Q3 2025 Banc of California Inc Earnings Call

Speaker #3: Hello and welcome to Bank of California s third quarter earnings conference call . If you need operator assistance , please press star then zero .

Operator 2: Hello, welcome to Banc of California's Q3 Earnings Conference Call. If you need operator assistance, please press star then 0. I'll now turn it over to Ann DeVries, Head of Investor Relations at Banc of California. Please go ahead.

Operator: Hello, and welcome to Banc of California's third quarter earnings conference call. If you need operator assistance, please press star then zero. I'll now turn it over to Anne DeVries, Head of Investor Relations at Banc of California. Please go ahead.

Speaker #3: I'll now turn it over to Anne DeVries , head of investor relations at Bank of California . Please go ahead .

Speaker #4: Good morning , and thank you for joining Bank of California's third quarter earnings call . Today's call is being recorded and a copy of the recording will be available later today on our Investor Relations website .

Ann DeVries: Good morning, thank you for joining Banc of California's Q3 earnings call. Today's call is being recorded, 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.

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

Speaker #4: Today's presentation will also include non-GAAP measures . The 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 .

Speaker #4: 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 .

Speaker #4: For discussion of some of the risks that could affect our results , please see our Safe Harbor statement on forward looking statements included in the earnings release and the earnings presentation , as well as the Risk Factors section of our most recent 10-K .

Anne 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 factor section of our most recent 10-K. Joining me on today's call are Jared Wolff, Chairman and Chief Executive Officer, and Joe Camberato, 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.

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 factor section of our most recent 10-K. Joining me on today's call are Jared Wolff, Chairman and Chief Executive Officer, and Joseph 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.

Speaker #4: Joining me on today's call are Jared Wolf , Chairman and Chief Executive Officer and Joe Kotur , chief Financial Officer . After our prepared remarks , we will be taking questions from the analyst community .

Speaker #4: I would like to now turn the conference call over to Jared .

Speaker #5: Thanks , Ann , and good morning , everyone . We're pleased to report another strong quarter for Banc of California with double digit earnings per share growth and continued momentum across all of our key performance drivers .

Jared Wolff: Thanks, Anne, and good morning, everyone. We're pleased to report another strong quarter for Banc of California, with double-digit earnings per share growth and continued momentum across all of our key performance drivers. These results once again demonstrate the strength of our franchise, the consistent growth trajectory of our core earnings, and the disciplined execution of our teams. Strong Q3 earnings per share growth of 23% quarter over quarter of $0.38 reflects our success in generating positive operating leverage and continuing to expand our net interest margin. Since the start of the year, our return on tangible common equity has grown 231 basis points to 9.87%, while EPS has increased nearly 50% since Q1. During the quarter, we also continued returning capital to shareholders in a meaningful way.

Jared Wolff: Thanks, Ann. Good morning, everyone. We're pleased to report another strong quarter for Banc of California with double-digit earnings per share growth and continued momentum across all of our key performance drivers. These results once again demonstrate the strength of our franchise, the consistent growth trajectory of our core earnings, and the disciplined execution of our teams. Strong Q3 earnings per share growth of 23% quarter over quarter of $0.38 reflects our success in generating positive operating leverage and continuing to expand our net interest margin. Since the start of the year, our return on tangible common equity has grown 231 basis points to 9.87%, while EPS has increased nearly 50% since Q1. During the quarter, we also continued returning capital to shareholders in a meaningful way.

Speaker #5: These results once again demonstrate the strength of our franchise . The consistent growth trajectory of our core earnings and the disciplined execution of our team's strong Q3 earnings per share growth of 23% quarter over quarter of $0.38 reflects our success in generating positive operating leverage and continuing to expand our net interest margin .

Speaker #5: Since the start of the year, our return on tangible common equity has grown 231 basis points to 9.87%, while EPS has increased nearly 50% since Q1.

Speaker #5: During the quarter , we also continued returning capital to shareholders in a meaningful way . We repurchased 2.2 million shares of our common stock in Q3 and overall , under our program , we've bought back 13.6 million shares , more than 8% of our outstanding shares at an average price of $13.59 , well below our tangible book value per share .

Jared Wolff: We repurchased 2.2 million shares of our common stock in Q3, and overall, under our program, we've bought back 13.6 million shares, more than 8% of our outstanding shares, at an average price of $13.59, well below our tangible book value per share. Repurchases have totaled $185 million, more than half of our $300 million repurchase authorization. Even with this activity, our continued earnings growth has built CET1 to 10.14% at quarter end, and tangible book value per share has also increased 3% quarter over quarter to $16.99. We will continue to be prudent with the remainder of our share buyback program and use it opportunistically while remaining focused on maintaining strong capital levels. Core deposit trends were positive, with non-interest-bearing deposits of 9% and now represent 28% of total deposits. It was driven by both higher average balances and steady inflows of new business relationships.

Jared Wolff: We repurchased 2.2 million shares of our common stock in Q3. Overall, under our program, we've bought back 13.6 million shares, more than 8% of our outstanding shares at an average price of $13.59, well below our tangible book value per share. Repurchases have totaled $185 million, more than half of our $300 million repurchase authorization. Even with this activity, our continued earnings growth has built CET1 to 10.14% at quarter end, and tangible book value per share has also increased 3% quarter over quarter to $16.99. We will continue to be prudent with the remainder of our share buyback program and use it opportunistically while remaining focused on maintaining strong capital levels.

Speaker #5: Repurchases have totaled 185 million , more than half of our 300 million purchase repurchase authorization . And even with this activity , our continued earnings growth has built Cet1 to 10.14% at quarter end and tangible book value per share has also increased 3% quarter over quarter to $16.99 .

Speaker #5: We will continue to be prudent with the remainder of our share buyback program and use opportunistically while remaining focused on maintaining strong capital levels , core deposit trends were positive , with noninterest bearing deposits up 9% and now represent 28% of total deposits .

Jared Wolff: Core deposit trends were positive with non-interest-bearing deposits of 9% and now represent 28% of total deposits. It was driven by both higher average balances and steady inflows of new business relationships. This strong core funding enabled us to further reduce broker deposits, which declined 16% from the prior quarter and lowered our total cost of deposits by five basis points to 2.08%. As noted in our investor deck, core interest-bearing deposits also increased when runoff of interest-bearing broker deposits is excluded. Our deposit strategy is both dynamic and flexible. While we continue to grow our core deposits, we will choose to shrink or expand other sources of deposits as needed, depending on pricing, our loan production, and other liquidity needs. Loan production disbursements remained healthy at $2.1 billion, with broad-based production from our business units.

Speaker #5: It was driven by both higher average balances and steady inflows of new business relationships. This strong quarter of funding enabled us to further reduce broker deposits, which declined 16% from the prior quarter and lowered our total cost of deposits by five basis points to 2.08%.

Jared Wolff: This strong core funding enabled us to further reduce brokered deposits, which declined 16% from the prior quarter and lowered our total cost of deposits by 5 basis points to 2.08%. As noted in our investor deck, core interest-bearing deposits also increased when runoff of interest-bearing brokered deposits is excluded. Our deposit strategy is both dynamic and flexible. While we continue to grow our core deposits, we will choose to shrink or expand other sources of deposits as needed, depending on pricing, our loan production, and other liquidity needs. Loan production and disbursements remained healthy at $2.1 billion, with broad-based production from our business units. We purchased fewer SFR loans this quarter, down about $346 million from Q2, as yields contracted due to strong secondary market demand.

Speaker #5: As noted in our investor deck , core interest bearing deposits also increased when run of interest bearing brokered deposits is excluded . Our deposit strategy is both dynamic and flexible .

Speaker #5: While we continue to grow our core deposits, we will choose to shrink or expand other sources of deposits as needed, depending on pricing, our loan production, and other liquidity needs.

Speaker #5: Loan production and disbursements remained healthy at 2.1 billion , with broad based production from our business units . We purchased fewer SFR loans this quarter , down about 346 million from Q2 as yields contracted due to strong secondary market demand .

Jared Wolff: We purchased fewer SFR loans this quarter, down about $346 million from Q2, as yields contracted due to strong secondary market demand. Total loans declined about 1.6% from last quarter, mostly due to elevated paydowns and approximately $170 million of proactive payoffs of criticized loans, consistent with our strategy to maintain high-quality credit and exit credits that we believe are not meriting of long-term strength and support from us. Excluding that deliberate activity, our co-core loan portfolio was essentially flat. Pipelines remain strong, and we expect loan production activity to remain high. This strong loan production is one of the keys to the ongoing incremental growth in our earnings per share. The rate on new loan production remained healthy at 7.808%, well above the rate of loans that have been maturing.

Speaker #5: Total loans declined about 1.6% from last quarter, mostly due to elevated paydowns and approximately $170 million of proactive payoffs of criticized loans.

Jared Wolff: Total loans declined about 1.6% from last quarter, mostly due to elevated paydowns and approximately $170 million of proactive payoffs of criticized loans, consistent with our strategy to maintain high-quality credit and exit credits that we believe are not meriting long-term strength and support from us. Excluding that deliberate activity, our core loan portfolio was essentially flat. Pipelines remain strong, and we expect loan production activity to remain high. This strong loan production is one of the keys to the ongoing incremental growth in our EPS. The rate on new loan production remained healthy at 7.08%, well above the rate of loans that have been maturing. As a result, with strong loan production, even with elevated payoffs in the quarter, our balance sheet remixing accelerates our margin expansion. The loan sales we announced last quarter continued to proceed well.

Speaker #5: Consistent with our strategy to maintain high quality credit , credit and exit credits that we believe are not meriting of long term strength and support from us , excluding that deliberate activity , our core loan portfolio was essentially flat .

Speaker #5: Pipelines remained strong, and we expect loan production activity to remain high. This strong loan production is one of the keys to the ongoing incremental growth in our earnings per share.

Speaker #5: The rate on new loan production remained healthy at 7.88% , well above the rate of loans that have been maturing as a result , with strong loan production , even with elevated payoffs in the quarter , our balance sheet remixing accelerates our margin expansion .

Jared Wolff: As a result, with strong loan production, even with elevated payoffs in the quarter, our balance sheet remixing accelerates our margin expansion. The loan sales we announced last quarter continued to proceed well. In Q3, we liquidated $263 million of held-for-sale CRE loans, largely through the execution of strategic sales within our targets and some proactive paydowns. We currently have $181 million of CRE loans remaining in HFS that we expect to sell those over the next several quarters. Credit quality remains stable with criticized loans down 4% quarter-over-quarter and special mention loans down 24%.

Speaker #5: The loan sales we announced last quarter continued to proceed well in Q3 . We liquidated 263 million of held for sale CRE loans , largely through the execution of strategic sales within our targets and some proactive paydowns we currently have 181 million of CRE loans remaining in HDFS , and we expect to sell those over the next several quarters .

Jared Wolff: In Q3, we liquidated $263 million of held for sale CRE loans, largely through the execution of strategic sales within our targets and some proactive paydowns. We currently have $181 million of CRE loans remaining in HFS, and we expect to sell those over the next several quarters. Credit quality remains stable, with criticized loans down 4% quarter over quarter and special mention loans down 24%. Classified loan balances increased this quarter due to a timing issue related to a $50 million CRE loan for which the borrower executed a contract for sale after quarter end, as well as a revision to our risk rating framework for certain loans in the venture banking portfolio. It's important to mention that all of those loans are performing and on accrual status, with no delinquencies greater than 30 days. The updated framework was procedural and not indicative of any incremental underlying credit weakness.

Speaker #5: Credit quality remains stable with criticized loans down 4% quarter over quarter and special mention loans down 24% . Classified loan balances increased this quarter due to a timing issue related to a $50 million CRE loan , for which the borrower executed a contract for sale after quarter end , as well as a revision to our risk rating framework for certain loans in the venture banking portfolio .

Jared Wolff: Classified loan balances increased this quarter due to a timing issue related to a $50 million CRE loan for which the borrower executed a contract for sale after quarter end, as well as a revision to our risk rating framework for certain loans in the venture banking portfolio. It's important to mention that all of those loans are performing and on accrual status with no delinquencies greater than 30 days. The updated framework was procedural and not indicative of any incremental underlying credit weakness. Our allowance for credit losses increased to 1.12% of total loans or 1.65% on an economic coverage basis, reflecting our continued discipline to reserving and the strength of our credit profile. This was another great quarter for the company, a quarter that reinforces the positive trajectory we've established and the consistency of our performance.

Speaker #5: It's important to mention that all of those loans are performing and on accrual status , with no delinquencies greater than 30 days . The updated framework was procedural and not indicative of any incremental underlying credit weakness .

Speaker #5: Our allowance for credit losses increased to 1.12% of total loans, or 1.65% on an economic coverage basis, reflecting our continued discipline in reserving and the strength of our credit profile.

Jared Wolff: Our allowance for credit losses increased to 1.12% of total loans, or 1.65% on an economic coverage basis, reflecting our continued discipline to reserving and the strength of our credit profile. This was another great quarter for the company, a quarter that reinforces the positive trajectory we've established and the consistency of our performance. With a strong capital position, a valuable core deposit base, and a proven team that executes with discipline, we believe Bank of California is well positioned to deliver sustainable, high-quality earnings growth for many quarters to come. Now, let me turn it over to Joe for some additional financial details, and I'll certainly be back to answer questions. Thanks.

Speaker #5: This was another great quarter for the company , a quarter that reinforces the positive trajectory we've we've established and the consistency of our performance with a strong capital position of valuable core deposit base and a proven team that executes with discipline .

Jared Wolff: With a strong capital position, a valuable core deposit base, and a proven team that executes with discipline, we believe Banc of California is well-positioned to deliver sustainable, high-quality earnings growth for many quarters to come. Let me turn it over to Joe for some additional financial details, and I'll certainly be back to answer questions. Thanks.

Speaker #5: We believe Banc of California is well positioned to deliver sustainable , high quality earnings growth for many quarters to come . Now , let me turn it over to Joe for some additional financial details , and I'll certainly be back to answer questions .

Speaker #5: Thanks .

Speaker #6: Thank you Jared . For the third quarter , we reported net income of $59.7 million , or $0.38 per diluted share , which was up 23% from the adjusted EPs of $0.31 in the prior quarter .

Joe Camberato: Thank you, Jared. For the third quarter, we reported net income of $59.7 million or $0.38 per diluted share, which was up 23% from the adjusted EPS of $0.31 in the prior quarter. Net interest income rose 5% from Q2 to $253 million, and net interest margin expanded to 3.22%, driven by higher loan yields and lower deposit cost. Our exit net interest margin at quarter end was 3.18%, which is normalized for excess accretion income in the quarter. We expect our margin to continue to expand from this level in the fourth quarter. Average yield on loans increased 12 basis points to 6.05%, reflecting the benefit of portfolio mix shift towards higher yielding CNI loan categories, including warehouse, lender, venture. Our loan yields also benefited from higher accretion income, which was up approximately $3 million from Q2 due to loan payoff activity.

Joseph Kauder: Thank you, Jared. For Q3, we reported net income of $59.7 million or $0.38 per diluted share, which was up 23% from the adjusted EPS of $0.31 in the prior quarter. Net interest income rose 5% from Q2 to $253 million, and net interest margin expanded to 3.22%, driven by higher loan yields and lower deposit cost. Our exit net interest margin at quarter end was 3.18%, which is normalized for excess accretion income in the quarter. We expect our margin to continue to expand from this level in Q4. Average yield on loans increased 12 basis points to 6.05%, reflecting the benefit of portfolio mix shift towards higher yielding C&I loan categories, including warehouse, lender, venture.

Speaker #6: Net interest income rose 5% from Q2 to $253 million, and net interest margin expanded to 3.22%, driven by higher loan yields and lower deposit costs.

Speaker #6: Our exit net interest margin at quarter end was 3.18% , which is normalized for excess accretion income in the quarter . We expect our margin to continue to expand from this level in the fourth quarter .

Speaker #6: Average yield on loans increased 12 basis points to 6.05%, reflecting the benefit of portfolio mix shift towards higher yielding CNI loan categories, including warehouse, lender, and venture.

Speaker #6: Our loan yields also benefited from higher accretion income, which was up approximately $3 million from Q2 due to loan payoff activity. The spot loan yield at the end of the quarter was 5.90%, reflecting the impact of the September rate cut on the variable rate loans and normalization for accretion income during the quarter.

Joseph Kauder: Our loan yields also benefited from higher accretion income, which was up approximately $3 million from Q2 due to loan payoff activity. The spot loan yield at the end of Q3 was 5.90%, reflecting the impact of the September rate cut on the variable rate loans and normalization for accretion income during Q3. Total loans ended Q3 at $24.3 billion, down slightly from Q2, largely due to the intentional payoff activity and elevated paydowns that Jared mentioned. Excluding that, underlying core loan balances were stable. Deposit trends were strong as we saw a favorable mix shift towards more non-interest-bearing deposits and a reduction in broker deposits. As a result, cost of deposits declined 5 basis points to 2.08%. Our spot cost of deposits at 30 September was 1.98%.

Joe Camberato: The spot loan yield at the end of the quarter was 5.90%, reflecting the impact of the September rate cut on the variable rate loans and normalization for accretion income during the quarter. Total loans ended the quarter at $24.3 billion, down slightly from last quarter, largely due to the intentional payoff activity and elevated paydowns that Jared mentioned. Excluding that, underlying core loan balances were stable. Deposit trends were strong, as we saw a favorable mix shift towards more non-interest-bearing deposits and a reduction in brokered deposits. As a result, cost of deposits declined 5 basis points to 2.08%. Our spot cost of deposits at 9:30 A.M. was 1.98%, and our cumulative beta in this down rate cycle for interest-bearing deposits is approximately 66%.

Speaker #6: Total loans ended the quarter at $24.3 billion, down slightly from last quarter, largely due to the intentional payoff activity and elevated paydowns.

Speaker #6: Jared mentioned . Excluding that underlying core loan balances were stable . Deposit trends were strong , as we saw favorable mix shift towards more non-interest bearing deposits and a reduction in brokered deposits as a result , cost of deposits declined five basis points to 2.08% .

Speaker #6: Our spot cost of deposits at 930 was 1.98%, and our cumulative beta in this down rate cycle for interest-bearing deposits is approximately 66%.

Joseph Kauder: Our cumulative beta in this down rate cycle for interest-bearing deposits is approximately 66%. The interest rate sensitivity on 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, we remain liability sensitive due to the impact of rate-sensitive ECR cost on HOA deposits, which are reflected in non-interest expense. We expect fixed-rate asset repricing to continue to benefit net interest margin as we remix the balance sheet with high quality and higher yielding loans. We have approximately $1 billion of total loans maturing or resetting by the end of 2025, with a weighted average coupon of approximately 5% offering good repricing upside.

Speaker #6: The interest rate sensitivity on our balance sheet for net interest income remains largely neutral, as the current repricing gap is balanced when adjusted for repricing betas.

Joe Camberato: The interest rate sensitivity on 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, we remain liability sensitive due to the impact of rate-sensitive ECR cost on HOA deposits, which are reflected in non-interest expense. We expect fixed-rate asset repricing to continue to benefit net interest margin as we remix the balance sheet with high-quality and higher yielding loans. We have approximately $1 billion of total loans maturing or resetting by the end of 2025, with a weighted average coupon of approximately 5%, offering good repricing upside. Our multifamily portfolio, which represents approximately 25% 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 offers significant repricing upside.

Speaker #6: From a total earnings perspective , we remain liability sensitive due to the impact of rate sensitive ECR costs on deposits , which are reflected in non-interest expense .

Speaker #6: We expect fixed rate asset repricing to continue to benefit net interest margin as we remix the balance sheet with high quality and higher yielding loans .

Speaker #6: We have approximately $1 billion of total loans maturing or resetting by the end of 2025, with a weighted average coupon of approximately 5%, offering good repricing upside.

Speaker #6: Our multifamily portfolio , which represents approximately 25% 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 offers significant repricing upside .

