know, that's just going to bite you. So we have to leave space for the idea that something else could pop up somewhere.

Jared Shaw: Okay. All right. On the growth, you guys are now the hometown bank or one of the hometown banks of a really strong, large economy. Is your growth optimism coming from taking market share, or are you just seeing your customers be a little more optimistic and starting to do more work? What's sort of driving that growth optimism?

Jared: But we certainly tried to take the opportunity to make this a 1-time event and and hopefully it is.

Jared: Okay, all right. And then on the on the growth, I mean, you know, you guys are now

Jared: the Hometown Bank or 1 of the hometown Banks of a really

Jared: strong large economy. Um, are you

Jared Wolff: Yeah. It feels like the split is 50% existing customers and 50% new relationships to the bank. Our teams are working really hard to bring in new relationships. Our existing customers are out there just doing more stuff. In the lender finance area, that's all new customers to the bank today, but they're old relationships that our lender finance team had. Fund finance and warehouse are growing. They're bringing in new logos and new clients, and there's some expansion from existing clients, too. In our commercial and community bank, which is kind of our platform in California, our 80 branches plus Colorado and North Carolina, things are going really well, and our teams are working really hard. So far this quarter, deposits are way up. I just don't know if that's going to hold. When I talk to my comments about it being timing, that's kind of why.

Jared: Is is your growth optimism. Is that coming from taking market share or you just seeing your customers, be a little more optimistic and and starting to do more work. Uh, what's what's sort of driving that that growth optimism?

Jared: Yeah, it it feels like the split is 50% existing customers, you know, and 50% new relationships to the bank, our teams are working really hard to bring in new relationships and then our existing customers are out there just doing more stuff in the in the lender Finance area, that's all new customers to the bank today. But they're old relationships that our lender Finance team had, you know, fun finance and Warehouse or are growing. They're bringing in new logos and and new clients and there's some expansion from existing clients too.

Um, in our commercial and Community Bank, which is kind of our platform in California. Our 80 branches, plus Colorado and North Carolina.

Jared: We're just things are going really well, and our teams are working really hard. We so far this quarter deposits are

Way up, I just don't know if that's going to hold. So when I, when I talk to my comments about it being timing,

Jared Wolff: You're seeing the loan growth. Okay, maybe deposits aren't there. You're funding it with a different mix that you got. That's temporary. When good deposits come in, you'll let it go and you'll reduce your costs. We want to certainly be there to fund the loan growth and keep our loan-to-deposit ratios in check. We have a lower wholesale funding level than historically the bank had, so we have the flexibility to do that. I would say just in California, we seem to be growing our market share pretty meaningfully, though. It's pretty exciting to see what's going on here. Our team is really jazzed.

Jared: That's kind of why, you know, you're you're you're seeing the loan growth, okay? Maybe deposits aren't there, you're funding it with, you know, a different mix that you got, you're pulling in wholesale, but that's temporary. And when good deposits come in, you'll let it go and you'll reduce your costs. But we want to certainly be there to fund the loan growth and keep our learner deposit ratios in check and, uh, we have a lower wholesale funding level than historically, the bank had. So we have the flexibility to do that. Um, I I would say just in California, we seem to be growing our market share. Pretty meaningfully though. It's it's pretty exciting to see. See what's going on here. Our team is really jazzed.

Jared Shaw: If I could just sneak one more in. With that backdrop, you've improved the credit profile with this loan sale. You feel good about growth. With your stock at these valuations and below tangible book, why wouldn't you just be buying more stock here? You got a good price earlier on, why not be a little more aggressive with the buyback in the near term?

Jared: but, I mean, uh,

Jared Wolff: We might do that. I certainly don't expect stock to be at these levels. We are growing pre-tax, pre-provision at a really good annualized clip. Core EPS is growing double digits quarter over quarter, and we see our earnings expanding going forward. Our NIM guide came down a little bit, but we're only doing that because we're growing and we're acknowledging the mix shift, and we don't have any rate cuts built in. Our internal numbers keep getting guided higher for earnings, which we feel really good about. 2026 is going to be a great year. Obviously our momentum in 2025 is really strong. Our loan volumes are really strong. I don't expect our stock to be at these levels, but if it is, we wouldn't hesitate to do what's necessary while keeping an eye on our capital levels.

You know, why why not be a little more aggressive with, uh, with the buyback in the near term? We might, we might we might do that, uh, there, you know, I, I certainly don't expect stock to be at this at these levels. I mean,

Jared: We are growing pre pre-tax pre-provision at a really good annualized clip.

Core EPS is growing double digits quarter over quarter and we see, um, our earnings expanding going forward. You know, our our, our Nim guide came down a little bit, but we're only doing that because we're we're growing and we're acknowledging the mix shift and we don't have any rate Cuts built in. So, we we, we're, we're our internal numbers keep getting guided higher for earnings, which we feel really, really good about and 2026 is going to be going to be a great year. Um, and obviously we're ending, we're, you know, our momentum in 2025 is really strong. Our loan volumes are really strong.

Jared: um, so I I don't expect our stock to be at these levels, but if it is,

Jared Wolff: We've got to make sure our capital is within the right range, and assuming it is, we wouldn't hesitate to be an active buyer.

Jared Shaw: Great. Thanks.

Jared: You know, we we wouldn't hesitate to to to do what's necessary while keeping, an eye on our Capital levels. We got to make sure our capital is within the right range and assuming it is. We wouldn't hesitate to be uh active buyer.

Jared: Great, thanks.

Operator 2: Your next question comes from Andrew Terrell with Stephens. Please go ahead.

Andrew Terrell: Hey, good morning.

Speaker Change: And your next question comes from Andrew Terrell with Stevens. Please go ahead.

Jared Wolff: Morning.