Joseph Kauder: Our multifamily portfolio, which represents approximately 25% of our loan portfolio, has approximately $3.2 billion repricing or maturing over the next 2 and a half years at a weighted average rate that offers significant repricing upside. Non-interest income was $34.3 million, up 5% from last quarter, primarily due to higher fair value adjustments on market-sensitive instruments. Normal run rate for non-interest income remains at about $10 to 12 million per month. Non-interest expenses of $185.7 million were relatively flat across most expense categories as we continue to maintain disciplined expense controls while supporting our growth initiatives. The combination of stable expenses and higher revenue drove a more than 300 basis point decline in our adjusted efficiency ratio to 58%.

Speaker #6: Noninterest income was 34.3 million , up 5% from last quarter , primarily due to higher fair value adjustments on market sensitive instruments . Normal run rate for non-interest income remains at about 10 to 12 million per month .

Joe Camberato: Non-interest income was $34.3 million, up 5% from last quarter, primarily due to higher fair value adjustments on market-sensitive instruments. Normal run rate for non-interest income remains at about $10 to $12 million per month. Non-interest expenses of $185.7 million were relatively flat across most expense categories as we continue to maintain disciplined expense controls while supporting our growth initiatives. The combination of stable expenses and higher revenue drove a more than 300 basis point decline in our adjusted efficiency ratio to 58%. We continue to make progress on expanding positive operating leverage while still investing thoughtfully in technology and talent to support future growth. We expect Q4 expenses to be consistent with prior quarters and be at or below the low end of our range as we continue to make progress on managing core expenses.

Speaker #6: Non-interest expenses of 185.7 million were relatively flat across most expense categories , as we continue to maintain disciplined expense controls while supporting our growth initiatives .

Speaker #6: The combination of stable expenses and higher revenue drove a more than 300 basis point decline in our adjusted efficiency ratio to 58% . We continue to make progress on expanding positive operating leverage while still investing thoughtfully in technology and talent to support future growth .

Joseph Kauder: We continue to make progress on expanding positive operating leverage while still investing thoughtfully in technology and talent to support future growth. We expect Q4 expenses to be consistent with prior quarters and be at or below the low end of our range as we continue to make progress on managing core expenses. As Jared mentioned, credit quality remains stable with net recoveries of $2.5 million and declines in our criticized loan balances. Provision expense of $9.7 million was largely related to portfolio growth and updates to risk ratings and the economic forecast. Our allowance for credit losses ended the quarter at 1.12% of total loans or 1.65% on an economic coverage basis, consistent with our prudent approach to credit management. Looking ahead, we remain on track with our 2025 guidance.

Speaker #6: We expect expenses to be consistent with prior quarters and to be at or below the low end of our range, as we continue to make progress on managing core expenses.

Speaker #6: As Jared mentioned , credit quality remains stable with net recoveries of 2.5 million and declines in our criticized loan balances . Provision expense of 9.7 million was largely related to portfolio growth and updates to risk ratings , and the economic forecast .

Joe Camberato: As Jared mentioned, credit quality remains stable with net recoveries of $2.5 million and declines in our criticized loan balances. Provision expense of $9.7 million was largely related to portfolio growth and updates to risk ratings and the economic forecast. Our allowance for credit losses ended the quarter at 1.12% of total loans or 1.65% on an economic coverage basis, consistent with our prudent approach to credit management. Looking ahead, we remain on track with our 2025 guidance. We continue to expect loan growth for the full year to be in the mid-single-digit range and that net interest margin to remain within our 3.20% to 3.30% target range for the fourth quarter. We also expect to maintain our strong capital and liquidity position while delivering steady, high-quality earnings growth. With that, I'll turn it back to Jared.

Speaker #6: Our allowance for credit losses ended the quarter at 1.12% of total loans , or 1.65% on an economic coverage basis . Consistent with our prudent approach to credit management .

Speaker #6: Looking ahead , we remain on track with our 2025 guidance . We continue to expect loan growth for the full year to be in the mid single digit range , and that interest margin to remain within our 320 to 330 target range for the fourth quarter .

Joseph Kauder: We continue to expect loan growth for the full year to be in the mid single digit range and net interest margin to remain within our 320 to 330 target range for Q4. We also expect to maintain our strong capital and liquidity position while delivering steady, high quality earnings growth. With that, I'll turn it back to Jared.

Speaker #6: We also expect to maintain our strong capital and liquidity position while delivering steady , high quality earnings growth . With that , I'll turn it back to Jared .

Speaker #5: Thank you Joe . This was another excellent quarter for Bank of California . One that highlights our strong performance . Positive operating leverage and the consistency of our results .

Jared Wolff: Thank you, Joe. This was another excellent quarter for Banc of California, one that highlights our strong performance, positive operating leverage, and the consistency of our results. Since completing our systems conversion in the third quarter of 2024, following our merger with PacWest Bancorp, we have been building core earnings while improving the balance sheet, managing expenses, and efficiently deploying capital. With four quarters of high-quality earnings growth under our belt and foreseeable EPS growth in sight, the track record and the path ahead should be very clear. Our teams continue to execute with discipline and focus, driving growth and continuing to build one of the best franchises in California and everywhere else we operate. We have a proven business model that is delivering high-quality earnings through a diversity of lending channels, a valuable and growing core deposit base of deep client relationships, and a culture of performance and accountability.

Jared Wolff: Thank you, Joe. This was another excellent quarter for Banc of California, one that highlights our strong performance, positive operating leverage, and the consistency of our results. Since completing our systems conversion in Q3 of 2024 following our merger with PacWest, we have been building core earnings while improving the balance sheet, managing expenses, and efficiently deploying capital. With 4 quarters of high quality earnings growth under our belt and foreseeable EPS growth in sight, the track record and the path ahead should be very clear. Our teams continue to execute with discipline and focus, driving growth and continuing to build one of the best franchises in California and everywhere else we operate.

Speaker #5: Since completing our systems conversion in the third quarter of 24 , following our merger with Pac-west . We have been building core earnings while improving the balance sheet , managing expenses , and efficiently deploying capital .

Speaker #5: With four quarters of high quality earnings growth under our belt and foreseeable EPs growth in sight , the track record and the path ahead should be very clear .

Speaker #5: Our teams continue to execute with disciplined and focus driving growth and continuing to build one of the best franchises in California and everywhere else we operate .

Speaker #5: We have a proven business model that is delivering high quality earnings through a diversity of lending channels , a valuable and growing core deposit base of deep client relationships , and a culture of performance and accountability .

Jared Wolff: We have a proven business model that is delivering high quality earnings through a diversity of lending channels, a valuable and growing core deposit base of deep client relationships, and a culture of performance and accountability. We believe the opportunity in our markets remains significant as we capitalize on the dislocation in the California banking landscape and win new relationships. We continue to add high quality talent to support our growth as our teams continue to win new business and bring new relationships to the bank while serving our clients and keeping safety and soundness front and center. The consistency of our results, strength of our balance sheet and momentum in our business demonstrate why Banc of California is well positioned to continue our success and why we're so confident in the long term trajectory of our franchise.

Speaker #5: We believe the opportunity in our markets remains significant as we capitalize on the dislocation in the California banking landscape and win new relationships .

Jared Wolff: We believe the opportunity in our markets remains significant as we capitalize on the dislocation in the California banking landscape and win new relationships. We continue to add high-quality talent to support our growth as our teams continue to win new business and bring new relationships to the bank while serving our clients and keeping safety and soundness front and center. The consistency of our results, strength of our balance sheet, and momentum in our business demonstrate why Banc of California is well-positioned to continue our success and why we're so confident in the long-term trajectory of our franchise. Thank you to our employees for their dedication and commitment to serving our clients and community each and every day. With that, operator, let's open up the line for questions.

Speaker #5: We continue to add high quality talent to support our growth as our teams continue to win new business and bring new relationships to the bank while serving our clients and keeping safety and soundness front and center .

Speaker #5: The consistency of our results , strength of our balance sheet and momentum in our business demonstrate why . Banc of California is well , well positioned to continue our success and why we're so confident in the long term trajectory of our franchise .

Speaker #5: Thank you to our employees for their dedication and commitment to serving our clients and community each and every day . With that , operator , let's open up the line for questions .

Jared Wolff: Thank you to our employees for their dedication and commitment to serving our clients and community each and every day. With that operator, let's open up the line for questions.

Speaker #3: We will now begin the question and answer session . To ask a question , you may press star . Then one on your telephone keypad .

Operator 2: We will now begin the question and answer session. At this time, we will pause momentarily to assemble our roster. The first question comes from Jared Shaw with Barclays Capital. Please go ahead.

Operator: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Jared Shaw with Barclays Capital. Please go ahead.

Speaker #3: If you are using a speakerphone , please pick up your handset before pressing the keys . If at any time your question has been addressed and you would like to withdraw your question , please press star then two .

Speaker #3: At this time we will pause momentarily to assemble our roster . The first question comes from Jared Shore with Barclays Capital . Please go ahead .

Speaker #7: Hey everybody . Good morning . Good afternoon . Good morning . Thanks for the questions . Hey , just to start off , you know , the credit trends this quarter were really good .

[Analyst 1]: Hey, everybody. Good morning, good afternoon.

Jared Shaw: Hey, everybody. Good morning. Good afternoon.

Jared Wolff: Good morning.

Jared Wolff: Good morning.

Jared Shaw: Thanks for the questions. Hey, just to start off, you know, the credit trends this quarter were really good. You know, Banc of California was pulled into sort of a story of the Cantor loans and, you know, I think, you know, just sort of broader concern around MDFI lending and structure. Clearly from the numbers you put up, you must feel that there's not a lot of loss there. It feels like you have good collateral protection. Can you just give a little color on how you structured that exposure and why you feel why you feel that there's not loss there? Is that sort of reflective of the broader view of how you're going after some of the non-mortgage MDFI lending?

[Analyst 1]: Thanks for the questions.

Jared Wolff: Of course.

[Analyst 1]: Hey, just to start off, you know the credit trends this quarter were really good. You know Banc of California was pulled in to serve a story of the Cantor loans, and I think you know just sort of broader concern around NDFI lending and structure. Clearly, from the numbers you put up, you must feel that there's not a lot of loss there. It feels like you have good collateral protection. Can you just give a little color on how you structured that exposure and why you feel there's not loss there? Is that sort of reflective of the broader view of how you're going after some of the non-mortgage NDFI lending?

Speaker #7: And , you know , Bank of Cal was pulled into sort of a story of of the Cantor loans and , you know , I think , you know , just sort of broader concern around NFI lending and , and structure and clearly from , from the numbers you put up , you must feel that there's there's not a lot of loss there .

Speaker #7: And it feels like you have good collateral protection . Can you just give a little color on on how you structured that exposure and why you feel , why you feel that there's there's not loss there ?

Speaker #7: And is that sort of reflective of the broader view of how you're going after some of the non-mortgage NFI lending ?

Speaker #5: So thank you for the question , Jared . When you say how we structured that , you're speaking specifically to what was mentioned in the articles .

Jared Wolff: Thank you for the question, Jared. When you say how we structured that, you're speaking specifically to what was mentioned in the articles?

Jared Wolff: Thank you for the question, Jared. You're when you say how we structured that, you're speaking specifically to what was mentioned in the articles?

Speaker #7: Yeah . In terms of like being able to get additional commercial real estate collateral and and being sure that you have the senior lien position .

[Analyst 1]: In terms of being able to get additional commercial real estate collateral and then being sure that you have the, you know, senior lien position.

Jared Shaw: Yeah. In terms of like being able to get additional commercial real estate collateral and being sure that you have the, you know, senior lien position.

Speaker #5: Yes . So this this is this is a really important distinction . The the the frauds that were mentioned with Zions with fifth , third , with Western Alliance fundamentally had to do with NFI lending and , you know , they were generally lending with collateral pools .

Jared Wolff: Yes. This is a really important distinction. The frauds that were mentioned with Zions, with Fifth Third, with Western Alliance fundamentally had to do with NDFI lending. They were generally lending with collateral pools. We were mentioned because we had a loan to a related borrower, but our loan to that borrower was not an NDFI loan. It was a pure real estate loan. We weren't lending on any collateral pool. This was a loan that was made many, many years ago on a hotel on the beach in Laguna. That loan has been on non-accrual, has been classified, and we filed a lawsuit many quarters ago. It's been in our numbers. That had nothing to do with our NDFI lending. That was just a simple real estate loan. I would just say it was a real estate loan that the partners got into a business dispute.

Jared Wolff: Yes. This is a really important distinction. The frauds that were mentioned with Zions, with Fifth Third, with Western Alliance fundamentally had to do with MDFI lending. You know, they were generally lending with collateral pools. We were mentioned because we had a loan to a related borrower. Our loan to that borrower was not an MDFI loan. It was a pure real estate loan. We weren't lending on any collateral pool. This was a loan. We made a loan many, many years ago on a hotel on the beach in Laguna. That loan has been on non-accrual, has been classified, and we filed a lawsuit many quarters ago. It's been in our numbers. That had nothing to do with our MDFI lending.

Speaker #5: We were mentioned because we had a loan to a related borrower , but our loan to that borrower was not an NFI loan .

Speaker #5: It was a pure real estate loan . So we weren't lending on any collateral pool . This was a loan that was made .

Speaker #5: We made a loan many , many years ago to on a hotel in on the beach in Laguna . That loan has been on Non-accrual has been classified , and we filed a lawsuit many quarters ago .

Speaker #5: It's been in our numbers , but that was not had anything that had nothing to do with our NFI lending . That was just a simple real estate loan .

Jared Wolff: That was just a simple real estate loan. I would just say it was, you know, a real estate loan that the partners got into a business dispute. Clearly some of the drama that was going on there affected, you know, affected what was going on elsewhere. It's real estate. We're collateralized. We have a guarantee from this guy Stupen, we're relying on the property to pay us back, which we think we're well secured and, you know, we think there's plenty of collateral there. It's important to distinguish that. When we look at our I think Zions mentioned in their lawsuit that we were in first position. Again, they were looking at loans that were in a collateral pool that we had lent on purely as real estate loans.

Speaker #5: And so I would just say it was , you know , a real estate loan that that the partners got into a business dispute .

Speaker #5: Clearly , some of the the drama that was going on there affected was , you know , affected what was going on elsewhere .

Jared Wolff: Clearly, some of the drama that was going on there affected what was going on elsewhere. It's real estate. We're collateralized. We have a guarantee from this guy, Stupin, but we're relying on the property to pay us back, which we think we're well secured. We think there's plenty of collateral there. It's important to distinguish that. When we look at our, and I think Zions mentioned in their lawsuit that we were in first position. Again, they were looking at loans that were in a collateral pool that we had lent on purely as real estate loans. In fact, they were two single-family loans that are no longer in our portfolio. They were sold as part of a pool of single-family loans that was sold in connection with the transaction.

Speaker #5: But it's real estate . We're collateralized . We have a guarantee from this guy . Stupid . But we're relying on the property to pay us back , which we think we're well secured .

Speaker #5: And , you know , we think there's plenty collateral there . So it's important to distinguish that when when we look at our and I think Zions mentioned in their lawsuit that we were in first position again , they were looking at loans that were in a collateral pool that we had lent on purely as real estate loans .

Speaker #5: And in fact , they were two single family loans that are no longer in our portfolio . They were sold as part of a pool of single family loans that was sold in connection with the transaction .

Jared Wolff: In fact, they were two single-family loans that are no longer in our portfolio. They were sold as part of a pool of single-family loans that was sold in connection with the transaction. We weren't lending to these groups that seems to be caught up in the fraud and certainly not Tricolor our first brands. As it relates to Cantor and the related entities, we never lent to any of those on an MDFI basis. That wasn't what we were doing. Let me just put that to bed. You know, we're a real estate lender fundamentally to those folks, and we think we're well secured by real estate. You perfect a first priority interest in the mortgage deed when you make a real estate loan very easy.

Speaker #5: So we weren't lending to these groups . That seems to be caught up in the fraud and certainly not tricolor . First brands .

Jared Wolff: We weren't lending to these groups that seem to be caught up in the fraud and certainly not Tricolor or First Brands. As it relates to Cantor and the related entities, we never lent to any of those on an NDFI basis. That wasn't what we were doing. Let me just put that to bed. We're a real estate lender fundamentally to those folks, and we think we're well secured by real estate. You perfect a first-priority interest in the mortgage deed when you make a real estate loan, very easy. In terms of NDFI, we put a chart together in our investor deck. It's on page 14. A significant portion of our NDFI lending is in mortgage warehouse and fund finance, which I think people have a strong understanding of. You know, our mortgage warehouse loans are, we have a great team. It's really well done.

Speaker #5: But as it relates to Cantor and the related entities we never lent to any of those on an NFI basis just it wasn't what we were doing .

Speaker #5: So let me let me just put that to bed . You know , we're a real estate lender fundamentally to those folks . And we think we're well secured by real estate .

Speaker #5: And you perfect a first priority interest in the mortgage deed when you make a real estate loan . Very easy in terms of NFI , we put a chart together in our in our in our in our investor deck .

Jared Wolff: In terms of MDFI, we put a chart together in our investor deck. It's on page 14. A significant portion of our MDFI lending is in mortgage warehouse and fund finance, which I think people have a strong understanding of. You know, our mortgage warehouse loans are we have a great team. It's really well done. We've had it for years. But we think we do all of these credits well, including our lender finance loans that are business credit, consumer credit, and other mortgage credit. When you strip out mortgage warehouse, fund finance, and other mortgage credit, which is 11.6, 13.7% of our 18%, you're left with less than 5% of our loans having MDFI exposure.

Speaker #5: It's on page 14 , a significant portion of our NFI lending is in mortgage warehouse and Fund finance , which I think people have a strong understanding of .

Speaker #5: You know , our mortgage warehouse loans are are we have a great team . It's really well done . We've had it for years .

Jared Wolff: We've had it for years. We think we do all of these credits well, including our lender finance loans that are business credit, consumer credit, and other mortgage credit. When you strip out mortgage warehouse, fund finance, and other mortgage credit, which is 11.6%, 13.7% of our 18%, you're left with less than 5% of our loans having NDFI exposure. Across the board, we've had a history of no losses over, and I asked people to put in the 10-year historical loss rate so that we could go back as far as we can because PacWest Bancorp had been doing this for a long time, and mortgage warehouse at Banc of California has been in place for a long time. It's negligible. That's not to say you'll never have a loss, but I think that the way that we do it is very specific.

Speaker #5: We put but we think we do all of these credits . Well , including our lender finance loans that are business credit , consumer credit and other mortgage credit .

Speaker #5: And when you strip out mortgage , warehouse fund finance and other mortgage credit , which is 11.6 . 13.7% of our 18% , you're left with less than 5% of our loans .

Speaker #5: Having NFI exposure . But across the board , we've had a history of no losses over . And I asked people to put in the ten year historical loss rate so that we could go back as far as we can because Pac-west had been doing this for a long time , and mortgage warehouse at Banc of California has been been in place for a long time .

Jared Wolff: Across the board, we've had a history of no losses. I ask people to put in the 10-year historical loss rate so that we could go back as far as we can because PacWest had been doing this for a long time, and mortgage warehouse at Banc of California has been in place for a long time. It's negligible. That's not to say you'll never have a loss, but I think that the way that we do it is very specific. One thing that's important to mention that we put in our deck, and I, you know, I had our team go through what happened at the other locations without being critical of our peers who are very good lenders, things happen.

Speaker #5: It's it's negligible . That's not to say you'll never have a loss , but I think that the way that we do it is , is very specific .

Speaker #5: One thing that's important to mention , that we put in our deck and I , you know , I had our team go through what happened at the other locations without being critical of our of our peers who are very good lenders .

Jared Wolff: One thing that's important to mention that we put in our deck, and I had our team go through what happened at the other locations without being critical of our peers who are very good lenders, things happen. I said, you know, what do we do that's different to protect ourselves? They highlighted one of the things that we do is we have an in-house audit team that conducts anti-fraud measures, frequent testing of underlying collateral, cash collections, payment history, mortgage title checks. When we take a collateral pool, we look at it ourselves. We sample it. We check the trust deeds. We check the perfection and make sure that we know what position we're in through a broad sample. I don't want to be critical of my peers. They're all good lenders. I can only speak to our history, what we do, and how we do it.

Speaker #5: But things happen . I said , you know , what do we do ? That's different to protect ourselves . And they highlighted one of the things that we do is we have an in-house audit team that conducts anti-fraud measures , frequent testing of underlying collateral , cash collections , payment history , mortgage title checks .

Jared Wolff: I said, you know, what do we do that's different to protect ourselves? They highlighted one of the things that we do is we have an in-house audit team that conducts anti-fraud measures, frequent testing of underlying collateral, cash collections, payment history, mortgage title checks. When we take a collateral pool, we look at it ourselves, we sample it, we check the trust deeds, we check the perfection and make sure that we know what position we're in through a broad sample. Look, I don't want to be critical of my peers. They're all good lenders. I can only speak to our history, what we do and how we do it, I feel very comfortable with what we do. Let me pause there, Jared. Happy to answer more questions.

Speaker #5: When we do , when we take collateral pool , we look at it ourselves . We sample it , we check the we check the trustees .

Speaker #5: We check the perfection and make sure that we know what position we're in through a broad sample . So look , I don't want to be critical of my peers .

Speaker #5: They're all good lenders . I can only speak to our history , what we do and how we do it . And I feel very comfortable with what we do .

Jared Wolff: I feel very comfortable with what we do. Happy to, let me pause there, Jared. Happy to answer more questions.

Speaker #5: Let me pause there , Jared . Happy to answer more questions .

Speaker #7: Yeah , thanks . No , that was that was great color . I think good insight into into how you're structuring it . Maybe just as a follow up shifting over to to the margin .

[Analyst 1]: Yeah, thanks. That was great color. I think, you know, good insight into how you're structuring it. Maybe just as a follow-up, shifting over to the margin. You know, when we look at the guide for the margin of 3.20% to 3.30%, you know, is that a good normalized level? Or, you know, as we sort of end the year and start looking into 2026, how should we think about margin, especially with, you know, the likelihood of some cuts? I think your guidance does not assume cuts. Is that right?

Jared Shaw: Yeah, thanks. No, that was great color. I think, you know, good insight into how you're structuring it. Maybe just as a follow-up, shifting over to the margin. You know, when we look at the guide for the margin of 320 to 330, you know, is that a good normalized level? You know, as we sort of end the year and start looking into 2026, how should we think about margin, especially with, you know, the likelihood of some cuts? I think your guidance does not assume cuts. Is that right?

Speaker #7: You know , when we when we look at the the guide for the margin of 320 to 330 , you know , is that is that a good normalized level or , you know , as we as we sort of end the year and start looking into 26 , how should we be think about margin , especially with the likelihood of some cuts .

Speaker #7: And I think your guidance does not assume cuts . Is that right ?

Speaker #5: Correct . It doesn't assume cuts . I'll start and I'll let Joe Joe chime in . So we certainly with we are liability sensitive when you factor in the acres .

Jared Wolff: Correct. It doesn't assume cuts. I'll start, and I'll let Joe chime in. We certainly with, we are liability sensitive when you factor in the ECRs. We do expect our margin to expand. The accelerated accretion we had last quarter was in the middle of the quarter, which is why it affected, you know, our overall margin. It took us to 3.22. When you strip it out, we were at about 3.18, which was still a nice expansion from the prior quarter. We see our margin continuing to expand. The question is at what pace? You know, I'm pleased that our teams have been able to realize, I think, a pretty high level of beta, as we're really being disciplined in terms of managing our deposit costs.

Jared Wolff: Correct. It doesn't assume cuts. I'll start it. I'll let Joe chime in. We certainly are liability sensitive when you factor in the ECRs, and we do expect our margin to expand. The accelerated accretion we had last quarter was in the middle of the quarter, which is why it affected our overall margin. It took us to 322, but when you strip it out, we were at about 318, which was still a nice expansion from the prior quarter. We see our margin continuing to expand. The question is, at what pace? I'm pleased that our teams have been able to realize, I think, a pretty high level of beta as we're really being disciplined in terms of managing our deposit costs.

Speaker #5: And so we do expect our margin to expand the accelerated accretion we had last quarter was in the middle of the quarter , which is why it affected , you know , and it was it affected our overall margin .

Speaker #5: It took it to 322 . But when you strip it out , we were at about 318 , which was still a nice expansion from the prior quarter .

Speaker #5: So we see our margin continuing to expand . The question is at what pace ? You know , I'm pleased that our teams have been able to realize , I think , a pretty high level of beta as we as we're really being disciplined in terms of managing our deposit costs .

Speaker #5: So I expect , you know , whether we're going to achieve 66% or 50% is going to matter on a whole bunch of factors .

Jared Wolff: I expect, you know, whether we're going to achieve 66% or 50% is going to matter on a whole bunch of factors, but we certainly expect to achieve at least 50, if not higher, going forward on our deposit beta. Our margin will continue to expand. Joe and I were talking about this before the call. I mean, the biggest driver of our margin expansion seems to be our increased loan production, whatever it is in the quarter, and how that is really replacing loans that are at much lower rates. You know, one of the big shoulder bags we're carrying is this $6 billion multifamily portfolio that half of it matures or repays in the next 2 and a half years.

Jared Wolff: I expect whether we're going to achieve 66% or 50% is going to matter on a whole bunch of factors, but we certainly expect to achieve at least 50%, if not higher, going forward on our deposit beta. Our margin will continue to expand. Joe and I were talking about this before the call. The biggest driver of our margin expansion seems to be our increased loan production, whatever it is in the quarter, and how that is really replacing loans that are at much lower rates. One of the big shoulder bags we're carrying is this $6 billion multifamily portfolio. Half of it matures or repays in the next two and a half years, but that portfolio is 25% of our balance sheet, and it's 25% of our loan portfolio, and it's at 4%.

Speaker #5: But we certainly expect to achieve at least 50 , if not higher , going forward . On on our deposit beta . Our margin will will continue to expand .

Speaker #5: And Joe and I were talking about this before the call . I mean , the biggest driver of our margin expansion seems to be our increased loan production .

Speaker #5: Whatever it is in the quarter and how that is really replacing loans that are much lower rates . You know , one of the big shoulder bags we're carrying is this $6 billion multifamily portfolio that it will half of it matures or repays in the next two and a half years .

Speaker #5: But that's that portfolio is , you know , 25% of our balance sheet . And it's at of our loan portfolio and it's at it's at 4% .

Jared Wolff: That portfolio is at, you know, 25% of our balance sheet, and it's at of our loan portfolio, and it's at 4%. Even with rates coming down, our loans coming on are coming on at much higher rates. Even a lot of those loans happen to be floating rate loans, but they're still coming on at much higher rates. You know, generally, we'll have floors on those loans as well. Joe, anything to add there?

Speaker #5: So even with rates coming down , our loans coming on are coming on at much higher rates . And even a lot of those loans happen to be floating rate loans .

Jared Wolff: Even with rates coming down, our loans coming on are coming on at much higher rates. Even a lot of those loans happen to be floating rate loans, but they're still coming on at much higher rates. Generally, we'll have floors on those loans as well. Joe, anything to add there?

Speaker #5: But they're still coming on at much higher rates . And you know , generally we'll have flaws on those loans as well . Joe , anything to add there ?

Speaker #6: No , I think you captured it . Jared . You know , the as we look out into the future , you know , your original question , I think Jared was was , you know , is it a is it a solid run rate looking at three 2330 I think that's a starting point .

Joe Camberato: No, I think you captured it, Jared. As we look out into the future, your original question, I think, Jared, was, is it a solid run rate looking at $320 to $330? I think that's a starting point. As Jared Wolff mentioned, I think we intend to grow it from there. The loans, obviously, the remixing of the loans is a powerful accelerant to that. We also, as we did this quarter, are continuing to focus on growing non-interest-bearing and getting our cost of deposits, cost of funding down. You'll occasionally see some lumpy upside related to the accretion, which we had this quarter. I think we're feeling pretty good about it.

Joseph Kauder: No, I think you captured it, Jared. You know, as we look out into the future, you know, your original question, I think, Jared, was, is it a, is it a solid run rate looking at 320, 330? I think that's a starting point. As Jared Wolff mentioned, I think we intend to grow it from there. Obviously, the loans, the remixing of the loans is a powerful accelerant to that. You know, we also we're as we did this quarter, we're continuing to focus on growing non-interest bearing and getting our cost of deposits and cost of funding down. You'll occasionally see some, you know, some lumpy upside related to the accretion which we had this quarter.

Speaker #6: And then as Jared Wolfe mentioned , I think we intend to grow it from there . And the loans obviously the loan , the remixing of the loans is a powerful accelerant to that .

Speaker #6: But then, you know, we also are, as we did this quarter, continuing to focus on growing noninterest-bearing deposits and getting our cost of deposits down.

Speaker #6: Cost of funding down . And then you'll occasionally see some some , you know , some lumpy upside related to the accretion , which we had this quarter .

Speaker #6: So I think we're feeling pretty good about it .

Joseph Kauder: I think we're feeling pretty good about it.

Speaker #5: Jared , I think I think as we get to the fourth quarter , it's going to be easier to get through the fourth quarter .

Jared Wolff: Jared, I think as we get to Q4, get through Q4, it'll be easier for us to give you a range guidance for the margin for next year because I imagine you're starting to look at that. I expect if we're 3.20 to 3.30 right now, you know, obviously, we're going to end up there, you know, given that we're at 3.18 in Q4, and we don't even have a full quarter of rate cuts in. You know, we'll end up low 3.20s in Q4, most likely.

Jared Wolff: Jared, I think as we get to the fourth quarter, it's going to be easier to get through the fourth quarter. It'll be easier for us to give you a range guidance for the margin for next year because I imagine you're starting to look at that. I expect if we're 320 to 330 right now, we're going to end up, obviously, we're going to end up there, given that we're at 318 in the fourth quarter and we don't even have a full quarter of rate cuts in. We'll end up low 320s in the fourth quarter, most likely. I would expect the jumping-off point for 2026 is going to be 325 to 335 or wherever it is. That gives us some flexibility. Look, we're earnings first and margin second, but I think the margin will certainly continue to expand.

Speaker #5: It'll be easier for us to give you a range of guidance for the margin for next year, because I imagine you're starting to look at that.

Speaker #5: I expect if we're 320 to to 330 right now , you know , we're going to end up obviously we're going to we're going to end up there .

Speaker #5: You know , given that we're 318 in the fourth quarter and we don't even have a full quarter of rate cuts . And so I you know , we'll end up lower low , low three 20s in the fourth quarter most likely .

Speaker #5: And then I would expect the jumping-off point for 26 is going to be, you know, 325 to 335 or wherever it is.

Jared Wolff: I would expect the jumping off point for 2026 is going to be, you know, 3.25 to 3.35 or wherever it is, that gives us some flexibility. Look, we're earnings first and margin second, but I think the margin will certainly continue to expand, and we should have more guidance as we get closer to the end of the Q4.

Speaker #5: That gives us some flexibility . Look , we're earnings first in margin second . But I think the margin will certainly continue to expand .

Speaker #5: And we should have more guidance as we get closer to the end of the fourth quarter .

Jared Wolff: We should have more guidance as we get closer to the end of the fourth quarter.

Speaker #7: Thank you .

[Analyst 1]: Thank you.

Timur Braziler: Thank you.

Speaker #5: Thank you .

Jared Wolff: Thank you.

Jared Wolff: Thank you.

Speaker #3: The next question comes from Timur Braziller with Wells Fargo . Please go ahead .

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

Operator: The next question comes from Timur Braziller with Wells Fargo. Please go ahead.

Speaker #8: Hi . Good morning . Morning . Just maybe just back on that margin discussion . I guess . Just looking at at margin kind of not the combined effect with the ECR reduction .

Timur Braziler: Hi, good morning.

[Analyst 2]: Hi, good morning.

Jared Wolff: Morning.

Jared Wolff: Morning.

Timur Braziler: Maybe just back on that margin discussion. I guess just looking at margin, kind of not the combined effect with the ECR reduction, just are you still liability sensitive from a margin standpoint or relative to the comments you just made, rate cuts are gonna be punitive maybe upfront, and then you get that ECR benefit on the back end?

[Analyst 2]: Maybe just back on that margin discussion, just looking at margin, kind of not the combined effect with the ECR reduction. Are you still liability sensitive from a margin standpoint or relative to the comments you just made? Rate cuts are going to be punitive maybe upfront, and then you get that ECR benefit on the back end.

Speaker #8: Just. Are you still liability sensitive from a margin standpoint or relative to the comments you just made? Rate costs are going to be punitive.

Speaker #8: Maybe up , and then you get the ACR benefit on the back end .

Speaker #5: They're definitely not punitive to us . We are we are at worst case neutral with rate cuts . When you take out ACR and I'll let Joe correct me if I'm wrong there , but we believe that we really are fundamentally neutral , that our deposits and loans are kind of repricing in balance .

Jared Wolff: They're definitely not punitive to us. We are at worst case, neutral with rate cuts when you take out ECR. I'll let Joe correct me if I'm wrong there, but we believe that we really are fundamentally neutral, that our deposits and loans are kind of repricing in balance, and then ECR gives us that liability benefit. Our margin expansion is really being driven by this loan production that we're seeing. Joe, do you agree with that?

Jared Wolff: They're definitely not punitive to us. We are at worst case neutral with rate cuts when you take out ECR. I'll let Joe correct me if I'm wrong there, but we believe that we really are fundamentally neutral, that our deposits and loans are kind of repricing in balance, and then ECR gives us that liability benefit. Our margin expansion is really being driven by this loan production that we're seeing. Joe, do you agree with that?

Speaker #5: And then ACR gives us that liability benefit . But our margin expansion is really being driven by by this , this loan production that we're seeing .

Speaker #5: Joe, do you agree with that?

Speaker #6: Yeah . That's correct . We're right now as we stand today , we're neutral . Balance sheet . If you were just to if you were to exclude the HOA deposits with the ACR benefit .

Joe Camberato: Yeah, that's correct. Right now, as we stand today, we're neutral balance sheet if you were to exclude the HOA deposits with the ECR benefit.

Joseph Kauder: Yeah, that's correct. We're right now as we stand today, we're a neutral balance sheet. If you were to exclude the HOA deposits with the ECR benefit.

Speaker #5: And Timur , we kind of debate this internally . You know , when you do these models , as you probably know , these IRR models , they rely on a static balance sheet and nothing is ever static in a bank .

Jared Wolff: Timur, we kind of debate this internally. You know, when you do these models, as you probably know, these IRR models, they rely on a static balance sheet. Nothing is ever static in a bank. I always think that they're off in some way, and it's, you know, they're directionally accurate, but they're never truly accurate because the balance sheet is not static. The question is, which way is it off? I think we can drive more benefit because I guess that's the way my brain works, and that's where, you know, I'm going to drive results. I tend to think that we can even on a static balance sheet or a slightly dynamic balance sheet without production.

Jared Wolff: Timur, we kind of debate this internally. You know, when you do these models, as you probably know, these IRR models, they rely on a static balance sheet. Nothing is ever static in a bank. I always think that they're off in some way. They're directionally accurate, but they're never truly accurate because the balance sheet is not static. The question is, which way is it off? I think we can drive more benefit because I guess that's the way my brain works, and that's where I'm going to drive results. I tend to think that we can, even on a static balance sheet or a slightly dynamic balance sheet without production, I think I can get more movement on deposit costs because I can drive costs down. We have to put in assumptions about what deposits are going to reprice and how they're going to reprice.

Speaker #5: So I always think that they're off in some way . And it's you know , they're directionally accurate , but they're never truly accurate because the balance sheet is not static .

Speaker #5: And so the question is, which way is it off? I think we can drive more benefit because I guess that's the way my brain works.

Speaker #5: And that's where , you know , I'm going to drive . Drive results . But I tend to think that we can even on a static balance sheet or a slightly dynamic balance sheet without production , I think I can get , you know , more movement on deposit costs that can drive cost down .

Jared Wolff: I think I can get, you know, more movement on deposit costs because that can drive costs down. You know, we have to put in assumptions about what deposits are going to reprice and how they're going to reprice. I tend to think that we can be pretty aggressive, as long as, you know, we're doing well on, you know, our growth initiatives. The technical answer is we are completely neutral.

Speaker #5: You know , we have to put in assumptions about what deposits are going to reprice and how they're going to reprice . And I tend to think that we can be pretty aggressive as long as , you know , we're doing well on on our growth initiatives .

Jared Wolff: I tend to think that we can be pretty aggressive as long as we're doing well on our growth initiative. The technical answer is we are completely neutral.

Speaker #5: So, but the technical answer is we are completely neutral.

Speaker #8: Okay . That's good color . Thank you . And then just looking at the third quarter deposit growth , particularly in DDA , I guess how much of that is tied to warehouse .

[Analyst 2]: Okay, that's good to follow. Thank you. Just looking at the third quarter deposit growth, particularly in DDA, I guess how much of that is tied to warehouse? There wasn't really an increase in related ECR costs. Was that more backend driven and we might see the higher average balances impact Q4 numbers, or was a lot of that growth kind of ex-ECR driven?

Timur Braziler: Okay. That's good color. Thank you. Just looking at the Q3 deposit growth, particularly in DDA, I guess how much of that is tied to warehouse? There wasn't really a increase in related ECR costs. Was that more back-end driven and we might see the higher average balances impact Q4 numbers or was a lot of that growth kind of ex ECR driven?

Speaker #8: There wasn't really an increase in related ACR costs . Was that more back end driven . And we might see the higher average balances impact for queue numbers .

Speaker #8: Or was a lot of that growth kind of driven?

Speaker #5: It it wasn't . You said warehouse . I think you meant HOA . It wasn't . If I understood your question correctly about whether it was ho Hoa related .

Jared Wolff: It wasn't. You said warehouse, I think you meant HOA. It wasn't, if I understood your question correctly about whether it was HOA related, right?

Jared Wolff: You said warehouse. I think you meant HOA. It wasn't, if I understood your question correctly, about whether it was HOA related, right?

Speaker #5: Right .

Speaker #8: I mean, just ACR-related deposits.

[Analyst 2]: I mean, just ECR-related deposit growth.

Timur Braziler: I mean, just ECR-related deposit.

Speaker #5: Yeah . Yeah . The ACR is primarily in our HOA business . No , it really wasn't . We tend to see inflows of HOA at the beginning of a quarter .

Jared Wolff: Yeah. The ECR is primarily in our HOA business. No, it really wasn't. We tend to see inflows of HOA at the beginning of a quarter, and then they flow out through the quarter. You won't see kind of average balances grow, tied to ECR. Our highest ECR cost is really associated with some larger depositors in HOA, and we have not been growing balances from them because we don't want to increase our cost and concentration. Even if we were to grow HOA, we wouldn't see the same level of ECR costs come up. But that's just some color on how we're growing our balances, is the level of ECR that we're paying is not the same at new balances we're bringing in from HOA.

Jared Wolff: Yeah, the ECR is primarily in our HOA business. No, it really wasn't. We tend to see inflows of HOA at the beginning of a quarter, and then they flow out through the quarter. You won't see kind of average balances grow tied to ECR. Also, our highest ECR cost is really associated with some larger depositors in HOA, and we have not been growing balances from them because we don't want to increase our cost and concentration. Even if we were to grow HOA, we wouldn't see the same level of ECR costs come up. That's just some color on how we're growing our balances. The level of ECR that we're paying is not the same at new balances we're bringing in from HOA. Our team has done a great job of making sure that our ECR costs are not what they were historically.

Speaker #5: And then they flow out through the quarter. And so you won't see kind of average balances grow tied. ACR, also, our highest ACR cost is really associated with some larger depositors in HOA.