Andrew Terrell: I wanted to ask a question around the single-family resi growth this quarter. I think in the prepared remarks, you mentioned some was purchased single-family. Do you have the dollar amount of what was purchased? Can you just describe, it sounds like, and clearly growth is strong in other verticals. Just curious, what would drive the strategy of purchasing single family here?

Speaker Change: Uh, I want to ask a question around the single family resi growth. This quarter. I think, in the preparator marks you mentioned, some was purchasing a family, do you have the dollar amount of what was purchased and

Jared Wolff: Well, first of all, as I think I've mentioned in the past, Andrew, we only purchase single family. We don't have a single family origination platform. We have access to single family. We're a good-sized mortgage warehouse lender. We lend to non-bank lenders, non-bank mortgage lenders. We are secured by the individual mortgages on all of those lines. We might have a $150 million line or a $75 million line that they're making $800,000 or $3 million mortgages. We secured by each of those individual mortgages, and we're taken out by, usually it gets securitized, or there's a forward purchase contract. They're all hedged or have a forward contract. We see all those mortgages, and we have the opportunity from time to time to buy those off the lines. We already like the credit.

Speaker Change: can you just describe kind of the? I mean it sounds like and and clearly growth is strong in other verticals. Um just curious like what what would drive the strategy of purchasing single family here?

Speaker Change: Well, we first of all, is I think I've mentioned in the past Andrew, we only purchased single family. We don't have a single family origination platform, uh, we have access to single family through. You know, we're, we're a, a, a good-sized mortgage Warehouse lender

Speaker Change: We lend to non-bank lenders, uh non-bank, you know, mortgage lenders. Uh we are secured by the individual mortgages on all of those lines. So, you know, we might have a 150 million line or a 75 million line that they're making 800,000 or 3 million mortgages. We we

Jared Wolff: We can give our warehouse borrower more capacity when we buy those credits. What we'll do when we come into an agreement with them to buy those credits, we'll give them more capacity on their line. We won't count that purchase against them. They have more freedom, which they appreciate. We get a good deal on the loans. The coupons right now on the single family that we're buying is pretty good. We're getting stuff in, let me just say, around 7. These are non-QM mortgages. They're often 30-year fixed, really high credit quality, really mid-700 FICOs. A lot of California, low debt-to-income, and importantly, these are owner-occupied loans, owner-occupied homes. They're not very low percentage of second homes or investor homes, which I think carry a lot more risk, and you usually don't get paid from a coupon standpoint. We like that profile.

secured by each of those individual mortgages and we're taking taken out by usually it gets securitized or there's a forward purchase contract but they're all hedged or have a forward contract. So we see all those mortgages and we have the opportunity from time to time to buy those off the lines. We already like the credit we can give our our warehouse borrower

Speaker Change: More capacity. When we buy those credits, we what we'll do when we when we come into an agreement with them to buy those credits, we'll give them more capacity on their line. We won't count that that that purchase against them. So they have more freedom, um, which they appreciate and then we get a good deal on the, on the loans. Uh, the coupons right now on the single family that we're buying is

Speaker Change: pretty, pretty good. It's, you know, we're, we're getting stuff in in, let me just say around 7.

Speaker Change: And these are non-qm mortgages. They're often 30-year fixed really high credit quality. Really, you know, mid 700 ficos, a lot of California uh low debt to income and importantly, these are owner occupied.

Jared Wolff: We don't really have a lot of exposure to consumers being a business bank, and therefore, we thought that it would be healthy to have some exposure to consumer. This is the way that we chose to do it. We've had a very strong history with the mortgages, so we know how they perform. They've held up really well, and we like the risk-adjusted return. We also buy them from partners that we have. It could be a large national bank that originates mortgages and things like that. Every now and then we'll look at pools. That's why we do it, is because we think that that's a good way to balance out our portfolio. Also, warehouse has the ability to balloon up and down, less so now at the size that we are, but it has in the past.

Speaker Change: Loans owner occupied homes. They're not very low percentage of second homes or investor homes which I think carry a lot more risk and you usually don't get paid from a coupon standpoint. So uh we like that profile. We don't really have a lot of exposure to Consumers, being a business bank. And therefore we thought that it would be healthy to have some exposure to Consumer. And this is the way that we chose to do it. Uh, we've had a very strong history with the mortgages, so we know how they perform. And, uh, they, they've they've held up really well and we like the risk adjusted return. We also buy them from partners that we have. It could be um, you know, a large National Bank that originates mortgages and things like that and every now and then we'll look at pools but that that's why we do it is because we think that that's a good uh way.

Jared Wolff: Having single family that's got a little more duration on it is a hedge against kind of the warehouse portfolio, which could go up and down. That's why we do it. In terms of the volume of single family in the quarter. By the way, the resi production portfolio yield, excuse me, production yield in the quarter was 7.59%. I said 7%. It's much higher than that. I was trying to be conservative. I think the number was around.

To balance out our portfolio. Also Warehouse has the ability to, you know, balloon up and down less. So now with the size that we are, but it has in the past and so having single family, that's got a little more duration on. It is a hedge against kind of the warehouse portfolio, which could go up and down. So that's why we do it. Um, in terms of the volume of single family in the quarter,

um, and by the way, the the the resi, uh,

Production portfolio, yield. Excuse me production. Yield in the quarter was 759.

Joe Kauder: About $450 million.

Jared Wolff: $450 in the quarter? Around $400. Okay. Thanks, Joe.

Joe Kauder: Yeah. A little bit north of $400. It was right around $400 in the quarter.

Andrew Terrell: Okay.

Joe Kauder: Andrew, we're at 13, the resi mortgage is about 13% of our portfolio. We could see that increasing a little bit, 14%, 15%. I don't think we'd be upset if it went up to 15%.