Speaker #5: And we have not been growing balances from them because we don't want to increase our costs and concentration . And so even if we were to grow HOA , we wouldn't see the same level of ACR costs come up .

Speaker #5: But the so that's just some color on on how we're growing our balances is the level of ACR that we're paying is not the same at new balances .

Speaker #5: We're bringing in from HOA . Our team has done a great job of of , you know , of of making sure that our ACR costs are not what they were historically .

Jared Wolff: Our team has done a great job of, you know, making sure that our ECR costs are not what they were historically. We have, you know, some larger relationships that have some more expensive deposits, and we just don't want to grow those, right? I would say that the deposit growth was pretty broad-based. You know, as I've said, I expect deposits over time to grow. We're working really hard at relationships. If people have been tracking kind of the ample reserve conversations at the national level and with the Fed policy. I mean, liquidity is tightening nationwide, and it's expected that, you know, the Fed is probably going to have to engage in some tomo activity to kind of put some liquidity back in the market.

Speaker #5: And we have, you know, some larger relationships that have some more expensive deposits. And we just don't want to grow those right.

Jared Wolff: We have some larger relationships that have some more expensive deposits, and we just don't want to grow those, right? I would say that the deposit growth was pretty broad-based. As I've said, I expect deposits over time to grow. We're working really hard at relationships. If people have been tracking kind of the ample reserve conversations at the national level and with the Fed policy, liquidity is tightening nationwide, and it's expected that the Fed is probably going to have to engage in some TOMO activity to put some liquidity back in the market. That's consistent with what I've been saying for many quarters, that if we're flat when liquidity is coming out of the system, we're winning because in many cases, deposits are down and your customers don't have more to give you. I would say this quarter was a great quarter. It was pretty balanced.

Speaker #5: And so we've been I would say that the deposit growth was pretty broad based . I , I've been , you know , as I've said , I expect deposits over time to grow .

Speaker #5: We're working really hard at relationships . If people have been tracking kind of the ample reserve conversations at the national level and the fed policy , I mean , liquidity is tightening nationwide and it's expected that , you know , the fed is probably going to have to engage in some activity to to kind of put some liquidity back in the market .

Speaker #5: That's consistent with what I've been saying for for many quarters is that if we're flat , when liquidity is coming out of the system , that we're winning because in many cases , deposits are down and your customers don't have more to give you .

Jared Wolff: That's consistent with what I've been saying for many quarters, is that if we're flat when liquidity is coming out of the system, that, you know, we're winning because in many cases, deposits are down and your customers don't have more to give you. I would say this quarter was a great quarter. It was pretty balanced. We brought in a lot of new relationships. We did see some good activities from some existing clients as well. We'll see what shows up in the Q3. We'll see what shows up in Q4. Over time, I expect that we're going to continue to win and bring in new deposit relationships in.

Speaker #5: I would say this quarter was a great quarter. It was pretty balanced. We brought in a lot of new relationships.

Jared Wolff: We brought in a lot of new relationships. We did see some good activity from some existing clients as well. We'll see what shows up in Q3. We'll see what shows up in Q4. Over time, I expect that we're going to continue to win on bringing new deposit relationships in.

Speaker #5: We did see some good activity from some existing clients as well . We'll see what shows up . I'm sorry , in the Q3 , so we'll see what shows up in Q4 .

Speaker #5: But over time , I expect that we're going to continue to win and bring in new deposit relationships in . .

Speaker #8: Great . Thanks , Jared .

Timur Braziler: Great. Thanks, Aaron.

[Analyst 2]: Great. Thanks, Jared.

Speaker #3: The next question , the next question comes from Matthew Clark with Piper Sandler . Please go ahead .

Operator 2: The next question. The next question comes from Matthew Clark with Piper Sandler. Please go ahead.

Operator: The next question comes from Matthew Clark with Piper Sandler. Please go ahead.

Speaker #9: Hey , good morning , Alan . Morning . Just on the loan deposit growth for the year . You know , targeting mid-single digit growth .

Matthew Clark: Hey, good morning, everyone.

[Analyst 3]: Hey, good morning, everyone.

Jared Wolff: Morning.

Jared Wolff: Morning.

Matthew Clark: Just on the loan deposit growth for the year, you know, targeting mid-single-digit growth, it implies a decent step up here in Q4. Maybe just speak to the pipeline on both sides of the balance sheet and maybe mid-single digit, you know, is 4% to 6%. 4% would kind of be in that range on the loan side. But on the deposit side, it just implies a, you know, a steeper step up.

[Analyst 3]: Just on the loan deposit growth for the year, you know, targeting mid-single-digit growth, it implies a decent step up here in Q4. Maybe just speak to the pipeline on both sides of the balance sheet and maybe mid-single digit, you know, is 4 to 6%. So 4% would kind of be in that range on the loan side, but on the deposit side, it just implies a, you know, a steeper step up.

Speaker #9: It implies a decent step up here in Q4. Q, maybe you could just speak to the pipeline on both sides of the balance sheet.

Speaker #9: And maybe , maybe mid-single digit . You know , is 4 to 6 . So four would kind of be in that range on the loan side .

Speaker #9: But on the deposit side , it's just implies a , you know , a steeper step up .

Speaker #5: Yeah . You're right . I mean what we don't do is we don't pull away from goals . We'll measure ourselves and see how we did at the end of the year .

Jared Wolff: Yeah, you're right. I mean, what we don't do is we don't pull away from goals. We'll measure ourselves and see how we did at the end of the year. You're right, it would suggest that we'd have to have some outsized growth this quarter, and we'll see if we hit it. You know, our teams are working hard. We might not, but I'm comfortable being measured against what we do. I think our shareholders are being rewarded by our growth in earnings, and I'd like to put out there all the initiatives that we have and how we're driving results for shareholders. The market is what it is. The dynamics are what they are. I think on a core basis on the loan, when you strip out the loans that were sold, when you look at kind of core loan growth, we'll probably hit the 4% to 6% range.

Jared Wolff: Yeah, you're right. I mean, what we don't do is we don't pull away from goals. We'll measure ourselves and see how we did at the end of the year. You're right. It would suggest that we'd have to have some outsized growth this quarter, and we'll see if we hit it. You know, our teams are working hard. We might not, but I'm comfortable being measured against what we do. I think our shareholders are being rewarded by our growth in earnings. I'd like to put out there all the initiatives that we have and how we're driving results for shareholders. The market is what it is. The dynamics are what they are.

Speaker #5: But you're right , it would suggest that we'd have to have some outsized growth this quarter , and we'll see if we hit it .

Speaker #5: You know , we're our teams are working hard . We might not . But I comfortable being measured against what we do . I think our shareholders are being rewarded by our growth and earnings .

Speaker #5: And I'd like to put out there all the initiatives that we have and how we're driving results for shareholders and the market is what it is .

Speaker #5: The dynamics are what they are . We're I think on a core basis on the loan , when you when you strip out the the loans that were sold , you know , when you look at kind of core loan growth , we'll probably hit the 4 to 6% range .

Jared Wolff: I think on a core basis on the loan, when you, when you strip out the loans that were sold, you know, when you look at kind of core loan growth, we'll probably hit the 4% to 6% range. I think that's fair. Deposits are gonna be a lot harder. We'll see where we end up. I just didn't feel like pulling back our goals. Our teams know what they are. They're out there working hard to try to deliver. Production's been fantastic. I've been really pleased with the production of our teams. Payoffs happen. Like I said, you know, earnings are continuing to grow notwithstanding that. I'm very pleased with what we're doing so far.

Speaker #5: I think that's fair . Deposits are going to be a lot harder . So we'll see where we end up . But I just didn't feel like pulling back our goals .

Jared Wolff: I think that's fair. Deposits are going to be a lot harder. We'll see where we end up. I just didn't feel like pulling back our goals. Our teams know what they are. They're out there working hard to try to deliver. Production's been fantastic. I've been really pleased with the production of our teams. Payoffs happen. Like I said, earnings are continuing to grow, notwithstanding that. I'm very pleased with what we're doing so far.

Speaker #5: Our teams know what they are . They're out there working , working hard to try to deliver . Production has been fantastic . I've been really pleased with the production of our teams .

Speaker #5: Payoffs happen , but like I said , you know , earnings are continuing to grow notwithstanding that . So I'm very pleased with what we're doing so far .

Speaker #6: Yeah , I would just add also that that , you know , we you know , we calibrate our deposits to our loans , right .

Joe Camberato: Yeah, I would just add also that, you know, we calibrate our deposits to our loans, right? We don't want to have too many deposits. If we end up with excess deposits, we'll occasionally take measures that will optimize our balance sheet. You know, there's a spectrum of deposits, and if loan growth, you know, to the extent that loan growth is robust in the fourth quarter, we can scale up those deposits to fund that.

Joseph Kauder: Yeah. I would just add also that, you know, we calibrate our deposits to our loans, right? We don't wanna have too many deposits. If we end up with excess deposits, we'll occasionally take measures that will optimize our balance sheet. You know, there's a spectrum of deposits. If loan growth, you know, to the extent loan growth is robust in Q4, we can scale up those deposits to fund that.

Speaker #6: So we don't want to have too many deposits . If we end up with excess deposits , we'll occasionally take measures that will optimize our balance sheet .

Speaker #6: But you know , we can there's a spectrum of deposits . And if loan growth , you know , loan growth is is robust .

Speaker #6: In the fourth quarter , we can scale up those deposits to fund that .

Speaker #5: Yeah . No . Joe . Joe that's I'm glad you mentioned that . It's one of the comments that I had in my prepared remarks , which is that we are we are pretty dynamic in managing the balance sheet to optimize earnings and not caring cash at levels where we think we can get a better return somewhere else .

Jared Wolff: Yeah, no, Joe, I'm glad you mentioned that. It's one of the comments that I had in my prepared remarks, which is that we are pretty dynamic in managing the balance sheet to optimize earnings and not carrying cash at levels where we think we can get a better return somewhere else. We'll let, depending on what we see in terms of our flows, keeping our loan to deposit ratio and our equity levels in balance. Our team does a great job. Our treasury team does a phenomenal job with our finance team of really optimizing in a very dynamic way. You know, when we bring on brokered deposits, at what cost, for what duration, what do we need right now, depending on other deposit flows? I'm glad you brought that up, Joe.

Jared Wolff: Yeah. No, Joe, I'm glad you mentioned that. It's one of the comments that I had in my prepared remarks, which is that we are pretty dynamic in managing the balance sheet to optimize earnings and not carrying cash at levels where we think we can get a better return somewhere else. We'll let, depending on what we see in terms of our flows, keeping our loan-to-deposit ratio and our equity levels in balance. Our team does a great job. Our treasury team does a phenomenal job with our finance team of really optimizing in a very dynamic way. You know, when we bring on broker deposits, at what cost, for what duration, what do we need right now, depending on other deposit flows. I'm glad you brought that up, Joe.

Speaker #5: And so and we'll let depending on what we see in terms of our flows , keeping our loan to deposit ratio or our liquidity levels and balance , our team does a great job .

Speaker #5: Our Treasury team does a phenomenal job with our finance team of really optimizing in a very dynamic way. You know, when we bring on broker deposits at what cost for what duration?

Speaker #5: What do we need right now? Depending on other deposit flows. And so I'm glad you brought that up, Joe.

Speaker #9: Great . And then just the other one for me on the on the venture business . Can you just provide a little more color on what changed in the way your , your risk rating those loans that may have caused a little bit of creep in the , the classifieds ?

Matthew Clark: Great. Then just the other one for me on the, on the venture business. Can you just provide a little more color on what changed in the way you're risk-rating those loans that may have caused a little bit of creep-

[Analyst 3]: Great. Just the other one for me on the venture business. Can you just provide a little more color on what changed in the way you're risk rating those loans that may have caused a little bit of creep in the classified?

Jared Wolff: Yeah.

Matthew Clark: in the classifieds?

Speaker #9: Yes , sure .

Jared Wolff: Yes. Sure. We mentioned this many quarters ago that we were going to get stricter on how we were internally grading ourselves because I feel like it's the best way to have an early warning system. You can downgrade credits based on a new methodology, but it has nothing to do with the experience that you've seen to date of the credits, but it might mean that you're watching them more closely 'cause we decide the environment or just our risk tolerance may have changed. The way that we're looking at venture credits fundamentally has to do with a matrix of a number of factors. It has to do with Fundamentally, just to remind everybody what we do in venture generally. Fund finance is capital call lines of credit. I think people are familiar with that.

Jared Wolff: Yes, sure. I mentioned this many quarters ago that we were going to get stricter on how we were internally grading ourselves because I feel like it's the best way to have an early warning system. You can downgrade credits based on a new methodology, but it has nothing to do with the experience that you've seen to date of the credits. It might mean that you're watching them more closely because we decide the environment or just our risk tolerance may have changed. The way that we're looking at venture credits fundamentally has to do with a matrix of a number of factors. It has to do with fundamentally, just to remind everybody what we do in venture generally. Fund finance is capital call lines of credit. I think people are familiar with that.

Speaker #5: So, as I mentioned many quarters ago, we were going to get stricter on how we were internally grading ourselves because I feel like it's the best way to have an early warning system.

Speaker #5: So you can downgrade credits based on a new methodology , but it has nothing to do with the experience that you've seen to date .

Speaker #5: Of the credits, but it might mean that you're watching them more closely because we decide the environment or just our risk tolerance may have changed.

Speaker #5: And so the way that we're looking at at venture credits fundamentally has to do with a matrix of a number of factors . It has to do with fundamentally just to remind everybody what we do in venture , generally .

Speaker #5: So, fund finance is capital call lines of credit. I think people are familiar with that venture where we have a disproportionate amount of deposits relative to our loans.

Jared Wolff: In venture, where we have a disproportionate amount of deposits relative to our loans, we lend discreetly. Generally, what we're doing in the venture space is lending to give somebody a line of credit that bridges a round of funding. When we bring in a relationship, they're giving us all of their, let's say it's a company that has some great software. They just did a round of $20 million at a $200 million valuation. That $20 million is going to come into our bank. Let's say we bid on a line of credit and we won. That $20 million is going to sit in our bank. It's probably going to be $2 million or $3 million in their operating account, and the rest is going to be in a money market account where they're getting some earnings because they need it because they're not profitable.

Jared Wolff: In venture, where we have a disproportionate amount of deposits relative to our loans, we lend discreetly. Generally, what we're doing in the venture space is lending to give somebody a line of credit that bridges a round of funding. When we bring in a relationship, let's say it's a company that's, you know, has some great software. They just did a round of $20 million at a $200 million valuation. That $20 million is gonna come into our bank. Let's say we bid on a line of credit and we won. That $20 million is gonna sit in our bank.

Speaker #5: We lend discreetly, and generally what we're doing in the venture space is lending to provide someone a line of credit that bridges around a funding.

Speaker #5: When we bring in a relationship , they're giving us all of , let's say , let's say it's a company that's , you know , has some great software and they just did a round of of $20 million at a $200 million valuation , that $20 million is going to come into our bank and let's say we we bid on a line of credit and we won that $20 million is going to sit in our bank .

Speaker #5: It's probably going to be $2 million or $3 million in their operating account, and the rest is going to be in a money market account where they're getting some earnings because they need it, since they're not profitable.

Jared Wolff: It's probably gonna be $2 or 3 million in their operating account, and the rest is gonna be in a money market account where they're getting some earnings because they need it because they're not profitable. They might have asked for a $5 million dollar line of credit. That line of credit is going to not be used. It's a bridge facility that would only be used when they go out to raise capital if they need additional time. What we monitor is the RMC, the remaining months of cash, as they burn, and make sure that we never have what's called crossover, which is when the debt is in excess of cash. As long as our debt remains greater than the cash level, and most of the time our debt is zero, we're fine.

Speaker #5: They might have asked for a $5 million line of credit . That line of credit is going to not be used . It's a bridge facility that would only be used when they go out to raise capital .

Jared Wolff: They might have asked for a $5 million line of credit. That line of credit is going to not be used. It's a bridge facility that would only be used when they go out to raise capital if they need additional time. What we monitor is the RMC, the remaining months of cash as they burn and make sure that we never have what's called crossover, which is when the debt is in excess of cash. As long as our debt remains less greater than the cash level, and most of the time our debt is zero, we're fine. We're benefiting from these deep relationships of treasury management and cards and all the other services we provide and the expertise that we provide that they certainly value. They may say, "Hey, we're going to go to a round C. We've got lined up investor support.

Speaker #5: If they need additional time . And what we monitor is the the risk , the remaining months of cash as they burn and make sure that we never have what's called crossover , which is when the debt is in excess of cash .

Speaker #5: As long as our debt remains less than the cash level, and most of the time our debt is zero, we're fine.

Speaker #5: And we've benefited from these deep , deep relationships of treasury management and cards and all the other services we provide . And the expertise that we provide that they certainly value .

Jared Wolff: We're benefiting from these deep, deep relationships of treasury management and cards and all the other services we provide and the expertise that we provide that they certainly value. They may say, Hey, we're gonna go to a round C. We've got lined up investor support. We need a little bit more time. We have 9 months of cash, and we think it's gonna take us down to about 4 months of cash. Okay. They're asking us, you know, and they're talking with us about whether or not they're going to borrow on that line of credit. Then it's a conversation and, you know, we go in with our eyes open based on what we see there. 99% of the time it works out fine. There have been circumstances when it doesn't.

Speaker #5: But they may say , hey , we're going to go to a round , see , we've got lined up investor support , we're going to we need a little bit more time .

Jared Wolff: We need a little bit more time. We have nine months of cash, and we think it's going to take us down to about four months of cash." Okay. They're asking us, you know, and they're talking with us about whether or not they're going to borrow on that line of credit. It's a conversation, and we go in with our eyes open based on what we see there. 99% of the time, it works out fine. There have been circumstances when it doesn't. What we've done is to tighten the requirements that we have for what we're looking at. We're looking at the sponsor support, the support of the VCs. We're looking at how they're doing relative to their business plan. We're looking at the remaining months of cash. We're looking at the cash-to-debt levels.

Speaker #5: We have nine months of cash and we think it's going to take us down to about four months of cash . Okay . And they're asking us , you know , and they're talking with us about whether or not they're going to borrow on that line of credit .

Speaker #5: And then it's a conversation . And and , you know , we go in with our eyes open based on what we see there .

Speaker #5: And 99% of the time it works out fine . But there have been circumstances when it doesn't . So what we've done is to is to is to tighten the requirements that we have for what we're looking at .

Jared Wolff: What we've done is to tighten the requirements that we have for what we're looking at. We're looking at the sponsor support, the support of the VCs. We're looking at how they're doing relative to their business plan. We're looking at the remaining months of cash. We're looking at the cash-to-debt levels. We just tightened up the matrix, and that caused us to rate credits in a, in a different way. There's about 8 or 10 things that we look at. It's hard for me to go deeper than that, Matthew, but I just wanted to give you some color.

Speaker #5: We're looking at the sponsor support , the support of the VCs . We're looking at how they're doing relative to their business plan .

Speaker #5: We're looking at the remaining months of cash . We're looking at the cash to debt levels . We just tightened up the matrix , and that caused us to rate credits in a in a different way .

Jared Wolff: We just tightened up the matrix, and that caused us to rate credits in a different way. There are about eight or ten things that we look at. It's hard for me to go deeper than that, Matthew, but I just wanted to give you some color. The credits could be the exact same credits and performing the exact same way, but under this new matrix, we might be looking at it a little bit differently, and it might trigger another conversation with the sponsor and the VC firm. That's just what we decide to do to tighten up our standards.

Speaker #5: And there's about 8 or 10 things that we look at . And it's hard for me to go deeper than that , Matthew , but I just wanted to give you some color .

Speaker #5: And so the credits could be the exact same credits . And performing the exact same way . But under this new matrix , we might be looking at it a little bit differently , and it might trigger another conversation with the with with the sponsor and the VC firm .

Jared Wolff: The credits could be the exact same credits and performing the exact same way, but under this new matrix, we might be looking at it a little bit differently, and it might trigger another conversation with the sponsor and the VC firm. That's just what we decided to tighten up our standards.

Speaker #5: And that's just what we decided to do to to tighten up our standards .

Speaker #9: That's great . Appreciate it .

[Analyst 3]: That's great. Appreciate it.

Matthew Clark: That's great. Appreciate it.

Speaker #5: I hope that hope that's helpful . Yep .

Jared Wolff: Hope that's helpful. Yep.

Jared Wolff: Hope that's helpful. Yep.

Speaker #3: The next question comes from David Feaster with Raymond James . Please go ahead .

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

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

Speaker #10: Hi . Good morning everybody .

David Feaster: Hi. Good morning, everybody.

[Analyst 1]: Hi, good morning, everybody.

Speaker #5: Good morning .

Jared Wolff: Morning.

Jared Wolff: Good morning.

David Feaster: I guess maybe touching on the loan growth side. You know, if we think about the growth dynamics, obviously payoffs and pay downs have been a headwind. If I was reading between the lines, it sounds like you're expecting improving production to drive growth rather than really a deceleration in payoffs and pay downs. I guess first, is that a fair characterization? Then secondarily, what do you see as some of the key drivers of that increase in production and how's pricing today?

Speaker #10: I guess maybe touching on the loan growth side . You know if we think about the growth dynamics obviously payoffs and paydowns have been a headwind .

[Analyst 1]: I guess maybe touching on the loan growth side, if we think about the growth dynamics, obviously, payoffs and paydowns have been a headwind. If I was reading between the lines, it sounds like you're expecting improving production to drive growth rather than really a deceleration in payoffs and paydowns. I guess first, is that a fair characterization? Secondarily, what do you see as some of the key drivers of that increase in production and how's pricing today?

Speaker #10: If I'm reading between the lines , it sounds like you're expecting production , improving production to drive growth rather than really a deceleration in payoffs and paydowns .

Speaker #10: I guess first , is that a fair characterization ? And then secondarily , what do you see as some of the the key drivers of that increase in production ?

Speaker #10: And how's pricing today ?

Speaker #5: Yeah , let me let me start at the back end of your question . So we see a very strong pipeline this quarter .

Jared Wolff: Yeah, let me start at the back end of your question. We see a very strong pipeline this quarter. It's looking really good. The fourth quarter tends to have good activity. It's obviously economy dependent, but right now, people seem to be doing well enough and active. I think rate cuts generally will stimulate activity as well. I think that probably bodes well for a good quarter. Pricing is holding up at 7.08% of new production. Yields are a little bit lower than prior quarters, but it's still really, I think, really, really good. If I look at the yields that we got on production in our individual lending units, which I have right here, production yield really held up pretty well. Construction was flat, was almost seven, was a little bit up. CNI was up. Venture was up. Warehouse was up. SBA was a little bit down.

Jared Wolff: Let me start at the back end of your question. We see a very strong pipeline this quarter. It's looking really good. You know, the Q4 tends to have good activity. It's obviously economy dependent, but right now people seem to be doing well enough and active. I think rate cuts generally will stimulate activity as well. I think, you know, that probably bodes well for a good quarter. Pricing is holding up. 7.08% of new production. You know, yields is a little bit lower than prior quarters, but it's still really, I think, really good. If I look at the yields that we got on production in our individual lending units, which I have right here, production yield really held up pretty well.

Speaker #5: It it's looking really good . You know the fourth quarter tends to have good activity . It's obviously economy dependent . But right now people seem to be doing well enough .

Speaker #5: And and and active and I think rate cuts generally will stimulate activity as well . So I think , you know , that probably bodes well for a good quarter .

Speaker #5: Pricing is holding up 7.8% of new production . You know yields is a little bit lower than prior quarters . But it's still really I think really , really good .

Speaker #5: And if I look at the yields that we got on production in our individual lending units , which I , which I have right here , production yield really held up pretty well .

Speaker #5: I mean , construction was was flat , was almost seven , was a little bit up C and I was up venture was up , warehouse was up , SBA was a little bit down .

Jared Wolff: I mean, construction was flat, was a little bit up. C&I was up. Venture was up. Warehouse was up. SBA was a little bit down. Equipment lending was slightly down. Fund finance was relatively flat. Lender finance was down. Lender finance was down about over 50 basis points, and that's because it is, those are floating rate credits pretty closely tied to SOFR. You know, we were very active in the quarter. You know, that would have brought some of it down. Overall, I think yields were pretty good in the quarter. We had 729 last quarter, and it was 708 this quarter. In the first quarter, it was 720.

Speaker #5: Equipment lending was was slightly down . Fund finance was was relatively flat . Lender finance was lender finance was down . So lender finance is was down about over 50 basis points .

Jared Wolff: Equipment lending was slightly down. Fund finance was relatively flat. Lender finance was down. Lender finance was down about over 50 basis points. That's because those are floating rate credits pretty closely tied to SOFR. We were very active in the quarter. That would have brought some of it down. Overall, I think yields were pretty good in the quarter. We had 7.29% last quarter, and it was 7.08% this quarter. In the first quarter, it was 7.20%. There was kind of a spike in the second quarter, and then third quarter came down a little bit. Rates tend to lag a little bit. This quarter, we'll see where they are based on rate cuts last quarter. Overall, I think production levels are strong. It's hard to know where payoffs are going to be in any given quarter. Stuff just happens. It's a very dynamic, active.

Speaker #5: And that's because it is . Those are floating rate credits pretty closely tied to Sofr . And so you know we we were very active in the quarter .

Speaker #5: And so you know that would have brought some of it down . But overall I think yields were pretty good in the quarter .

Speaker #5: We had 729 last quarter . And it was 7 or 8 this quarter . So but in in the first quarter it was 720 .

Speaker #5: So there was kind of a spike in the second quarter . And then third quarter came down a little bit . You know , and also rates tend to lag a little bit .

Jared Wolff: There was kind of a spike in Q2, and then Q3 came down a little bit. You know, and also rates tend to lag a little bit. This quarter, we'll see where they are based on rate cuts last quarter. Overall, I think production levels are strong. It's hard to know where payoffs are gonna be in any given quarter. Stuff just happens. You know, it's a very dynamic, active. Our clients are very active. You know, we had one client that won a lawsuit. They brought in tons of deposits, and then they paid off a big loan that they had with us. You know, it happens. We didn't know that that was gonna happen. It did, and it's fine. It's just normal.

Speaker #5: So this quarter we'll see where they are based on rate cuts last quarter . But overall I think production levels are strong . It's hard to know where payoffs are going to be in any given quarter .

Speaker #5: Stuff just happens . You know , it's a very dynamic active . Our clients are very active . You know , we had one client that won a lawsuit .

Jared Wolff: Our clients are very active. We had one client that won a lawsuit. They brought in tons of deposits, and then they paid off a big loan that they had with us. It happens. We didn't know that that was going to happen. It did. That's fine. It's just normal. We really try to save loans when we can see things that are going to pay off. If it's a multifamily payoff, we certainly want to bid on it. If it's a construction payoff, generally, we're happy with it. We'll find new construction because some of those longer-term mini perms at low rates, we're just not going to do. Sometimes they're too large. Even though we're going to do the construction, that doesn't mean we're going to do the mini perm.

Speaker #5: They brought in tons of deposits . And then they paid off a big loan that they had with us . And so , you know , it happens .

Speaker #5: We didn't know that that was going to happen . And and it did . That's fine . It's just it's just normal . But we really try to save loans when we can see things that are going to pay off .

Jared Wolff: We really try to save loans when we can see things that are gonna pay off. If it's a multifamily payoff, we certainly want to bid on it. If it's a construction payoff, generally we're happy with it. We'll find new construction because some of those longer-term mini-perms at low rates we're just not gonna do. Sometimes they're too large. Even though we're gonna do the construction, that doesn't mean we're gonna do the mini-perm. It's just there's much higher debt on the mini-perm, and it's just not something that we're necessarily prepared to do even if we did the construction. Sometimes we are, but not always. It just depends on the project. David, let me ask you to reframe. I wanna make sure I'm answering all of your question. Can you restate?

Speaker #5: If it's a multifamily payoff , we certainly want to bid on it . If it's a construction payoff , generally we're we're happy with it and we'll find new construction because some of those longer term mini at low rates were just not going to do .

Speaker #5: And sometimes they're too large , even though we're going to do the construction , that doesn't mean we're going to do the minimum .

Speaker #5: It's just there's much higher debt on the minimum , and it's just not something that we're necessarily prepared to do . Even if we did the construction , sometimes we are , but not always .

Jared Wolff: There's much higher debt on the mini perm, and it's just not something that we're necessarily prepared to do even if we did the construction. Sometimes we are, but not always. It just depends on the project. David, let me ask you to reframe. I want to make sure I'm answering all of your questions. Can you restate?

Speaker #5: It just depends on the project . And so , David , let me ask you to to reframe . I want to make sure I'm answering all of your question .

Speaker #5: Can you restate .

Speaker #11: Yeah . The other part was just .

David Feaster: Yeah. The other part was just, you know.

[Analyst 1]: Yeah, the other part was just, you know, with the increasing production that you were talking about, what are some of the key drivers of that?

Speaker #10: You know .

Speaker #11: Again .

Speaker #10: Yeah , the other part was just , you know , with the the increasing production that you were talking about , what are some of the key drivers of that ?

Jared Wolff: Yep.

David Feaster: Yeah, the other part was just, you know, with the increasing production that you were talking about, what are some of the key drivers of that?

Speaker #5: In terms of the areas where we're lending ? I mean , I think CNI overall is doing really well . So in , in California , across our commercial and community bank , we're seeing broad based , good production .

Jared Wolff: In terms of the areas where we're lending, I mean, I think C&I overall is doing really well. So in California, across our commercial and community bank, we're seeing broad-based good production. Generally in our middle market area, which is to companies that are a little bit more, a little bit more experienced, a little larger. We're seeing good production, you know, locally and even more broadly. Across California, we're getting referrals from our business units for businesses that are all over the country, which is great. Lender finance continues to shine.

Jared Wolff: In terms of the areas where we're lending, I think CNI overall is doing really well. In California, across our commercial and community bank, we're seeing broad-based good production. Generally, in our middle market area, which is to companies that are a little bit more experienced, a little larger, we're seeing good production locally and even more broadly. Across California, we're getting referrals from our business units for businesses that are all over the country, which is great. Lender finance continues to shine.

Speaker #5: And generally in our middle market area , which is to companies that are a little bit more , a little bit more experienced , a little larger .

Speaker #5: We're seeing good production , you know , locally and even more broadly across California . And we're getting we're getting referrals from our business units that for businesses that are all over the country , which is great lender finance continues to to shine .

Speaker #5: And one of the things that Anne mentioned in a note to me was that we provided back leverage for the loan sold last quarter that were in lender finance , and that might have brought down the loan yields a little bit to because we provided , you know , good rates on those loans for the back leverage for the loans that were sold .

Jared Wolff: One of the things that Anne mentioned in a note to me was that we provided back leverage for the loans sold last quarter that were in lender finance, and that might have brought down the loan yields a little bit too because we provided good rates on those loans for the back leverage for the loans that were sold, but it was still well above the rates of loans paying off. That might have contributed to lender finance rates being down a little bit. We're still seeing a lot of construction demand in terms of low-income housing tax credit. That stuff just takes a while to pay up, but that's doing very, very well. I would say that warehouse, there's always people that are refinancing and buying homes, even up or down. We see them to have good demand in warehouse. That's growing as well.

Jared Wolff: One of the things that Ann mentioned in a note to me was that we provided back leverage for the loans sold last quarter that were in lender finance, and that might have brought down the loan yields a little bit too because we provided, you know, good rates on those loans for the back leverage for the loans that were sold, but it was still well above the rates of loans paying off. That might have contributed to lender finance rates being down a little bit. Let's see. We're still seeing a lot of construction demand in terms of Low-Income Housing Tax Credit. That stuff just takes a while to pay up. That's doing very, very well.

Speaker #5: But it was still well above the rates of loans paying off . So that might have contributed to Leonard finance rates being down a little bit .

Speaker #5: Let's see . We we're still seeing a lot of construction demand in terms of low income housing tax credit . That stuff just takes a while to to pay up .

Speaker #5: But it's that's doing very , very well . And I would say that warehouse , you know , there's always people that are refinancing and and buying homes even , you know , up or down .

Jared Wolff: I would say that warehouse, you know, there's always people that are refinancing and buying homes even, you know, up or down. We seem to have good demand in warehouse. That's growing as well. I'd say those are the drivers right now.

Speaker #5: We seem to have good demand in warehouse . So that's that's growing as well . So I'd say those are the drivers right now okay .

Jared Wolff: I'd say those are the drivers right now.

Speaker #11: Fun finance has been always pretty .

[Analyst 1]: Okay.

David Feaster: Okay.

Jared Wolff: The other thing I would mention would be fund finance. It was not a big quarter for fund finance. It was one of their slowest quarters after really 3 really strong quarters. We'll see what happens in Q4. I know they have some good fundings expected this quarter, and fund finance could have a good quarter this quarter as well. It was not a big contributor last quarter.

Jared Wolff: Fund finance has been always pretty steady. The other thing I would mention would be fund finance. It was not a big quarter for fund finance. It was one of their slowest quarters after really three really strong quarters. We will see what happens in the fourth quarter. I know they have some good fundings expected this quarter, and fund finance could have a good quarter this quarter as well. It was not a big contributor last quarter.

Speaker #5: The other thing I would mention would be fun finance . It was not a big quarter for fun finance . It was one of their slowest quarters .

Speaker #5: After really three really strong quarters . So we'll see what happens in the fourth quarter . I know they have some good fundings expected this quarter and fun finance could , could , could have a good quarter this quarter as well .

Speaker #5: But it was not a big . contributor last quarter .

Speaker #10: Okay . And maybe shifting back I mean you guys have been very proactive managing credit . That's been a part of what the payoffs and paydowns that you're seeing .

[Analyst 1]: Okay. Maybe shifting back, you guys have been very proactive managing credit. That's been a part of what the payoffs and paydowns that you're seeing, some of which you're pushing out. The industry is obviously hyper-focused on the credit stance, the credit outlook. Today, just given some of the recent issues that we've seen in the industry, I think you've kind of put the NDFI issue to bed. Outside of that, is there anything where you're seeing any pressures or that you're watching more closely or that maybe you're pulling back from just that risk-adjusted returns don't maybe make as much sense just given competitive dynamics or underlying issues? Just kind of curious if there's anything you're seeing.

David Feaster: Okay. Maybe shifting back. I mean, you guys have been very proactive managing credit. That's been a part of what the payoffs and pay downs that you're seeing, some of it you're pushing out. The industry is obviously hyper-focused on the credit stance. The credit outlook, today, you know, just given some of the recent issues that we've seen in the industry. I think you kind of put the MDI issue to bed. Outside of that, I mean, is there anything where you're seeing any pressures or that you're watching more closely or that maybe you're pulling back from just that risk-adjusted returns don't maybe make as much sense just given, you know, competitive dynamics or underlying issues? Just kind of curious if there's anything you're seeing.

Speaker #10: Some of it you're pushing out the industry is obviously hyper focused on on credit at the credit outlook today . You know , just given some of the recent issues that we've seen in the industry , I think you've kind of put the issue to bed .

Speaker #10: But outside of that , I mean , is there anything where you're seeing any pressures or that you're watching more closely or that maybe you're pulling back from just that risk adjusted returns don't maybe make as much sense , just given , you know , competitive dynamics or underlying issues .

Speaker #10: Just kind of curious if there's anything you're seeing .

Speaker #11: Yeah .

Jared Wolff: Yeah. You know, as strong as the market is, I would say the areas where we have been very cautious have been certainly, you know, we have not backed off any of our office comments about we still think that that is You know, I was at an event with that one of the investment banks held with Blackstone, and Jon Gray was there speaking to a room full of CEOs about what they were seeing. They're like doubling down on San Francisco right now, the San Francisco office market. Obviously, Midtown Manhattan has come back pretty strong. That said, we don't feel the need to be an office lender. We just don't. I let others do it.

Jared Wolff: Yeah, you know, as strong as the market is, I would say the areas where we have been very cautious have been, certainly, you know, we have not backed off any of our office comments about we still think that that is, you know, I was at an event with one of the investment banks held with Blackstone, and John Gray was there speaking to a room full of CEOs about what they were seeing. They're like doubling down on San Francisco right now, the San Francisco office market. Obviously, Midtown Manhattan has come back pretty strong. That said, we don't feel the need to be an office lender. We just don't. I let others do it. We're backing off that, even though we just signed a big lease downtown in downtown Los Angeles, where we're moving in.

Speaker #5: You know , as strong as the market is I would say the areas where we have been very cautious have been certainly , you know , we have not not backed off any of our office comments about we we still think that that is you know , I was at an event with , with one of the investment banks held with Blackstone and John Gray was there speaking to room full of CEOs about what they were seeing .

Speaker #5: And they're like doubling down on San Francisco right now . The San Francisco office market , obviously , Midtown Manhattan has come back pretty strong .

Speaker #5: That said , we don't feel the need to be an office lender . We just don't . And I let others do it .

Speaker #5: And so we have we're backing off that even though we just signed a big lease downtown in downtown Los Angeles , where , you know , we're we're moving in and we're we have two offices that we consolidated in downtown Los Angeles , got the same square footage a little bit more , got rooftop signage for less than we were paying for the other two buildings combined .

Jared Wolff: We're backing off that, even though we just signed a big lease downtown in downtown Los Angeles, where, you know, we're moving in and we have two offices that we consolidated in downtown Los Angeles. Got the same square footage, a little bit more, got rooftop signage for less than we were paying for the other two buildings combined. We're trying to be proactive and take advantage of it. Notwithstanding that, and maybe because of that, I feel like I don't want to be a lender on office right now, we're not doing that. I would say that anything that has government in it, any type of property with government, we're staying away from.

Jared Wolff: We have two offices that we consolidated in downtown Los Angeles, got the same square footage, a little bit more, got rooftop signage for less than we were paying for the other two buildings combined. We're trying to be proactive and take advantage of it, notwithstanding that. Maybe because of that, I feel like I don't want to be a lender on office right now. We're not doing that. I would say that anything that has government in it, any type of property with government, we're staying away from. Some of the things that we moved out of, we forced exits of properties where the government was a tenant. I said, just get rid of it. Tell them we're not going to renew the loan and just move it out. That was some of the credits that went out in the quarter.

Speaker #5: So we're trying to be proactive and take advantage of it . Notwithstanding that , and maybe because of that , I feel like I don't want to be a lender on office right now .

Speaker #5: And so we're not doing that . And I would say that anything that has government in it , any type of property with government , we're we're staying away from and some of the things that we moved , moved out of , we forced exits of properties where the government was a tenant .

Jared Wolff: Some of the things that we moved out of, we forced exits of properties where the government was a tenant, and I said, Just get rid of it. Tell them we're not going to renew the loan and just move it out. That was some of the credits that went out in the quarter. At least one of them had a government tenant, and I said, Just get out of it. It was a large tenant in the property, and I said, Let's just move out of that property, even though it was completely stable. That's where we've been proactive as well.

Speaker #5: And I said , just get rid of it . Tell them we're not going to renew the loan and just move it out .

Speaker #5: And that was some of the the credits that went out in the quarter . At least one of them had had a government , had a government tenant .

Jared Wolff: At least one of them had a government tenant. I said, just get out of it. It was a large tenant in the property. I said, let's just move out of that property, even though it was completely stable. That's where we've been proactive as well.

Speaker #5: And I said , just , just get out of it . It was a large tenant in the property . And I said , let's just move out of that property .

Speaker #5: Even though it was completely stable . So that's where we've been proactive as well .

Speaker #11: Okay .

Speaker #10: That's helpful . Thanks everybody .