Speaker Change: Joe. Yeah, a little bit north of War. It was right around 400 in the quarter.

Speaker Change: and then,

And we're and Andrew. We're, we're at

Speaker Change: 13, you know, the resident mortgage about 13% of our portfolio. Um

Jared Wolff: Yeah. Excluding the purchases, which were higher this quarter than prior quarters, we were still north of $700 million of production. We had a very strong production quarter. Our teams just did a great job.

Speaker Change: you know we could see that increasing a little bit 14, 15% I don't think we'd be upset if it went up to 15% and

Speaker Change: Yeah, excluding excluding. Um,

Speaker Change: Excluding the purchases which were higher this quarter than prior quarters. We were still north of 700 million of production. I mean, we we had a very, very strong production quarter. Uh our teams just did a great job.

Andrew Terrell: Understood. Okay. Thank you for all the color. I appreciate it.

Jared Wolff: Yeah, no problem.

Andrew Terrell: On the loans that were transferred to HFS, the $507 million, do you have how much of that was previously sitting in criticized? I'm looking at the decline in criticized sequentially. It was a little bit less than that 507 figure. Just wondering if you had the criticized amount in HFS.

Speaker Change: Understood. Okay. Thank you for all the caller. I appreciate it. Um and then on the

Jared Wolff: We can get you that. I don't have it off the top of my head. Anne or Joe, would you just look that up?

On the loans that were transferred or yeah, transferred to HFS, the 5007 million. Do you have how much of that was was previously? Um, sitting in criticized? I'm looking at the the declining criticized sequentially. It was a little bit less than that 507 figure. So I was just wondering if you had the, the criticized amount HFS,

Speaker Change: Uh, we can get you that, um, I don't have it off the top of my head and or Joe, would you just look that up?

Andrew Terrell: Okay.

Jared Wolff: Thanks.

Andrew Terrell: Thanks for taking the questions.

Okay. Thanks. Okay. Um

Jared Wolff: Yep. Thanks, Andrew.

Thanks for sharing the questions.

Speaker Change: Yep. Thanks Andrew.

Operator 2: Your next question comes from Gary Tenner with D.A. Davidson. Please go ahead.

Gary Tenner: Thanks. Good morning.

Speaker Change: And your next question comes from Gary tener with da Davidson please go ahead.

Gary Tenner: Morning.

Gary Tenner: I wanted to go back to some of the commentary around deposits and the kind of cost this quarter versus last quarter. I appreciate, Jared, the commentary around kind of the need to fund growth and kind of the timing of deposits versus loan growth. On an absolute basis, the rate paid on interest checking and on money market moved up quarter over quarter. Just as we're thinking about the back half of the year, and certainly you could pay that and still put loans on that are accretive to the overall margin. I get that. Just thinking about those kind of rates paid, do you think those still trend higher over the back half of the year? Is there a competitive dynamic that has kind of stabilized?

Gary: Thanks, good morning.

Speaker Change: Um, I wanted to go back to some of the commentary around deposits and the kind of, you know, cost this quarter versus last quarter and I appreciate Jared the commentary around kind of the need to fund growth and, you know, kind of the timing of deposits versus uh, loan growth, but on an absolute basis. Um, the uh, rate paid on interest checking and on money market, moved up quarter over quarter. So just as we're thinking about the back half of the year and certainly you could pay that and still

Jared Wolff: Yeah. No, it's a good question. Interest-bearing checking went up almost 9 basis points in the quarter, and money markets went up about 2 basis points. CDs surprisingly went down by 13 basis points, and savings went down by about 7 basis points. Overall, we saw a little bit of an uptick in the cost of deposits. It's very competitive right now. We have a committee that approves pricing exceptions on deposits for relationships, and I get involved if there's a lending relationship and stuff like that. I'm seeing the requests that are coming in, and our teams are doing a great job. It is more competitive than we've ever seen. Or I should say, in a long time. We just haven't seen this. There's obviously a demand for liquidity out there.

You know, put loans on that are, you know, creative to the overall margin. I get that. But just thinking about those kind of, you know, REITs pay. Do you think those still Trend higher over the back half of the year? Is there a competitive Dynamic that has made it? That has kind of stabilized. Yeah.

No, it's a it's a good question. So interest bearing checking went up almost 9 basis points in the quarter and money Market's 1 of about 2 basis points. Um, CDs surprisingly went down.

Speaker Change: By 13 basis points and savings went down by about 7 basis points. So overall, we, we saw, you know, a little bit of an uptick in the cost of deposits. Um, it's very, very competitive right now. Uh, I approve because I want to see we have a committee that approves pricing exceptions on deposits for relationships and I get involved if there's a lending relationship.

Jared Wolff: I think part of it is that there's less liquidity and a lot of demand for loans. All banks are kind of looking for the same stuff. We are getting our share of loans better than others, I think because we have a solution that really works, and that's bearing itself out. You're not going to grow deposits as fast as loans. You're just not going to do it unless it's a slow growth environment, and then you're going to outpace with deposits, which is what we did last year in anticipation of this year. We saw that coming a little bit and prepared ourselves for it. Obviously, we think the kind of heat around deposits is going to slow down when rates come down. If they come down, although we don't have it in our forecast.

Up and stuff like that. And so I, I'm seeing the requests that are coming in and our teams are doing a great job, it is more competitive than we've ever seen. And or I should say, in a long time, I, we just haven't seen this kind of, uh, and so there's obviously a demand for liquidity out there. I think part of it is that there's

Speaker Change: Less liquidity and a lot of demand for loans. And so all banks are kind of looking for the same stuff. We are getting our share of loans better than others. I think because we have a solution that that really works and and that's bearing itself out. And it you're not going to grow deposits as fast as loans. You're just not going to do it unless it's a slow growth environment. And then you're going to outpace with deposits, which is what we did last year in anticipation of this year. So we saw that coming a little bit and prepared ourselves for it.

Speaker Change: Um,

Speaker Change: Obviously we think that the the the the the the the kind of heat around deposits is going to slow down when rates come down.

Jared Wolff: For some reason right now, the dynamics are really competitive. We generally will get some rate benefit. Our teams do a good job of trying to hold deposits. We're seeing some uptick in deposits. People have money markets and they're waking up, believe it or not, that they were at 2%. They're like, Hey, why aren't I at 3.5%? We're trying to hold the line, and say, Look, we're not going to pay you 4%, which some banks are absolutely doing, but we're going to try to keep it in the 3s and hopefully the mid-3s for those clients who have more rate-sensitive relationships. Not every deposit in the bank is operating accounts. We want to have that, and we focus on that, and our teams are doing a great job. As Joe also mentioned in his comments, we're tracking average balances.

Speaker Change: Uh, if they come down, although we don't have it in our forecast. But for some reason right now the Dynamics are are really competitive, um, and we generally will get some rate benefit. We we, you know, our teams do a good job of of

Speaker Change: Um and say look, you know, we're not going to pay you 4, which some banks are absolutely doing, but we're going to try to keep it in the threes and hopefully the mid threes.

Jared Wolff: Average balances are actually down in accounts themselves. If we're staying flat, we're kind of winning. If we're able to grow, great. Average account balances are down. People aren't closing their accounts, just liquidity's flowing out of the system for some reason. Hopefully it comes back.

Speaker Change: For those clients who have more rate sensitive relationships, not every deposit in the bank is, you know, is is operating accounts. Um, we we want to have that, and we focus on that and our teams are doing a great job. But as Joe also mentioned in his comments, we're tracking average, balances and average balances are actually down in accounts themselves. So if we're staying flat, we're kind of winning, um, or if we're able to grow great, but average account balances are down.

Gary Tenner: Appreciate that. As it relates to the loan sale and your comment about offering or providing back leverage for private credit buyers, et cetera, of the amount that you have scheduled to sell in Q3, how much of that do you think comes back to HFI, just in a different part of the loan portfolio?

Speaker Change: People aren't closing their accounts. It's just liquidity is flown out of the system, uh, for some reason and and hopefully it comes back.

Jared Wolff: Yeah. I think you could assume 50% to 60% is probably fair. Could be 70%, but I don't know that it's going to be much above that. Hard to tell because some of the stuff's just going to go without leverage. We have relationships with private credit, with non-bank lenders through our lender finance group and our team, our chief credit officer, our head of lender finance, and people on the lender finance team have great relationships, and they were able to suggest and bring in this stuff, which I thought was good. We have it modeled that we're going to have more leverage than that, but I don't know that we're going to get there. To be conservative, I would say it's less.

Speaker Change: Appreciate that. Um and then as it relates to the loan sale on your comment about offering or providing back leverage uh you know for a private credit buyers Etc, how much of the of the amount that you have scheduled to sell in the third quarter? How much of that? Do you think comes back to HFI just in a different part of the loan portfolio? Yeah, I

Speaker Change: I think you could you could assume, you know, 50 to 60% is probably Fair.

Speaker Change: um,

Could be could be 70 but I don't I don't know that it's going to be much about that. Uh hard hard to tell because some of the stuff is just going to go without Leverage.

Speaker Change: um, but you know, we, we have a relationships with private credit with with non-bank lenders, through our lender Finance group and

Speaker Change: Um, our our team, our chief credit officer, and our head of lender finance and, and, and people on the lender Finance, team have great relationships, and they were able to to suggest and bring in this stuff, which I thought was was good.

Gary Tenner: Okay. Last question. In terms of that loan transfer, you've talked about.

Speaker Change: Um, we have it modeled that we're going to have more leverage than that, but I don't know that we're going to get there. So to be conservative I would say it's it's less.

Jared Wolff: Oh, Gary, just on that point.

Gary Tenner: Yeah.

Jared Wolff: We don't need it because we're growing loans fast otherwise. It doesn't really matter to me either way. It's only $200 million. To be conservative, that's why we're saying it's less. We certainly would be willing to offer it to the right buyer. Sorry to interrupt you.

Gary Tener: Okay. And then last last question um in terms of that loan transfer you've talked about oh and just to just to Gary Gary just on that point like

We don't need it because we're growing loans fast. Otherwise and so it it doesn't really matter to me either way it's only

Gary Tener: A couple hundred million dollars. But but but but to be conservative, that's why we're saying it's less but we we we certainly would be willing to offer it to the right to the right buyer.

Gary Tenner: No. Yeah. No problem at all. I just wanted to clarify one thing. You've talked about marking these at 95%, but if you consider the charge-offs of $37 million specific to these loans, that's almost 7.5%. Are you only thinking of the kind of incremental provision that went through the P&L this quarter, related to the loan sale or transfer?

Jared Wolff: We released the reserve as well. The net amount is the 5% is the charge-off, but then you have to add back the reserve that we hold against loans that we released. Joe, do I have that math right?

Speaker Change: Sorry to interrupt, you know? Yeah, no, no problem at all. Um, I just wanted to clarify 1 thing, you've talked about, you know, marking these at 95%. But if you consider the charge offs of 37 million specific to these loans, that's about that's almost 7 and a half percent. So are you only thinking of the kind of incremental provision that went through the p&l this quarter, uh, related to the lunch size, or transfer? We we we we released the reserve as well. So the net amount is is the 5% is

Joe Kauder: Yeah, you have it right. There is also some small amount of FAS 91 fees and deferred fees on it as well. I think Jared has it right.