David Feaster: Okay. That's helpful. Thanks, everybody.

[Analyst 1]: Okay, that's helpful. Thanks, everybody.

Speaker #11: Thank you David .

Jared Wolff: Thank you, David.

Jared Wolff: Thank you, David.

Speaker #3: The next question comes from Chris Mcgratty with KB . Please go ahead .

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

Operator: The next question comes from Chris McGrady with KBW. Please go ahead.

Speaker #12: Hey . Hey Jared . Hey Joe .

[Analyst 3]: Oh, hey, Jared. Hey, Joe.

Christopher McGratty: Hey, Jared. Hey, Joe.

Speaker #11: Good morning .

Jared Wolff: Morning.

Jared Wolff: Morning.

Speaker #12: Jared . On the and you touched upon in your prepared remarks the the buybacks the opportunistic buybacks partly from private equity . How are you thinking about Cet1 levels given the earnings improvement ramp the growth you talked about ?

Christopher McGratty: Jared, on the, and you touched upon it in your prepared remarks, the buybacks, the opportunistic buybacks, partly from private equity. How are you thinking about CET1 levels, given the earnings improvement ramp, the growth you talked about and just in light of regulation?

[Analyst 3]: Jared, I know you touched upon it in your prepared remarks, the buybacks, the opportunistic buybacks partly from private equity. How are you thinking about CET1 levels, given the earnings improvement ramp, the growth you talked about, and just in light of regulation?

Speaker #12: And just in light of regulation?

Speaker #5: Yeah , I mean , I think the right numbers between 10 and 11 , and I think more people are coming , as I said in prior quarters , I think more people are coming down to us than going up to , you know , above 11 .

Jared Wolff: Yeah, I mean, I think the right number is between 10% and 11%. I think more people are coming, as I said in prior quarters, I think more people are coming down to us than going up to, you know, above 11%. I'd said before I thought 10.5% was totally fine. You know, so we're between 10% and 10.5% now. I think we've got plenty of capacity, and we're building up CET1 at a faster rate than we're growing earnings due to some benefits that we have on the tax side that Joe can walk through. We're able to continue to grow CET1 while buying back stock. We're completely undervalued, in my view, by a meaningful amount. You know, we've got to solve that by continuing to drive earnings growth. I think the market gets it, and we're going to continue to build on this track record.

Jared Wolff: Yeah, I mean, I think the right number is between 10 and 11, and I think more people are coming, as I said in prior quarters, I think more people are coming down to us than going up to above 11. I'd said before I thought 10.5 was totally fine. We're between 10 and 10.5 now. I think we've got plenty of capacity, and we're building up CET1 at a faster than we're growing earnings due to some benefits that we have on the tax side that Joe can walk through. We're able to continue to grow CET1 while buying back stock. We're completely undervalued, in my view, by a meaningful amount. We've got to solve that by continuing to drive earnings growth.

Speaker #5: I'd said before I thought ten and a half was totally fine . And , you know , so we're between 10 and 10 and a half now , and I think we've got plenty of capacity and we're building up cdt1 at a faster than we're growing earnings due to some benefits that we have on the on the tax side that Joe can walk through .

Speaker #5: And so we're able to continue to grow CET1 while buying back stock. And we're completely undervalued, in my view, by a meaningful amount.

Speaker #5: And you know we've got to solve that by continuing to drive earnings growth. I think the market gets it, and we're going to continue to build on this track record.

Jared Wolff: I think the market gets it, and we're going to continue to build on this track record. I think we now have a track record, and I think the margin expansion is there. I don't want to lose the opportunity to take advantage of buying back our stock. I think we're going to be plenty opportunistic and be able to maintain capital levels in the right range.

Speaker #5: But I think we now have a track record . And I think the margin expansion is is there . So but I don't want to lose the opportunity to take advantage of buying back our stock .

Jared Wolff: I think we now have a track record, and I think the margin expansion is there. I don't want to lose the opportunity to take advantage of buying back our stock. I think we're going to be plenty opportunistic and be able to maintain capital levels in the right range.

Speaker #5: And I think we're going to be plenty opportunistic and be able to maintain capital levels in the right range.

Speaker #12: Continuing buyback . Got it . And then on the ECR betas , maybe a question on for Joe , I guess . What are you assuming for betas on the ECR deposits ?

[Analyst 3]: Okay. Continuing to buy back. Got it. On the ECR betas, maybe a question for Joe. I guess, what do you assume means for betas on the ECR deposits? I may have missed that.

Christopher McGratty: Okay. Continue to buy back. Got it. On the ECR betas, maybe a question for Joe. I guess, what are you assuming for betas on the ECR deposits? I may have missed that.

Speaker #12: I missed that .

Joseph Kauder: It is approximately the way the contracts work is approximately 75% for every, you know, basis point move.

Speaker #6: So, it is approximately the way the contracts work; it is approximately 75% for every 100 basis points. For every basis point move, okay.

Joe Camberato: It is approximately 75% for every 100 basis point move, the way the contracts work.

Speaker #12: And then , Joe , I have you gertie's the tax , the fund tax item . What's what should we be thinking about in terms of tax strategies ?

Christopher McGratty: Okay. Joe, while I have you, Jared teased the tax, the fun tax item. What should we be thinking about in terms of tax strategies, tax rates? Anything unusual?

[Analyst 3]: Okay. Joe, I have you that Jared teased the tax, the fund tax item. What should we be thinking about in terms of tax strategies, tax rates, anything unusual?

Speaker #12: Tax tax rates, anything unusual?

Speaker #6: No , I think I think 25% is probably a good tax rate for us moving forward . We do have a big DTA .

Joseph Kauder: No. I think 25% is probably a good tax rate for us moving forward. We do have a big DTA, you know, generated from net operating losses that have occurred in the past. Also have a fair amount of tax credits which have been built up through our low-income housing activities, et cetera. As we use those up, as we make money and we use those up, you know, the way the tax law works is there is a, you know, you're kind of restricted in the benefit of that deferred tax asset in your CET1. As you use up the deferred tax asset, it comes back in, it gets recycled back through CET1.

Joe Camberato: No, I think 25% is probably a good tax rate for us moving forward. We do have a big DTA, you know, generated from net operating losses that have occurred in the past. Also have a fair amount of tax credits, which have been built up through our low-income housing activities, etc. As we use those up, as we make money and we use those up, you know, the way the tax law works is there is a, you know, you're kind of restricted in the benefit of that deferred tax asset in your CET1. As you use up the deferred tax asset, it comes back in. It gets recycled back through CET1, and so our CET1 is probably growing a little faster, is growing a little faster than our earnings as the amount of pullback from the NOL dissipates over time.

Speaker #6: You know , generated from net operating losses that have occurred in the past . Also have a fair amount of tax credits which have been built up through our low income housing activities , etc.

Speaker #6: . As as we use those up as we as we make money and we use those up , you know , those the way the tax law works is there's a , you know , you're kind of restricted in the benefit of that deferred tax asset in your city .

Speaker #6: One . So as you use up the deferred tax asset , it comes back in , it gets recycled back through city one .

Speaker #6: So our CT is probably growing a little faster , is growing a little faster than our earnings . As the amount of pullback from the Nol dissipates over time .

Joseph Kauder: Our CET1 is growing a little faster than our earnings as the amount of pullback from the NOL dissipates over time.

Speaker #6: Okay. It's pretty complicated. We can get into it more if you want. If you want to get into it.

Joe Camberato: It's pretty complicated, and we can get into it more if you want to get into it.

Christopher McGratty: Okay.

Joseph Kauder: It's pretty complicated. We can get into it more if you want to get into it.

Speaker #12: Yeah, I just, I'm just interested if I, if I think about utilization of it over the next couple of years, how much of a CET1 benefit are we talking?

[Analyst 3]: I'm just interested if I think about utilization of it over the next couple of years. Like how much of a CET1 benefit are we talking? Because I think it plays right into the buyback narrative.

Christopher McGratty: Yeah, I'm just interested if I, if I think about utilization of it over the next 2 years, like how much of a CET1 benefit are we talking? I think it plays right into the buyback narrative.

Speaker #12: Because I think it plays right into the buyback narrative.

Speaker #6: Yeah . Well , you know , I think it's part of maybe as part of our earnings guidance for at the end of the year , maybe we'll we'll put something together on that .

Joe Camberato: I think as part of our earnings guidance for at the end of the year, maybe we'll put something together on that.

Joseph Kauder: Yeah. Well, you know, I think it's part of our earnings guidance for at the end of the year. Maybe we'll put something together on that.

Speaker #12: Okay. That'd be great. Thank you.

[Analyst 3]: Okay, that'd be great. Thank you.

Christopher McGratty: Okay. That'd be great. Thank you.

Speaker #5: Thank you Chris .

[Analyst 1]: Thank you, Chris.

Jared Wolff: Thank you, Chris.

Speaker #3: The next question comes from Andrew Terrill with Stephens. Please go ahead.

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

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

Speaker #13: Hey good morning .

[Analyst 3]: Hey, good morning.

Andrew Terrell: Hey, good morning.

Speaker #5: Morning .

Jared Wolff: Morning.

Jared Wolff: Morning.

Andrew Terrell: I had a question just around the classified loans. Jared, I heard, you know, you mentioned the prepared remarks, the $50 million of the pickup sequentially was more of a timing issue. I guess, you know, one, should we expect classifieds moving down in Q4? I appreciate all the color on the venture, the venture business and the loan portfolio there. Any other areas left across the loan portfolio that you feel like you need to review kind of the matrix on risk rating? Anything we should expect incrementally there?

Speaker #13: I had a question just around the the classified loans . Jared , I heard you mentioned the prepared remarks . The 50 million of the pickup sequentially was more of a timing issue .

[Analyst 3]: I had a question just around the classified loans. Jared, I heard you mention in the prepared remarks, the $50 million of the pickup sequentially was more of a timing issue. I guess, one, should we expect classifieds moving down in the fourth quarter? I appreciate all the color on the venture business and the loan portfolio there. Any other areas left across the loan portfolio that you feel like you need to review, kind of the matrix on risk rating? Anything we should expect incrementally there?

Speaker #13: So, I guess, you know, one. Should we expect classifieds moving down in the fourth quarter? And then I appreciate all the color on the venture.

Speaker #13: The venture business and the the loan portfolio . There . Any other areas left across the the loan portfolio that you feel like you you need to review kind of the matrix on on risk rating .

Speaker #13: Anything we should expect incrementally there?

Speaker #5: I don't think so . So classified . The $50 million loan they signed the contract to sell it for well above our loan amount post post quarter end .

Jared Wolff: I don't think so. Classified, the $50 million loan, they signed the contract to sell it for well above our loan amount post-quarter end. That will come out this quarter. I think the conservative thing to say is that classifieds will remain flat. Of course, I hope they go down. I would want them to go down. Things always pop up, and it doesn't mean you're going to have a loss, but stuff just happens. Andrew, I want to be careful to say there, all things being equal, if we didn't have a dynamic balance sheet, yes, it would go down. I don't know. Stuff happens. I don't know. It could go up. It could stay flat. Hopefully, it doesn't. I think our team is doing a really good job.

Jared Wolff: I don't think so. Classified, the $50 million loan, they signed the contract to sell it for well above our loan amount post quarter end. That will come out this quarter. I think the conservative thing to say is that classifieds will remain flat. Of course, I hope they go down, and I would want them to go down. You know, Things always pop up and, you know, it doesn't mean you're going to have a loss, but stuff just happens. Andrew, I want to be careful to say they're, you know, all things being equal, if we, you know, we didn't have a dynamic balance sheet, yes, it would go down.

Speaker #5: So that will come out this quarter. I think the conservative thing to say is that classifieds will remain flat. But, of course, I hope they go down and I would want them to go down.

Speaker #5: But I have to. Things always pop up, and it doesn't mean you're going to have a loss, but stuff just happens.

Speaker #5: So Andrew , I want to be careful to say , you know , all things being equal , if , you know , we didn't have a dynamic balance sheet .

Speaker #5: Yes , it would go down . . But I don't know , stuff happens . I don't know it could , it could , it could go up .

Andrew Terrell: Right.

Jared Wolff: I don't know, stuff happens. I don't know. It could go up. It could stay flat. Hopefully it doesn't. I think our team is doing a really good job. To your second question about, you know, are there other areas where we're doing reviews that could kind of impact our credit metrics? I don't think so. I think our team has kind of gotten through it all. We had been rolling out this venture thing over several quarters. This was just kind of, you know, the quarter that had the most impact as we got through it and we started applying it.

Speaker #5: It could could stay flat . But hopefully it doesn't . I think our team is doing a really good job . And to your second question about , you know , are there other areas where we're doing reviews that could kind of impact our , our credit metrics ?

Jared Wolff: To your second question about whether there are other areas where we're doing reviews that could impact our credit metrics, I don't think so. I think our team has gotten through it all. We had been rolling out this venture thing over several quarters. This was just the quarter that had the most impact as we got through it and started applying it. I don't think there's going to be anything else. There's nothing else I'm aware of right now. That is what I would say.

Speaker #5: I don't think so . I think I think our team has kind of gotten through it all . And this we had been rolling out this venture thing over several quarters .

Speaker #5: And so this was just kind of , you know , the one that the quarter that had the most impact as we got through it and we started applying it .

Speaker #5: So I don't think there's going to be anything else . There's nothing else I'm aware of right now . Is that what I would say ?

Jared Wolff: I don't think there's going to be anything else. There's nothing else I'm aware of right now is that what I would say.

Speaker #13: Yeah , yeah , I know it's been a focus for for a while . Okay . That was it for me . I appreciate it .

[Analyst 3]: Yeah, I know it's been a focus for a while. Okay, that was it for me. I appreciate it.

Andrew Terrell: Yep. Yeah, I know it's been a focus for a while. Okay. That was it for me. I appreciate it.

Speaker #5: Yeah . Thank you . Appreciate it .

Jared Wolff: Yeah, thank you. Appreciate it.

Jared Wolff: Yeah. Thank you. Appreciate it.

Speaker #3: The next question comes from Gary Tenner with D.A. Davidson . Please go ahead .

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

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

Speaker #14: Thanks. Good morning, guys.

Joe Camberato: Thanks. Good morning, guys. Good morning. Most of my questions were asked, but I wanted just to ask about the timing of the buyback through the quarter. It looks like just based on the average purchase price, it was kind of weighted towards the last bit of the quarter after the stock had run up a little bit. Was that kind of delayed just more of a function of getting visibility over where kind of growth in capital was going to go over the course of the quarter before you became more active later in the quarter? Were there other considerations?

Gary Tenner: Thanks. Good morning, guys.

Speaker #11: Morning .

Jared Wolff: Morning.

Speaker #14: Most of my questions were asked, but I want to just ask about the timing of the buyback through the quarter.

Gary Tenner: Most of my questions were asked, I wanted just to ask about the timing of the buyback through the quarter. It looks like just based on the average purchase price, it was kind of weighted towards the, you know, the last bit of the quarter after the stock had run up a little bit. Was that kind of delay just more of a function of getting visibility over where kind of growth and capital was going to go over the course of the quarter before you became more active later in the quarter? Were there other considerations?

Speaker #14: It looks like just based on the on the average purchase price , it was kind of weighted towards the the , you know , the last bit of the quarter after the stock had run up a little bit , was that kind of delay just more of a function of getting visibility over where kind of growth in capital was going to go over the course of the quarter before you became reactive .

Speaker #14: Later in the quarter, or were there other considerations?

Speaker #11: I don't know if .

Speaker #5: I , I don't know if I can confirm that , Gary . Not because there's anything confidential there . It's just because I don't know that .

Jared Wolff: I don't know if I can confirm that, Gary, not because there's anything confidential there. It's just because I don't know that that's right. I'd have to go back and look at it. You know, these are average prices that we're giving you, it affects, you know, how much was purchased when versus purchased elsewhere. Also we had a block that we purchased from Warburg. It's hard for me to confirm that. Joe, I don't know if you have any data or input.

Jared Wolff: I don't know if I can confirm that, Gary, not because there's anything confidential there. It's just because I don't know that that's right. I'd have to go back and look at it. These are average prices that we're giving you, and it affects how much was purchased when versus purchased elsewhere. Also, we had a block that we purchased from more. Eric,

Speaker #5: That's right . I have I'd have to go back and look at it , you know , these are average prices that we're giving you .

Speaker #5: And it affects , you know , the what what how much was purchased when versus purchased elsewhere . And then also we had a block that we purchased from , from Warburg .

Speaker #5: So I it's hard for me to confirm that . Joe , I don't know if you have any , any data or .

Operator: It's hard for me to confirm that. Joe, I don't know if you have any data or answers.

Speaker #11: An well .

Joseph Kauder: Well, you know, in the deck on page 24, we show how much we purchased and the average price. Gary, I'm not sure I understood the question.

[Analyst]: In the deck on page 24, we show how much we purchased and the average price. I'm not sure I understood the question.

Speaker #6: , you know , in the deck on page 24 , we show how much we purchased and the average price . I'm not I'm not sure I understood the question .

Speaker #14: Well . I mean , average .

Gary Tenner: Well, I mean, the average price I think was $16.48, right?

Operator: I mean, the average price I think was $1.48, right?

Speaker #11: Price, I think, was $1,648.

Speaker #14: Right ?

Speaker #6: Yes .

[Analyst]: Yes.

Joseph Kauder: Yes.

Speaker #14: And if I look at just kind of , you know , and knowing where the stock generally was over the course of the third quarter , and you didn't get kind of over 16 , call it until late August .

Gary Tenner: If I look at just kind of, you know, and knowing where the stock generally was over the course of Q3, and you didn't get kind of over 16, call it, until late August.

Operator: If I look at just kind of, you know, and knowing where the stock generally was over the course of the third quarter, you didn't get kind of over $16, call it, until late August. It was kind of, you know, the stock was there mostly through September. That's what drove the question. Okay. Your question was whether or not it was driven by making sure we had the right capital levels. I think that was the heart of your question, though, right?

Speaker #14: And then it was kind of , you know , the stock was there , you know , mostly through September . So that's that's that's what drove the question .

Jared Wolff: Yes.

Gary Tenner: You know, the stock was there most, you know, mostly through September. That's what drove the question.

Speaker #5: Okay .

Speaker #11: So .

Jared Wolff: Okay. Your question was whether or not it was driven by making sure we had the right capital levels. I think that was the heart of your question, though, right?

Speaker #5: We your question was whether or not it was driven by making sure we had the right capital levels. I think that was the heart of your question, though, right?

Speaker #11: That was that was the timing . Yeah . So let me .

Gary Tenner: That was part, yeah.

[Analyst]: That was where, yeah.

Jared Wolff: Was the timing.

Operator: That was the timing. Yeah. Let me try to address that. We absolutely want to make sure that when we buy back our stock, our capital levels are going to be sufficient. We definitely look at, you know, where do we think capital is going to be when we buy back stock. That is part of our calculation. That is part of our analysis. Let me just say, without saying when we bought stock, I will tell you that we definitely look at that. That's probably a fair conclusion to make. We obviously ended comfortably above. It's also pretty hard to calculate because of what Joe said about our dynamic range of our taxes and the NOLs that we have and how it impacts our CET1. It's a little bit iterative how that calculation works, and sometimes you don't have all the feedback.

Gary Tenner: Yeah. Okay.

Speaker #5: Let me try to address that . We absolutely want to make sure that when we buy back our stock , our capital levels are going to be sufficient .

Jared Wolff: Let me, let me try to address that. We absolutely want to make sure that when we buy back our stock, our capital levels are going to be sufficient. We, we definitely look at, you know, where do we think capital is going to be when we buy back stock. That is, that is part of our calculation. That is part of our analysis. Let me just say, without saying when we bought stock, I will tell you that we definitely look at that, and that's probably a fair conclusion to make. We obviously ended comfortably above. It's also pretty hard to calculate because of what Joe said about our dynamic range of, our taxes and the NOLs that we have and how it impacts our CET1.