The charge off, but then you have to add back the reserve that we held against loans that we released Joe. Am I do I have that math, right?

Gary Tenner: Okay. Thank you.

Speaker Change: Yeah, you have it, right? This is also some small amount of fas 91 fees and, you know, for fees on it as well, but I think Jared has it right?

Okay, thank you.

Jared Wolff: Yeah. FAS 91 never factors into my math. I need to brush up on that. Thank you. Thanks, Gary.

Yeah. 091 never never factors into my, my maths. I I need to brush up on that. Thank you. Thanks, Gary.

Operator 2: Your next question comes from Timur Braziler with Wells Fargo. Please go ahead.

Tim Moore: And your next question comes from Tim Moore Brazil with Wells Fargo, please go ahead.

Timur Braziler: Hi, good morning.

Jared Wolff: Morning.

Tim Moore: Hi, good morning.

Timur Braziler: Looking at the margin outlook, and that kind of 320 to 330 at Q4, that assumes some level of acceleration here in the back end of the year. Can you just talk me through what the driver is? Is that mostly on the fixed asset repricing side? Are you assuming some mix shift benefit with just the deposit growth earlier in the quarter? I'm just wondering, if we do get some rate cuts, is that going to be beneficial at this point, or is that going to be maybe a little detrimental towards that guide?

Tim Moore: Morning.

Looking at the margin Outlook, um, and that kind of 320 to 330 at 42 that um that assumes some level of acceleration here in the back. End of the year. Can you just talk me through? What the driver is, is that mostly on the fixed asset repricing side are, you assuming some Nick shift benefit with just the deposit growth earlier in the quarter. And I'm just wondering if we do get some rate Cuts, as I going to be beneficial at this point, or is that going to be? Maybe a little detrimental towards that guy.

Jared Wolff: Rate cuts would be beneficial because we would immediately move down deposit costs. I think that's going to move a little bit faster because we're originating loans so fast. Loans don't move down as fast from my perspective, I think we'll be okay there. In terms of, I'll let Joe comment on the components of our margin expansion. Before I do, one thing that we haven't seen this year, which we expected to see, was accelerated accretion. That can have a meaningful impact on our margin, and we haven't seen any really, at all, even though we saw a good amount last year. If we get rate cuts, we're going to see accelerated accretion as well, which is going to help our margin. That's not what we have planned here.

Tim Moore: So, rate Cuts would be beneficial because we would immediately move down deposit costs.

Tim Moore: Um and I think that's going to move a little bit faster that because we're originating loans so fast. I think we're going to get you know, loans don't move down as fast and and from my perspective and so I think we'll be okay there. Um,

in terms of, I'll let Joe comment on the components of

Tim Moore: of uh, our margin expansion. But before I do, 1 thing that we haven't seen this year, which we expected to see was accelerated accretion

Jared Wolff: Joe, how would you describe where we see margin expansion coming from?

Joe Kauder: Yeah. The margin expansion is primarily coming on the loan side. As we showed in our remarks and in the deck, we're putting large amounts of loans on at very good rates. We also have a fair amount, we have the page where we talk about how much loans are rolling off. Well, all those loans are rolling off at lower rates. That loan roll-on, roll-off is going to have a significant benefit to us. On the cost of deposits, we're pretty conservative on that and our forecasting estimate, we're assuming it's going to be pretty flat. I would agree with Jared that we've basically taken out any accelerated accretion in our forecast. We have no rate cuts. We stand to benefit if either of those two things would happen.

Tim Moore: And that it can have, you know a a meaningful impact on our margin and we haven't seen any any really at all, even though we saw a good amount last year. So um if we get rate Cuts, we're going to see accelerated accretion as well which is going to help our margin but that's not what we have planned here. Uh so Joe what what is the uh how would you describe kind of where we see margin expansion coming from?

Speaker Change: Coming on the loan side. So, you know, as you as we showed in our remarks we're and in the deck, you know, we're putting large amounts of loans on at very good rates. We also have a fair amount as, you know, on our low. We have the page where we talk about how much loans are rolling off. A lot of those loans are rolling off at lower rates that loan roll on roll off, is going to be, have a significant benefit to us. And then on the on the cost of deposits are like, you know, we don't we we we're pretty conservative on that. And our forecasting has been. We're we're assuming it's going to be pretty flat. Uh I would agree with Jared that we didn't we you know, we've basically taken out uh, any the accelerated depreciation or accelerated accretion in our forecast so and we have no rate Cuts. So you know, we stand to benefit on um, if either of those 2 things would happen

Timur Braziler: Okay, thanks for that. Just looking at, again, at the loan transfer, I'm just wondering how much this accelerates the asset quality trends at the bank. As you're looking ahead, can you just give us a level of internal expectations for provisioning and charge-offs going forward?

Jared Wolff: Well, this quarter, on a normalized basis, we provisioned a little over $12 million. I think at the level of loan growth that we had, that's probably a fair estimate going forward. The difficulty is that it really matters what type of loans that we're growing. I don't think fund finance is going to continue growing at the same pace. I think we're going to get more kind of traditional commercial loans out of the commercial and community bank. Those are going to carry a weighting that's a little bit higher. Therefore, I think that $12 million is probably. Joe, is that kind of where we're guiding to $10 to 12 million a quarter on the provision?

Okay, thanks for that. And just looking at again, at at the loan transfer, I'm just wondering how much this accelerates the asset quality trends at the bank and as you're looking ahead, can you just give us a level of internal expectations for a provisioning and charge offs going forward? Yeah.

Speaker Change: Well, so this quarter on a normalized basis, we provision, you know, a little over 12 million.

and I think at the level of low growth that we had,

Speaker Change: that's probably a fair estimate going forward, but the the difficulty is that it's it really matters what type of loans that we're growing

Speaker Change: I I don't think fund Finance is going to continue growing at the same Pace. I think we're going to get more kind of traditional commercial loans out of the commercial and Community Bank.

um and so those are going to carry a waiting, that's a little bit higher and therefore I think that 12 million is probably

Joe Kauder: Yeah, a little bit at the low end of that, I think.

Speaker Change: Joe. Is that kind of where we're we're guiding to 10 to 12 million. A quarter on the provision.

Jared Wolff: Okay

Joe Kauder: right in the middle of that range.

Jared Wolff: Okay. $10 to 12 million is kind of the fair estimate there.

Speaker Change: Yeah, a little bit at the low end of that. I think we're right, we're right in the middle right in the middle of that charge.

Joe Kauder: Yeah.

Jared Wolff: Yeah, we certainly feel good about the opportunity that we have ahead of us on the loan side. Things seem to be working right now, and our teams are doing a great job.

Speaker Change: Okay? So, 10 to 12 million is kind of the, the fair estimate, uh, there. Um, you know, we we certainly feel good about

About the opportunity that we have ahead of us on the loan side. It things seem to be working right now and our teams are doing a great job.

Timur Braziler: Okay. Just last for me. We've seen a frenzy of kind of M&A conversation reenter the regional bank sector here in recent weeks. I'm just wondering, you guys are now really the only game left in town in Southern California. I'm just wondering how you guys are thinking about maintaining independence here, and maybe what considerations would be needed in order for you guys to consider partnering with a larger institution.

Jared Wolff: Well, what I'm really proud of is how hard our teams are working at growing the bank organically, and we're doing that. We have a huge opportunity in front of us to grow this bank organically. I mean, we're showing it, right? I think the bar is very high for us. We're a public company. We're out there every day. I think it'll be interesting to watch how these dynamics change over the next several quarters and over the next 12 months. I mean, there's a lot of noise out there, obviously. I think the environment is very frothy right now. The regulatory environment is turning favorable from an M&A standpoint, and I think that people are excited about that.

Speaker Change: Okay. And then just last for me. Um we've seen a a frenzy of kind of m&a conversation, re-enter the the Regional Bank sector here and in recent weeks. Um, I'm just wondering, you know, you guys are. Are now really, the only game left in town in Southern California? I'm just wondering how you guys are thinking about maintaining Independence here and maybe what considerations would be needed in order for you guys to to consider partnering with a larger Institution.

Speaker Change: Well, what I'm really proud of is is is how hard our teams are working at growing, the bank organically, and we're doing that. And we have a huge opportunity in front of us to grow this Bank organically. I mean, we're showing it right? And so

Speaker Change: I think the bar is very high for us.

Speaker Change: But we're a public company, we're we're out there every day and, uh, I think it'll be interesting to watch how these Dynamics change over the next several quarters. And, and over the next 12 months, I mean there's there's a lot of noise out there obviously. I think the environment is very frothy right now.

Jared Wolff: I would expect us to have the opportunity to go buy somebody when we have a normalized multiple on our stock, which I expect to get there soon as a reflection of our consistent growth in earnings. We're building up tangible book value pretty fast. As you point out, we've got a very valuable franchise here in California. We're sitting here at $35 billion in assets, the largest independent bank really in California that is not focused on a niche. I think East West might be considered a little bit more nichey. They're a tremendous bank. Not for all types of partners. We're really pleased with what we got here, and we're just going to keep our head down and keep working, and I think things will take care of themselves.

Um, the regulatory environment is turning favorable, uh, from an m&a standpoint. And I think that, you know, people are are excited about that. You know, I would expect us to have the opportunity to, to, to go buy somebody when we have a normal normalized, uh, multiple on our stock, which, which I expect to to get there as soon as a reflection of our consistent growth in earnings,

Speaker Change: and um,

Speaker Change: You know, we're we're building up tangible Book, value pretty fast. And as you point out,

Speaker Change: we've kind of, we've got a very valuable franchise here, in in California. We're seeing here at 35 billion in assets. The largest Independent Bank,

Speaker Change: Really in California that is, uh, not, you know, that is not focused on a niche. Um, I think East West might be, uh, considered a little bit more nichy. Uh, they're a tremendous tremendous Bank, uh, but not for not for all all types of, uh, partners. And so, we're really pleased with what we got here. And we're just going to keep our head down and keep working, and I think things will take care of themselves.

Timur Braziler: Great. Thanks for the questions.

Jared Wolff: Thank you.

Speaker Change: Great, thanks for that question.

Speaker Change: Thank you.

Operator 2: Your next question comes from Christopher McGratty with KBW. Please go ahead.

And your next question comes from Christopher McGrady with KBW, please go ahead.

Christopher McGratty: Oh, great. Thanks. Jared, just more of a big picture question for you. The 13 ROE that's been out there and the timing still in the future. I'm interested in just giving you the mic for a minute and just the takes on how you get there. What kind of environment does that look like? Obviously, there's a numerator and denominator impact. Any update at all would be great. Thanks.

Jared Wolff: Yeah. I don't have a date to put out there, as you can imagine. I think what we're doing right now, growing core earnings at a pretty fast clip is going to result in that happening sooner rather than later. We keep growing tangible book value. We're growing earnings faster. We're going to be efficient with our capital to make sure we're carrying the right amount and want to make sure that we have a good return on our capital for our shareholders. I don't know if there's anything specific that you'd want me to answer regarding that, Chris, other than when I look at our earnings profile, we keep pushing up what we have internally as our forecasts quarter-over-quarter and year-over-year because it seems to be working right now.