Speaker #5: And we so we , we definitely look at , at , you know , where do we think capital is going to be when we buy back stock .

Speaker #5: So that is that is part of our calculation . That is part of our analysis . So let me just say without saying , when we bought stock , I will tell you that we definitely look at that .

Speaker #5: And that's probably a fair conclusion to make . But we obviously ended ended comfortably above . It's also pretty hard to calculate because of what Joe said about our our dynamic range of of our taxes and the NOLs that we have and how it impacts our cht1 .

Speaker #5: And it's a little bit iterative , how that calculation works . And sometimes you don't have all the all the feedback . But I think I think what we experienced last quarter coming out of , you know , we were at 990 or 9 , 95 or wherever we were on Cht1 now that we're comfortably above ten , I mean , I'm , I think that that one might have been a one quarter kind of kind of item that isn't really a concern going forward .

Jared Wolff: It's a little bit iterative how that calculation works. Sometimes you don't have all the feedback. I think what we experienced last quarter coming out of, you know, we were at 990 or 995 or wherever we were on CET1. Now that we're comfortably above 10, I mean, I think that that one might have been a one quarter kind of item that isn't really a concern going forward.

Operator: I think what we experienced last quarter coming out of, you know, we were at 9.90% or 9.95% or wherever we were on CET1. Now that we're comfortably above 10%, I think that one might have been a one-quarter kind of item that isn't really a concern going forward.

Speaker #14: Got it. I appreciate the thoughts.

[Analyst]: Got it. Appreciate the thoughts.

Gary Tenner: Got it. Appreciate the thoughts.

Speaker #11: Yeah . Okay .

Jared Wolff: Yep. Okay. Also, let me just say, look, we're always going to be looking at a variety of uses of our capital. We have $115 million left on our share repurchase authorization. It is unlikely that we will use all of it because we will retain some of it. We do intend to be active when we believe that our shares are undervalued relative to other opportunities of what we could be using our capital for at any given time. They're not mutually exclusive. You know, our shares are, in our view, meaningfully undervalued. We're growing tangible book value at, I don't know, the past couple quarters it's been $0.25 plus per quarter.

Operator: Yeah. Okay. Let me just say, look, we're always going to be looking at a variety of uses of our capital. We have $115 million left on our share repurchase authorization. It is unlikely that we will use all of it because we will retain some of it. We do intend to be active when we believe that our shares are undervalued relative to other, and we'll always be looking at other opportunities of what we could be using our capital for at any given time. They're not mutually exclusive, but you know, our shares are, in our view, meaningfully undervalued. We're growing tangible book value at, I don't know, the past couple of quarters, it's been $0.25 plus per quarter.

Speaker #5: And also let me just say, look, we're always going to be looking at a variety of uses of our capital.

Speaker #5: We have 115 million left on our share repurchase authorization . It is unlikely that we will use all of it because we will retain some of it .

Speaker #5: But we do intend to be active when we believe that our shares are undervalued relative to other . But we'll always be looking at other opportunities of what we could be using our capital for at any given time .

Speaker #5: And so they're not mutually exclusive . But , you know , our shares are , in our view , meaningfully undervalued . We're growing tangible book value at , I don't know , the past couple of quarters , it's been $0.25 plus per quarter .

Speaker #5: So , you know , it seems like knowing where we're likely going to end up , you know , we can figure out if we're not trading at 125 , 130 or more of tangible book , which we should be given , you know , kind of our clear earnings path , you know , and the solid balance sheet that we have and the quality of the franchise and , you know , how big a footprint we have in California and how unique this is .

Operator: It seems like knowing where we're likely going to end up, we can figure out, like, if we're not trading at 125%, 130%, or more of tangible book, which we should be given, you know, kind of our clear earnings path, and the solid balance sheet that we have and the quality of the franchise and how big a footprint we have in California and how unique this is. I just think our stock is undervalued. We'll be opportunistic.

Jared Wolff: You know, it seems like knowing where we're likely going to end up, you know, we can figure out, like, you know, if we're not trading at 125, 130 or more of tangible book, which we should be given, you know, kind of our clear earnings path, you know, and the solid balance sheet that we have and the quality of the franchise and, you know, how big a footprint we have in California and how unique this is. I just think, you know, our stock is undervalued. We'll be opportunistic. Did you have a follow-up, Mr. Tenner?

Speaker #5: I just think, you know, our stock is undervalued. So we'll be opportunistic.

Speaker #3: Did you have a follow up Mr. tenor .

[Company Representative]: Did you have a follow-up, Mr. Tenner?

Speaker #14: No, I'm fine, thank you.

Gary Tenner: No, I'm fine. Thank you.

[Analyst]: No, I'm fine. Thank you.

Speaker #3: The next question comes from Anthony Elion with J.P. Morgan. Please go ahead.

Operator 2: The next question comes from Anthony Elian with JPMorgan. Please go ahead.

[Company Representative]: The next question comes from Anthony Elliott with J.P. Morgan. Please go ahead.

Speaker #15: Yeah . Hi , Jared . Just a direct follow up to your comment you just made on the buyback , right . Why not be more aggressive here given the stock is still trading near tangible book value before u potentially get to that ?

Anthony Elian: Yeah. Hi, Jared. Just a direct follow-up to your comments you just made. On the buyback, right, why not be more aggressive here given the stock is still trading near tangible book value before you potentially get to that 125 or 130 of TBV? Is it just because you don't want to get below 10% CET1 and you want to retain some capital?

Operator: Yeah. Hi, Jared. Just a direct follow-up to your comments you just made on the buyback, right? Why not be more aggressive here given the stock is still trading near tangible book value before you potentially get to that $125 or $130 of tangible book value? Is it just because you don't want to get below 10% CET1 and you want to retain some capital?

Speaker #15: 125 or 130 of TBV. Is it just because you don't want to get below 10% CET1, and you want to retain some capital?

Speaker #11: Well .

Jared Wolff: Well, we might do exactly what you just said. I don't think it's prudent for us to tell the market exactly what we're doing and when we're going to do it because that generally tends to work against us. Just I'm sure you can understand that dynamic. I want to make it clear that we will be opportunistic without saying exactly when we're going to do it. I think we've done a really good job to date. If you look at the average prices that we bought at, I think people can say that we've been pretty effective at it overall with the average price of $13.59 for the total program. You know, you pick your spots and you pick your dynamics.

[Analyst]: I don't think it's prudent for us to tell the market exactly what we're doing and when we're going to do it because that generally tends to work against us. I'm sure you can understand that dynamic. I don't think we should be, I want to make it clear that we will be opportunistic without saying exactly when we're going to do it. I think we've done a really good job to date. If you look at the average prices that we've bought at, I think people can say that we've been pretty effective at it overall with the average price of $13.59 for the total program. You pick your spots and you pick your dynamics. Strategically, Tony, what you're saying is accurate. I want to be careful about what I commit to when.

Speaker #5: We might we might do exactly what you just said . I don't think it's prudent for us to tell the market exactly what we're doing and when we're going to do it , because that generally tends to work against us .

Speaker #5: So, I just want to make sure you can understand that dynamic. I don't think we should be. I want to make it clear that we will be opportunistic without saying exactly when we're going to do it.

Speaker #5: And I think we've done a really good job to date . If you look at the average prices that we've bought at , I think people can say that we've we've been pretty effective at it overall , with the average price of 1359 for the total program .

Speaker #5: So , you know , you pick your spots and you pick your dynamics , but strategically , Tony , what you're saying is accurate .

Jared Wolff: Strategically, Tony, what you're saying is accurate. I want to be careful about what I commit to when.

Speaker #5: But I want to be careful about what I commit to.

Speaker #15: One that's fair . And then my follow up , Joe , on the Nim guide , the for Q Nim guide . I know you don't assume rate cuts , but if we do get a cut next week in December , could you quantify the impact that would have to the three , 2 to 330 guide ?

Anthony Elian: That's fair. My follow-up, Joe, on the NIM guide, the Q4 NIM guide. I know you don't assume rate cuts, but if we do get a cut next week in December, could you quantify the impact that would have to the 3.20% to 3.30% guide? If we assume the forward curve next year, how would that impact the jumping-off point of 3.25% to 3.35% you mentioned earlier? Thank you.

Operator: That's fair. My follow-up, Joe, on the NIM guide, the Q4 NIM guide, I know you don't assume rate cuts. If we do get a cut next week in December, could you quantify the impact that would have to the 3.2% to 3.30% guide? If we assume the forward curve next year, how would that impact the jumping-off point of 3.25% to 3.35% you mentioned earlier? Thank you.

Speaker #15: And then if we assume the forward curve next year , how would that impact the jumping off point of 325 to 335 ? You mentioned earlier thank you .

Speaker #6: Yeah . So you know , as we mentioned earlier , the , you know , our core net interest income is neutral . But we have the liability sensitivity in our HOA , ECR book .

Joseph Kauder: Yeah. You know, as we mentioned earlier, you know, our core net interest income is neutral, but we have liability sensitivity in our HOA ECR book. The way the ECR deposits for HOA ECR deposits work is that they kick in the first day of the next quarter after the rate cut. If there was a, you know, if there's a rate cut upcoming here in Q4, we will not get benefit of that until 1 January. I would not assume that we would get much benefit in Q4 from that rate cut.

[Analyst]: As we mentioned earlier, our core net interest income is neutral, but we have the liability sensitivity in our HOA ECR book. The way the ECR deposits for HOA ECR deposits work is that they kick in the first day of the next quarter after the rate cut. If there's a rate cut upcoming here in the fourth quarter, we will not get benefit of that until January 1. I would not assume that we would get much benefit in the fourth quarter from that rate cut.

Speaker #6: The way the ECR deposits for deposits work is that they kick in the first day of the next quarter after the rate cut.

Speaker #6: So if there was a , you know , if there's a rate cut upcoming here in the fourth quarter , we will not get benefit of that until January 1st .

Speaker #6: I would I would not assume that we would get much benefit in the fourth quarter from that rate cut .

Speaker #5: And then Tony was asking about how rate cuts affect our margin guidance . Correct . Tony .

Operator: Tony was asking about how rate cuts affect our margin guidance. Tony, I think.

Jared Wolff: Tony was asking about how rate cuts affect our margin guidance. Tony, I think.

Speaker #15: Specifically on the 320 and 330 NIM guy. Just if we do get the cut next week, I mean, that's going to be more impactful coupled with the September cut.

Anthony Elian: Correct. Specifically on the 320 to 330 NIM guide. If we do get the cut next week.

[Company Representative]: Right. Specifically on the 3.20% to 3.30% NIM guide, just if we do get the cut next week, that's going to be more impactful coupled with the September cut. How would that change? Thank you.

Joseph Kauder: Yeah

Anthony Elian: I mean, that's going to be more impactful coupled with the September cut. How would that change? Thank you.

Speaker #15: So how would that change ? Thank you .

Speaker #11: Okay , I think we have to I think I think we have .

[Analyst]: Okay.

Joseph Kauder: Okay.

Operator: I think we have to.

Jared Wolff: I think we have. Hold on, Joe, just one second. I think we have to see because so much of our NIM, since we're kind of neutral, but for the ECR, which doesn't, you know, which is HOA, I think a lot of our NIM depends upon our loan production, Tony. There's a little bit of a lag, right? We just have to see how that flows through. Joe, what do you think?

Speaker #5: Hold on , hold on . Just one second . I think I think we have to see because so much of our Nim since , since we're kind of neutral .

[Analyst]: I think we have to hold on, Joe, just one second. I think we have to see because so much of our NIM, since we're kind of neutral, but for the ECR, which doesn't, you know, which is HOA, I think a lot of our NIM depends upon our loan production, Tony. There is a little bit of a lag, right? We just have to see how that flows through. Joe, what do you think? No, that's exactly right. It gets complicated because we can, as the point or the discussion that Jared had earlier about the technical answer, the technical answer is pretty straightforward, which is that a 25 basis point rate cut for our ECR, HOA ECR, it relates to about $6 million a year of pre-tax income. There are other factors that factor in.

Speaker #5: But for the ECR , which doesn't , you know , which which is HOA , I think a lot of our Nim depends upon our loan production , Tony .

Speaker #5: And so we, and there's a little bit of a lag. Right. And so we just have to see how that flows through.

Speaker #5: Joe, Joe, what do you think...

Speaker #6: No , that's exactly right . It gets complicated because we can as the point or the discussion that Jared had earlier about the technical answer , the technical answer is pretty straightforward , which is that a 25 basis point rate cut for the for our ECR .

Joseph Kauder: That, that's exactly right. It gets complicated because as the point or the discussion that Jared had earlier about the technical answer. The technical answer is pretty straightforward, which is that a 25 basis point rate cut for the, for our ECR, HOA ECR, it relates to about $6 million a year of pre-tax income. There's other factors that factor in. You know, if rates go down and there is, you know, economy stays strong, that should boost lending, that should have a benefit to us. Some of our loans, a lot of our loans have floors in them, so when do we hit those floors and whatnot. It's a little bit more complex than just saying that it's how fast can we bring down deposits?

Speaker #6: Hoa ECR is is relates to about 6 million a year of pre-tax income . But there's other factors that factor in , you know , if rates go down and there is you know , economy stays strong .

[Analyst]: You know, if rates go down and the economy stays strong, that should boost lending. That should have a benefit to us. Some of our loans, a lot of our loans have floors in them. When do we hit those floors and whatnot? It is a little bit more complex than just saying that. It's how fast can we bring down deposits? What kind of deposit bathing can we get with our customers? It is a little bit, you know, hard. I think the technical answer is what I said earlier.

Speaker #6: That should that should boost lending . That should have a benefit to us . Some of our loans , a lot of our loans have flaws in them .

Speaker #6: So when do we hit those floors? And, and, and whatnot. So it's a little bit more complex than just saying that it's how fast can we bring down deposits.

Speaker #6: What kind of deposit can we get with our customers . It's a little it's a little bit , you know , hard . But I think the technical answer is what I , what I said earlier .

Joseph Kauder: What kind of deposit betting can we get with our customers? It's a little bit, you know, hard. I think the technical answer is what I said earlier.

Speaker #5: And Tony , the non-technical answer is I expect that our margin will expand as rates go down because of our production and loans are coming on at higher rates than deposits are going and deposits are going down .

Operator: Tony, the non-technical answer is I expect that our margin will expand as rates go down because of our production and loans are coming on at higher rates than deposits are going and are going down, given stuff paying off. If we're at 3.20% to 3.30% now and we think we're going to end the year at the low 3.20% range, right, have a, you know, I don't know what it's going to be for the, whether it's, you know, 3.20%, 3.21%, whatever it is for Q4. Off that 3.18% that we ended the quarter at, that's your starting point for next year. We generally don't model rate cuts. We just, you know, we will a little bit, but we are slightly sensitive to them.

Jared Wolff: Tony, the non-technical answer is I expect that our margin will expand as rates go down because of our production and loans are coming on at higher rates than deposits are going down, given stuff paying off. If we're at 320 to 330 now and we think we're going to end the year at the low 320s, right? Have a, you know, I don't know what it's going to be whether it's, you know, 320, 321, whatever it is for Q4. Then, off that 318 that we ended the quarter at. That's your starting point for next year. We generally don't model rate cuts. We just, you know, we will a little bit, but we are slightly sensitive to them.

Speaker #5: Given stuff paying off . And so if we're at 320 to 330 now and we're we think we're going to end the year at the low three 20s , right .

Speaker #5: Have a, you know, I don't know what it's going to be for the, whether it's $3.2321 billion, whatever it is for Q4.

Speaker #5: And then off that 318 that we ended the quarter at. And then, so that's your starting point for next year. We generally don't model rate cuts.

Speaker #5: We just you know , we will a little bit , but we are slightly sensitive to them . So if the guy next year is is , you know , 325 to 335 or whatever it is , I think we'll just kind of be updating it as we go from there .

Operator: If the guide next year is, you know, 3.25% to 3.35% or whatever it is, I think we'll just kind of be updating it as we go from there.

Jared Wolff: If the guide next year is, you know, $3.25 to $3.35 or whatever it is, I think we'll just kind of be updating it as we go from there.

Speaker #15: Thank you .

[Company Representative]: Thank you.

Anthony Elian: Thank you.

Speaker #11: Yep .

Operator 2: Yep. The next question comes from Timothy N. Coffey with Janney. Please go ahead.

[Analyst]: Yep.

Speaker #3: The next question comes from Tim Coffee with Janney. Please go ahead.

[Company Representative]: The next question comes from Tim Coffey with Janney. Please go ahead.

Speaker #16: Thank you . Morning , everybody . Jared . If we were to look at your non-interest expenses and back out the earnings credit rates , they've been essentially flat for the last year .

Timothy Coffey: Thank you. Morning, everybody.

Jared Wolff: Thank you very much, everybody.

Operator: All right.

Jared Wolff: Morning.

Timothy Coffey: Jared, if we were to look at your non-interest expenses and back out the earnings credit rate, they've been essentially flat for the last year. Not to say that it hasn't been something that you've been paying attention to, but has something changed with your philosophy of cost control in the last year that has become more of an emphasis?

Jared Wolff: Jared, if we were to look at your non-interest expenses and back out the earnings credit rates, they've been essentially flat for the last year. It is not to say that it hasn't been something that you've been paying attention to, but has something changed with the philosophy of cost control in the last year that has become more of an emphasis?

Speaker #16: And not to say that there hasn't been something that you've been paying attention to, but has something changed with the philosophy of cost control in the last year that it's become more of an emphasis?

Speaker #5: I'll start , but Joe can provide the details . So first of all , I give a lot of credit to not only our finance team , but our entire company for being very thoughtful about how we manage expenses .

Jared Wolff: I'll start. Joe can provide the details. First of all, I give a lot of credit to not only our finance team, but our entire company for being very thoughtful about how we manage expenses. I think there were a lot of expectations about the timing of hiring that changed. We've been adding bodies, adding great talent at all levels, but the timing has been more spread out as our teams have figured out ways to drive efficiencies. We're asking as we're budgeting for next year, we've asked everybody to think about where they're going to realize their benefits on gearing ratios.

Operator: I'll start, but Joe can provide the details. First of all, I give a lot of credit to not only our finance team, but our entire company for being very thoughtful about how we manage expenses. I think there were a lot of expectations about the timing of hiring that changed. We've been adding bodies, adding great, great talent at all levels, but the timing has been more spread out as our teams have figured out ways to drive efficiencies. We're asking, as we're budgeting for next year, we've asked everybody to think about where they're going to realize their benefits on gearing ratios. We've spent a lot of money on technology. We've said to people, unless you're seeing a benefit of this technology, why are we doing it?

Speaker #5: I think there were a lot of expectations about the timing of hiring that changed. We've been adding bodies, adding great, great talent at all levels.

Speaker #5: But the timing has been more spread out as our teams have figured out ways to drive efficiencies. We're asking as we're budgeting for next year.

Speaker #5: We've asked everybody to think about where they're going to realize their benefits . On gearing ratios . As you know , we've spent a lot of money on technology , and we've said to people , unless you're seeing a benefit of this technology , you know , why are we doing it ?

Jared Wolff: You know, we've spent a lot of money on technology. We've said to people, Unless you're seeing a benefit of this technology, you know, why are we doing it? You need to factor into your hires for 2026 what benefits you're getting from technology and how your gearing ratios, which we think about as the, you know, it's the number of portfolio managers you need for every lender. It's the number of relationship managers you need for every new client relationship you're bringing in. Whatever the ratios are, whatever the gearing ratio is, what benefits are we seeing from technology? It has to do with how we monitor and manage BSA, how we're using Copilot and ChatGPT, both of which are deployed company-wide.

Speaker #5: So you need to factor into your your hires for 2026 . What benefits you're getting from technology and how you're gearing ratios , which we think about as the you know , it's the number of portfolio managers you need for every lender .

Operator: You need to factor into your hires for 2026 what benefits you're getting from technology and how your gearing ratios, which we think about as the number of portfolio managers you need for every lender, the number of relationship managers you need for every new client relationship you're bringing in. Whatever the ratios are, whatever the gearing ratio is, what benefits are we seeing from technology? It has to do with how we monitor and manage BSA, how we're using Copilot and ChatGPT, both of which are deployed company-wide. Our IT team has done a great job of training people on and making sure that we are using tools that can allow us to do things faster. I've told our teams we're not looking to lay people off, but hiring might be slower because we don't need as many people as quickly.

Speaker #5: It's the number of relationship managers you need for every new client relationship you're bringing in. Whatever the ratios are, whatever the gearing ratio is, what benefits are we seeing from technology?

Speaker #5: It has to do with how we monitor and manage BSA , how we're using Copilot and ChatGPT , both of which are deployed company wide and our IT team has done a great job of of training people on and making sure that we are using tools that can allow us to do things faster .

Jared Wolff: You know, our IT team has done a great job of training people on and making sure that we are using tools that can allow us to do things faster. I've told our teams, like, we're not looking to lay people off, but hiring might be slower because we don't need as many people as quickly. I think some of it is timing, but our teams have really done a good job. Joe, I'm sorry for that long introduction. What's the actual answer?

Speaker #5: I've told our teams that we're not looking to lay people off, but hiring might be slower because we don't need as many people as quickly.

Speaker #5: So I think some of it is timing, but our teams have really done a good job. Joe, I'm sorry for that long introduction.

Operator: I think some of it is timing, but our teams have really done a good job. Joe, I'm sorry for that long introduction. What's the actual answer?

Speaker #5: What's the actual answer ?

Speaker #6: No , I think I think you pretty much nailed it . Jared . You know , we we've been very disciplined about the headcount and about projects and those are really the two drivers that move the needle and cost for us .

Joseph Kauder: No, I think you pretty much nailed it, Jared. You know, we've been very disciplined about the headcount and about projects, and those are really the two drivers that move the needle in cost for us. You know, on headcount, people have just been really thoughtful in the way they've gone about in areas where we needed to add people. Maybe we found efficiency somewhere else to offset that. On the projects, you know, we start at the beginning of the year. We have a list of projects we want to do. It's detailed and everything. As we get into them, we spend a lot of time and focus going through and sharpening our pencils and saying, "Okay, what do we really need to do?

[Analyst]: No, I think you pretty much nailed it, Jared. We've been very disciplined about the headcount and about projects. Those are really the two drivers that move the needle on cost for us. On headcount, people have just been really thoughtful in the way they've gone about in areas where we needed to add people. Maybe we found an efficiency somewhere else to offset that. On the projects, we start at the beginning of the year. We have a list of projects we want to do, and it's detailed and everything. As we get into them, we spend a lot of time and focus going through and sharpening our pencils and saying, "Okay, what do we really need to do? How can we do this in the most efficient and effective way?

Speaker #6: And the , you know , on , on , on headcount . People have just been really thoughtful in the way they've gone about in areas where we needed to add people , maybe , maybe we found efficiencies somewhere else to offset that .

Speaker #6: And on the projects, you know, we start off at the beginning of the year. We have a list of projects we want to do, and it is detailed and everything.

Speaker #6: But then, as we get into them, we spend a lot of time and focus going through and sharpening our pencils and saying, okay, what do we really need to do?

Speaker #6: How can we do this in the most efficient and effective way ? What are things that might be nice to have but not has to haves that we can we can drop off of this project ?

Joseph Kauder: How can we do this in the most efficient and effective way? What are things that might be nice to haves but not has to haves that we can drop off of this project? How do we, how do we get this done in a way that is the most effective for shareholders and for the bank? We've done that, and the team does a really good job, as Jared pointed out, doing that. As we get into 2026, you know, you'll see some step up in cost for, you know, the normal wage inflation and those types of things, and that some of the project spend investments we've made this year will start amortizing.

[Analyst]: What are things that might be nice to haves but not has to haves that we can drop off of this project? How do we get this done in a way that is the most effective for shareholders and for the back end?" We've done that, and the team has done a just a really good job, as Jared pointed out, in doing that. As we get into 2026, you'll see some step up in cost for the normal wage inflation and those types of things. Some of the project spend investments we've made this year will start amortizing. We think we're going to continue to focus on this and keep a really tight rein to make sure that our expenses don't grow in a way that is out of line with our revenue and we continue to increase our operating leverage.

Speaker #6: And how do we get this done in a way that is the most effective for shareholders and for the bank?

Speaker #6: And we've done that , and the team has done a just a really good job . As Jared pointed out , doing that as we get into 2026 , you know , you'll see you'll see some step up in in cost for the normal wage inflation and and those types of things .

Speaker #6: And some of the projects and investments we've made this year will start amortizing . But we think we're you know , we're going to continue to to focus on this and keep a really tight rein to make sure that it that our that our expenses don't grow in a way that is out of line with our revenue .

Joseph Kauder: We think we're, you know, we're gonna continue to focus on this and keep a really tight rein to make sure that it, that our expenses don't grow in a way that is out of line with our revenue, and we continue to increase our operating leverage.

Speaker #6: And we continue to increase our operating leverage.

Speaker #11: You know, Tim, just.

Operator: You know, Tim, just another thought there. We have an initiative in the company called Better Bank. We ask our employees to submit recommendations for improvement of anything that they see that they think is suboptimal. We have a team that reviews those submissions, evaluates them, ranks them, and then gives a response to the person that submitted it. This is online for everybody to see in the company. We're constantly improving the company. I believe to my core that that has actually created a ton of efficiencies in our company.

Jared Wolff: You know, Tim, just another thought there. We have an initiative in the company called Better Bank. We ask our employees to submit recommendations for improvement of anything that they see that they think is suboptimal. We have a team that reviews those submissions, evaluates them, ranks them, and then gives a response to the person that submitted it. This is online for everybody to see in the company. We're constantly improving the company. I believe to my core that that has actually created a ton of efficiencies in our company.

Speaker #5: Another thought there. We have an initiative in the company called Better Bank, and we ask our employees to submit recommendations for improvement of anything that they see that they think is suboptimal.

Speaker #5: And we have a team that reviews those submissions , evaluates them , ranks them , and then and then gives the response to the person that submitted it .

Speaker #5: And this is online for everybody to see in the company . So we're constantly improving the company . And I , I believe to my core that that has actually created a ton of efficiencies in our company .

Speaker #5: When we have people that don't have to fill out the same forms that , you know , a third form when they've already filled out two others that have the same information , or they can get two forms down to one , or we can do something faster for our clients , or we can eliminate steps or get rid of things that just aren't necessary anymore because of our thoughtful employees or who are on the front lines , are saying , I can see a better way to do this .

Operator: When we have people that don't have to fill out the same forms, you know, a third form, when they've already filled out two others that have the same information, or if they can get two forms down to one, or we can do something faster for our clients, or we can eliminate steps or get rid of things that just aren't necessary anymore because of our thoughtful employees who are on the front lines are saying, "I can see a better way to do this," and you actually listen to your team, you can create a lot of improvement. I wouldn't look past that as also a reason why we've been able to keep costs in line.

Jared Wolff: When we have people that don't have to fill out the same forms that, you know, a third form when they've already filled out two others that have the same information or they can get two forms down to one, or we can do something faster for our clients, or we can eliminate steps or get rid of things that just aren't necessary anymore because of our thoughtful employees, who are on the front lines, are saying, I can see a better way to do this, and you actually listen to your team, you can create a lot of improvement. I wouldn't look past that as also a reason why we've been able to keep costs in line.

Speaker #5: And you actually listen to your team . You can create a lot of improvement . And I wouldn't look past that as also a reason why we've been able to keep costs in line .

Speaker #16: Okay , great . Thank you both . And then my next question has to be on the expense side . I mean , it's I don't think you're getting credit for your expense .

Jared Wolff: Okay. That was a great call. Thank you both. My next question has to be on the expense guide. I mean, I don't think you're getting credit for your expense, the fact that they've been flat for the last four quarters. I'm kind of curious. It seems to me the guide for expenses is conservative. Are you expecting, you know, big investments in the business this next quarter, next year?

Timothy Coffey: Okay. That was a great color. Thank you both. My next question has to be on the expense guide, right? I mean, I don't think you're getting credit for your expense, that fact that they've been flat for the last 4 quarters. I'm kind of curious what. It seems to me the guide for expenses is conservative. Are you expecting, you know, big investments in the business this next quarter, next year?

Speaker #16: The fact that they've been flat for the last four quarters . So I'm kind of curious what it seems to me the guide for expenses is conservative .

Speaker #16: Is there a are you expecting big investments in the business this next quarter ? Next year ?

Speaker #5: Joe go ahead . I mean .

Jared Wolff: Joe, go ahead. I mean.

Operator: Joe, go ahead.

[Analyst]: I think we just changed our guidance in the fourth quarter to say that we expect to be either at the low end or below the low end of the range. I think we also further said, you know, somewhat consistent with what we've seen. We're beginning to lean into that. I think it is fair to say maybe we've been a little conservative today.

Speaker #6: Well, I think we just changed our guidance in the fourth quarter to say that we expect to be either at the low end or below the low end of the range.

Joseph Kauder: Well, I think we just changed our guidance in Q4 to say that we expect to be either at the low end or below the low end of the range. I think we also further said we, you know, somewhat consistent with what we've seen. We're beginning to lean into that. Yeah, I think it is fair to say maybe we've been a little conservative to date.

Speaker #6: And I think we also further said we, you know, somewhat consistent with what we've seen. So, we're beginning to lean into that.

Speaker #6: And yeah, I think it is fair to say maybe we've been a little conservative to date.

Speaker #11: The project .

Jared Wolff: The project spend is real, Tim. I, like, we, you know.

Speaker #5: Spend is real , Tim . Like , you know , if you ask people for a wish list of projects , it's pretty long .

Operator: The project spend is real, Tim. If you ask people for a wish list of projects, it's pretty long. Our team is pretty mature, and they understand that, like, let's do a couple of things really, really well and not try to do everything. We'll tackle the next thing when we're done doing the first five things really, really well. I've been in a couple of different companies and seen this managed. Generally, if you add up the number of projects, there are not enough people hours in the company to get it done in the time you want to get it done. If you're honest about it, you really don't have the people to get more than about five projects done in parallel and do them really, really well and on time that are significant. There's always small stuff going on and fixes here and there.

Timothy Coffey: Yeah

Jared Wolff: If you ask people for a wish list of projects, it's pretty long. Our team is pretty mature, and they understand that, like, let's do a couple things really, really well and not try to do everything. Like, we'll tackle the next thing when we're done doing the first 5 things really, really well. You know, I've been at a couple different companies and seen this managed, and generally, if you add up the number of projects, there are not enough man-hours or people hours in the company to get it done in the time you want to get it done. If you're honest about it, you really don't have the people to get more than about 5 projects done in parallel and do them really, really well and on time that are significant.

Speaker #5: But our our team is pretty mature and they understand that , like , let's , let's do a couple things really , really well and not try to do everything .

Speaker #5: And like we'll tackle the next thing when we're done doing the first five things really, really well. And you know, I've been at a couple of different companies and seen this managed.

Speaker #5: And generally, if you add up the number of projects, there are not enough man-hours or people-hours in the company to get it done in the time you want to get it done.

Speaker #5: And so, if you're honest about it, you really don't have the people to get more than about five projects done in parallel.

Speaker #5: And and do them really , really well . And on time that are significant . There's always small stuff going on and fixes here and there , but major projects you got , you know , it takes a smart , dedicated group of people to do that .

Jared Wolff: There's always small stuff going on and fixes here and there, but major projects, you gotta, you know, it takes a smart, dedicated group of people to do that, and they generally have day jobs as well. That's how we're trying to manage ourselves right now.

Operator: Major projects, you got it. It takes a smart, dedicated group of people to do that. They generally have day jobs as well. That's how we're trying to manage ourselves right now.

Speaker #5: And they generally have day jobs as well . And so that's how we're trying to trying to manage ourselves right now .

Speaker #16: I can definitely understand that point . And then on the multifamily book , I mean , we talked about it earlier in the call , right .

Timothy Coffey: Yep. No, I can definitely understand that point. On the multifamily book, I mean, we talked about it earlier in the call, right? 6 billion, so our average yield's right around 4%. What strategies have you implemented to maybe bring forward some of those repricing timelines?

Jared Wolff: Nope. I can definitely understand that point. On the multifamily book, we talked about it earlier in the call, right? $6 billion. The average deal is probably around 4%. What strategies have you implemented to maybe bring forward some of those repricing timelines?

Speaker #16: $6 billion averaging around 4%. What strategies have you implemented to maybe bring forward some of those repricing timelines?

Speaker #11: Well , it's .

Jared Wolff: Well, it's very hard to encourage somebody who's got a rate at 3.5% to reprice sooner. Okay? Because market rates are much higher. Just taking one example. It could be 4%, whatever it is. What we do look at is when loans, we know which loans are coming off of their fixed rate period or are about to mature. Because oftentimes these are 10-year loans with 5-year fixed rates, or they're 5-year fixed rate loans. We will approach those borrowers and ask them if they are interested in working with us on a refi. The benefit to working with us is they can do it with much lower documentation, you know, and lower fees and certainty.

Operator: It's very hard to encourage somebody who's got a rate at 3.5% to reprice sooner, because market rates are much higher. Just taking one example, it could be at 4%, whatever it is. What we do look at is when loans, we know which loans are coming off of their fixed rate period or are about to mature, because oftentimes these are 10-year loans with five-year fixed rates or they're five-year fixed rate loans. We will approach those borrowers and ask them if they are interested in working with us on a refi. The benefit to working with us is they can do it with much lower documentation, lower fees, and certainty. Fannie and Freddie are between 5.75% and 6% for maybe 5.50% and 6% depending on the loan for a five-year fixed rate loan.

Speaker #5: Very hard to encourage somebody who's got a rate at three and a half percent to reprice sooner . Okay . What . Because market rates are much higher .

Speaker #5: Just taking one example , it could be 4% . Whatever it is . But what we do look at is when loans we know which loans are coming off of their fixed rate period or are about to mature because oftentimes these are ten year loans with five year fixed rates or their five year fixed rate loans .

Speaker #5: We will approach those borrowers and ask them if they are interested in working with us on a refi and the benefit to working with us is they can do it with much lower documentation , you know , and lower fees and certainty .

Speaker #5: Fannie and Freddie are between 575 and six for a maybe 550 and six , depending on the loan for a five year fixed rate loan , we're offering between 590 and 6.1% for a three year fixed rate loan with , you know , a different prepay .

Jared Wolff: Fannie Mae and Freddie Mac are between 575 and 6 for maybe 550 and 6, depending on the loan, for a 5-year fixed rate loan. We're offering between 5.90 and 6.1% for a 3-year fixed rate loan with, you know, a different prepay. Fannie Mae and Freddie Mac will have a prepay 5, 4, 3, 2, 1 or something like that. They'll have lower fees, lower costs. They won't need a new appraisal. There's a benefit to doing it with us, even on a shorter duration. We've been about as successful about a third of the time of the ones that we've gone to.

Operator: We're offering between 5.90% and 6.1% for a three-year fixed rate loan with a different prepay. Fannie Freddie will have a prepay 5.4321, or something like that. They'll have lower fees, lower costs. They won't need a new appraisal. There's a benefit to doing it with us, even on a shorter duration. We've been about as successful about a third of the time of the ones that we've gone to.

Speaker #5: Fannie Freddie will have a prepay five , four , three , two , one or something like that . They'll have lower fees , lower costs .

Speaker #5: They won't need a new appraisal . So there's a benefit to doing it with us even on a shorter duration . We've been about successful .

Speaker #5: About a third of the time of the ones that we've gone to .

Speaker #11: Okay .

Timothy Coffey: Yeah. All right. Those are my questions. Thank you very much for your time.

Speaker #16: All right. Those are my questions. Thank you very much for your time.

Jared Wolff: Yeah. All right. Those are my questions. Thank you very much for your time.

Speaker #11: Thank you . Thank you .

Jared Wolff: Thank you. Thank you.

Operator: Thank you.

[Analyst]: Thank you.

Speaker #3: And we have a follow up from Chris McGrady with CCB . Please go ahead .

Operator 2: We have a follow-up from Christopher McGratty with KBW. Please go ahead.

[Company Representative]: We have a follow-up from Chris McGrady with KBW. Please go ahead.

Speaker #12: Hey , Jared .

Christopher McGratty: Hey, Jared.

Operator: Hey, Jared.

Speaker #11: Hey , I want to ask .

[Analyst]: Hey, thanks for asking.

Jared Wolff: Hey, thanks for your patience.

Speaker #12: Of course , I want to ask this respectfully . You know , there's not a lot of banks at book value today , and we're in an M&A environment where good assets have bids .

Christopher McGratty: I want to ask this. Of course, I want to ask this respectfully. You know, there's not a lot of banks at book value today, and we're in a M&A environment where good assets have bids. Can you balance buying your own stock versus partnering and, you know, bridging that gap to the 13% ROE a little quicker? Thanks.

Operator: I want to ask this respectfully. You know, there's not a lot of banks at book value today, and we're in an M&A environment where good assets have bids. Can you balance buying your own stock versus partnering and bridging that gap to the 13% ROE a little quicker? Thanks.

Speaker #12: So, can you balance buying your own stock versus partnering? And, you know, bridging that gap to the 13% ROE a little quicker.

Speaker #12: Thanks .

Speaker #5: Look I understand why we're attractive and why people mention our name . We have a very valuable franchise that's scarce . We're growing like crazy in one of the most dense and attractive markets in the country .

[Analyst]: Look, I understand why we're attractive and why people mention our name. We have a very valuable franchise that's scarce. We're growing like crazy in one of the most dense and attractive markets in the country. We've got a really talented team of people. I get why people might say, but I've heard that forever wherever I've been. I think the most important thing that we can do is put our head down and run this company well like we're going to run it forever and take care of our shareholders and put our heads down and keep growing earnings, and everything else seems to take care of itself. That's what we're focused on. We're focused on growing this franchise and being really successful.

Jared Wolff: I understand why we're attractive and why people mention our name. We have a very valuable franchise that's scarce. We're growing like crazy in one of the most dense and attractive markets in the country. We've got a really talented team of people, so I get why people might say. I've heard that forever wherever I've been. I think the most important thing that we can do is put our head down and run this company well like we're going to run it forever and take care of our shareholders and put our heads down and keep growing earnings and everything else seems to take care of itself. That's what we're focused on. We're focused on growing this franchise and being really successful.

Speaker #5: We've got a really talented team of people . So I get why people might say , but I've heard that forever . Wherever I've been , I think the most important thing that we can do is put our head down and run this company well , like we're going to run it forever and take care of take care of our shareholders and put our heads down and keep growing earnings and everything else seems to take care of itself .

Speaker #5: So that's what we're focused on. We're focused on growing this franchise and being really successful. And, you know, I don't think there's any secret where we are.

Jared Wolff: You know, I don't think you're going to see any secret where we are, but our teams are doing a fantastic job, and we're really focused on delivering excellent results for our shareholders.

[Analyst]: You know, I don't think it's going to seem a secret where we are, but our teams are doing a fantastic job, and we're really focused on delivering excellent results for our shareholders.

Speaker #5: But our teams are doing a fantastic job, and we're really focused on delivering excellent results for our shareholders.

Speaker #12: Thanks , John .

Operator: Thanks, sir.

Christopher McGratty: Thanks, sir.

Speaker #5: Thank you .

[Analyst]: Thank you.

Jared Wolff: Thank you.

Speaker #3: This concludes our question and answer session and Banc of California's third quarter earnings conference call. Thank you for attending today's presentation. You may now disconnect.

Operator 2: This concludes our question and answer session and Banc of California's Q3 earnings conference call. Thank you for attending today's presentation. You may now disconnect.

[Company Representative]: This concludes our question and answer session and Bank of California's third quarter earnings conference call. Thank you for attending today's presentation. You may now disconnect.