Oh great thanks. Um Jared just more of a big picture question for you the um the 13 Roe that's been out there and the timing uh you know still you know in the future. I mean I'm interested in your just giving you the mic for a minute just you know, the takes and how you get there? What's what kind of environment does that look like? You know, obviously there's a numerator and denominator and back with any any update at the top to be great. Thanks. Yeah.

But I think what we're doing right now, growing core earnings.

Speaker Change: At a pretty fast clip is going to is going to, you know, result in that happening. Uh,

Sooner rather than later.

Speaker Change: Um, we keep growing tangible, Book value.

Speaker Change: Um, but we're growing earnings faster.

Speaker Change: And uh we're going to be efficient with our Capital to make sure we're carrying the right amount and want to make sure that we have a good return on on our capital for, for our shareholders. So,

Speaker Change: Uh, I don't know if there's anything specific that you'd want to. You want me to answer regarding that Chris other than when I look at our earnings profile. You know we keep pushing up. What we have internally is our forecasts

Jared Wolff: I feel like our pace of growth is going to expand quite a bit given how quickly now our earnings are probably going to expand. We're getting some real operating leverage. Our earnings are growing faster than our revenues because our expenses are in check. I expect that to continue.

Speaker Change: Uh a quarter over a quarter a year over year because it's just it seems to be working right now. I feel like our our pace of growth is going to um, expand quite a bit.

Speaker Change: Given, uh, how quickly, uh, you know, now our earnings are probably going to expand, you know, we we're getting some real operating leverage. Our earnings is our earnings are growing faster than our

Speaker Change: Our revenues uh because our expenses are in check. And so we're I expect that to continue.

Operator 2: Your next question comes from David Feaster with Raymond James. Please go ahead.

And your next question comes from David Fester with Raymond James, please go ahead.

David Feaster: Hey, good morning, everybody.

Jared Wolff: Morning.

David Fester: Hi, good morning everybody.

David Feaster: I just wanted to follow up maybe on the growth side and some of your comments there. Obviously, the increase in your production.

Speaker Change: Morning.

Jared Wolff: Hey, David. David, could I pause you just for 1 second? I apologize.

David Feaster: Yep.

Jared Wolff: Chris, if you're still on, I don't know if you got cut off too early and if you had another question. Please just jump back in the queue if you're still on, and we'll come back to you after David. Maybe you were done. Sorry to interrupt you, David.

Speaker Change: Um I just wanted to follow up maybe on on the growth side in some of your comments there. I mean obviously the the increase D David could I pause you just for 1 second? I apologize. Yep.

David Feaster: All right. It's okay. Shifting gears back to kind of the growth side. The increase in production is extremely encouraging, especially with the rates that you guys are getting. Just first of all, I'm kind of curious how the pipeline is shaping up heading into Q3 and how the complexion of the pipeline is. You touched on maybe seeing a bit less opportunity in the fund finance side. Just kind of curious how the complexion of the pipeline's shifting as well.

Speaker Change: Uh, Chris if you're still on. I don't know if you got cut off too early and if you had another question so please just jump back in the queue if you're still on and we'll come back to you after David. Uh but maybe you were done sorry to interrupt you David.

Jared Wolff: Yeah. In the Q2 kind of breakdown, we had about half as much multifamily in Q2 as we did in Q1. CRE kind of bridge lending was up. Construction was kind of flat. This is production. Obviously, we had a big uptick in resi. Venture was up quarter-over-quarter. Warehouse was flattish. Equipment lending kind of doubled quarter-over-quarter. Fund finance was just another strong production, and lender finance was just another strong production. I would expect lender finance to continue. Fund finance, I think they had their maybe hitting a high water mark here. That might come down a little bit. Warehouse, I think, has room to expand. Just general commercial and good lending from our commercial and community bank, I expect to pick up here.

Speaker Change: All right, it's okay. Um yeah, shifting gears back to kind of the growth side. I mean the increase in production is extremely encouraging um and and especially with the rates that you guys are getting um you know and just first of all I'm kind of curious how the pipeline is shaping up had any of the third quarter and how the complexion of the pipeline is you know, you touched on uh maybe seeing a a a lit, a bit less opportunity in the fund Finance side. Just kind of curious how the complexion of the pipeline's, uh, shifting as well.

yeah, we're seeing, um,

Speaker Change: So in the quarter, kind of the breakdown we we had uh about half as much multi family in the first in the second quarter as we did in the first quarter.

But CRA kind of bridge lending was was up, construction was kind of flat. Um, this is production. Obviously we had a big uptick in in in in um, in resi. Um, you know, Venture Venture was up quarter of a quarter Warehouse was

Speaker Change: Flat-ish. Um equipment lending was kind of Double Quarter over quarter. Fund Finance was just another strong production and lender Finance was just another strong production, I would expect lender Finance to continue

Speaker Change: Fund Finance. I think they had, they're maybe hitting the high water mark here, so that might come down a little bit Warehouse. I think has room to expand

Jared Wolff: We're seeing some traditional mini-perms and things like that that seem to be taking hold now. If rates come down at all, I think you're going to see even more lending. I think people are holding out a little bit. It's pretty broad-based, David. I've been very happy with what our teams have been doing. I really have.

Um, and then just general commercial, you know, and good lending from our commercial and Community Bank. I, I expect to to pick up here. We're seeing some traditional mini perms and things like that, that seem to be taking hold. Now, um, if if rates come down at all, I think you're going to see even more uh, more lending. I think people are holding out a little bit, um, but

David Feaster: That's great. Maybe shifting gears back to deposits. You've alluded to the competitive landscape for deposits. I'm curious, where do you see the most opportunity to drive core deposit growth? Is there any segments that you see more opportunity? I know you guys are always working to drive NIB and core deposits. You've talked in the past even about growing ECR deposits potentially. I'm just kind of curious where you're focused on today and where you see the most opportunity.

Speaker Change: It it it's pretty broad-based. Uh David I'm I I've been very happy with what our teams have been doing. I really, really have

Jared Wolff: Our teams across the bank are focused on bringing in business relationships where we can serve them better than where they're being served now. There's still the opportunity to bring in, and we are being successful here, clients that ended up at U.S. Bancorp or ended up at JPMorgan from banks that have been acquired or kind of went under. Those are big targets for us, and we're not hearing a lot of people who are a mid-size client who are really happy with the transition to JPMorgan. They're a great competitor for and great bank for many clients, but they can't be everything to everybody. We still see a lot of opportunity there. From a niche perspective, every single one of our business units is focused on bringing in deposits, even if they haven't in the past.

Speaker Change: That's great. And and maybe you shifting gears back to the pods, I mean, you you've alluded to the competitive landscape for deposits. I'm curious. Where do you see the most opportunity to drive core deposit? Growth are there, is there any segments that you see more opportunity? I know you guys are always working to drive nib and core deposits. You know, we've talked in the past even about growing ECR, deposits, potentially. I just kind of curious where you're focused on, uh, today and where you see the most opportunity.

Speaker Change: so,

Speaker Change: Our teams across the bank are focused on bringing in business relationships where we can serve them better than where they're being served now. And there's still the opportunity to bring in and we are being successful here.

Clients that ended up at US Bank or ended up at well, at at JP Morgan from banks that have been acquired or kind of went under and those are big targets for us. And we're, you know, we're not hearing a lot of people who are a mid-sized client, who are really happy with the transition to JP Morgan. They're a great competitor for and great bank for many clients, but they can't be everything to everybody. And so, um,

Speaker Change: You know, we still see a lot of opportunity there. And then from a niche perspective

Jared Wolff: We're about to launch this quarter. We have a new digital platform for onboarding deposits digitally and through Salesforce. When that digital account opening goes live, it's going to give us even more capacity to bring in deposits nationwide for clients that want our services. Traditionally when you're doing an SBA client, we have a nationwide platform for SBA. We ask for the deposits, we get deposits, but it's not as easy if there's not branches nearby and things like that. This digital account opening is going to really accelerate some stuff for us. We're excited about that, and I think that's going to go really, really well.

Focused on bringing a deposits, even if they have it in the past, we're about to launch, uh, this quarter. We have a new digital platform for onboarding deposits digitally.

And uh through Salesforce and when that digital account opening goes live, it's going to give us even more capacity to bring in deposits uh Nationwide for clients that that want our services. So you know traditionally when you're doing an SBA client, we have a nationwide platform for SBA.

David Feaster: Okay. That's great. Maybe just last one. Touching on the credit side, exclusive to loan transfer. Look, the past couple of quarters have been a bit noisy. You guys have been very proactive managing and addressing potential issues. I'm just curious, exclusive of the transfer, is there anything on the credit side that you're seeing that you're cautious on? Do you think kind of the active management in the worst is behind us and we should see pretty solid credit leverage going forward?

Speaker Change: We asked for the deposits, we get the deposits, but it's not as easy. If, you know, there's not branches nearby and things like that, and, but this digital account opening is going to really accelerate some stuff for us. So, we're excited about that. And I think, uh, that's going to go really, really well.

Speaker Change: Okay that's great. And then maybe just last 1 you know, touching on the credit side exclusive the loan transfer. Look look at the past couple quarters have been a bit noisy, you guys have been very proactive uh, you know, managing and addressing potential issues. I'm just curious, you know, exclusive of the transfer like, is there anything on the credit side that you're seeing that your policies on or do you think the kind of the active management and the, um,

Jared Wolff: I really believe that, David. I think that we got ahead of it as I suggested we would, and we proactively moved this stuff out. I don't see any big warning signs for me. These are some pretty large credits that were sitting on our balance sheet that we were able to move away. I give our team all the credit for proactively coming up with this solution, working through it. It was a lot of work in the quarter, and they did a phenomenal job with a phenomenal result. I feel really good about where we are. Stuff pops up, though. It does. I feel like the things that we were most concerned about, we've had now the opportunity to move, and that feels really good. Our charge-off rate was 12 basis points, I think, excluding all this stuff, which was low.

Speaker Change: Uh, is like the the worst is behind us and we should see pretty solid credit leverage going forward.

I really believe that David I think that we got ahead of it as I as I suggested we would and and we proactively move this stuff.

Out, I don't see any any big warning signs for me. Um, these are some pretty large credits that we we were sitting on our balance sheet that we were able to to move away and I give our team all the credit for proactively, you know, coming up with this solution working through it. It was a lot of work in the quarter and they did a a phenomenal job with a phenomenal result. And so I feel really good about where we are.

Stuff pops up though. You know, it does and you know but I I I feel like the things that we were most concerned about

Jared Wolff: I think our ratios now are pretty healthy. I certainly feel good about our coverage from a reserve standpoint. I feel really good about where we are.

Speaker Change: We've had now the opportunity to move and that, that that feels really good. You know, our charge off rate was 12 basis points. I think excluding all this stuff, which was low. And I think our ratios now are

Pretty healthy. Uh and I certainly feel good about our coverage uh, from a, from a, from a reserve standpoint. So I feel really good about where we are.

David Feaster: Terrific. All right. Thanks, everybody.

Jared Wolff: Thank you very much. Appreciate it.

Speaker Change: Terrific. All right. Thanks everybody.

Speaker Change: Thank you very much, appreciate it.

Operator 2: This concludes our question-and-answer session and today's conference call. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: This concludes our question and answer session, and today's conference call, thank you for attending today's presentation. You may now disconnect