Earnings call transcript: Banc of California beats Q1 2025 EPS expectations

Banc of California Inc. (BANC), a regional bank with a market capitalization of $2.29 billion, reported its first-quarter 2025 earnings, surpassing analysts’ expectations with an earnings per share (EPS) of $0.26, compared to the forecasted $0.23. Revenue, however, fell short of projections, reaching $266 million against the anticipated $272.5 million. Following the earnings release, the stock saw a decline of 1.35% in after-hours trading, closing at $13.55, down from the previous close of $13.74. According to InvestingPro analysis, the stock appears slightly undervalued at current levels.

Key Takeaways

• Banc of California exceeded EPS estimates but missed revenue forecasts.
• Stock price decreased by 1.35% in after-hours trading.
• The company announced a $300 million share buyback program.
• Loan portfolio growth was reported at 6% annualized.
• Economic uncertainties and market consolidation were highlighted as ongoing concerns.

Company Performance

Banc of California demonstrated resilience in Q1 2025, achieving a net income of $43.6 million, or $0.26 per share. This performance highlights the bank’s ability to maintain profitability despite a slight decrease in net interest income, which stood at $232 million. The bank’s focus on commercial loan production and broad-based loan growth contributed positively to its financial health. However, a cautious approach is being adopted due to economic uncertainties and potential market consolidation.

Financial Highlights

• Revenue: $266 million, below the forecast of $272.5 million.
• Earnings per share: $0.26, beating the forecast of $0.23.
• Net interest income: $232 million, slightly down from the previous quarter.
• Net interest margin: Increased by 4 basis points to 3.08%.
• Cost of deposits: Declined by 14 basis points to 2.12%.

Earnings vs. Forecast

Banc of California’s EPS of $0.26 surpassed the forecasted $0.23, marking a positive surprise of approximately 13%. This beat reflects the bank’s effective cost management and focus on high-yield loan production. However, the revenue shortfall of $6.5 million indicates challenges in meeting top-line expectations, which could be attributed to the cautious economic outlook.

Market Reaction

Despite the EPS beat, Banc of California’s stock fell by 1.35% in after-hours trading, suggesting investor concerns over the revenue miss and broader economic uncertainties. The stock remains within its 52-week range, with a high of $18.08 and a low of $11.52, indicating potential volatility ahead. Analyst targets range from $15 to $20, with a consensus recommendation leaning towards "Buy." InvestingPro analysis reveals the stock is trading at an attractive P/E ratio relative to its near-term earnings growth potential.

Outlook & Guidance

Looking forward, Banc of California projects a 5% growth in net interest income for Q2 2025, maintaining its net interest margin guidance between 3.20% and 3.30%. The bank aims to increase non-interest-bearing deposits to 30% and continues to focus on building client relationships while adopting a cautious loan growth approach for the second half of the year. For comprehensive analysis including Fair Value estimates, financial health scores, and detailed metrics, investors can access the full Pro Research Report available exclusively on InvestingPro, part of their coverage of over 1,400 US stocks.

Executive Commentary

CEO Jared Wolfe emphasized the bank’s strategic positioning in the California market, stating, "We are filling the void of banks that left the California market due to failure acquisition and we are becoming the go-to business bank in our markets." He also highlighted the bank’s product and geographic diversity as key strengths, adding, "Our product and geographic diversity are serving us well."

Risks and Challenges

• Economic uncertainties and potential market consolidation.
• Tariff impacts on the broader economy.
• Reduced loan growth outlook from high single digits to mid-single digits.
• Potential for increased competition as banks exit the California market.
• Maintaining cost efficiencies amid fluctuating deposit costs.

Q&A

During the earnings call, analysts inquired about Banc of California’s conservative approach to credit risk ratings and the rationale behind changes in loan portfolio classification. The bank’s management also addressed capital management strategies, including the expanded share buyback program, and provided insights into deposit trends and relationship banking initiatives.

Full transcript - Banc of California Inc (BANC) Q1 2025:

Conference Moderator: Hello, and welcome to Banc of California’s First Quarter Earnings Conference Call. I’ll now turn the call over to Ann DeVries, Head of Investor Relations at Bank of California. Please go ahead.

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

For discussion of some of the risks that could affect our results. Please see our safe harbor statement on forward looking statements, including both the earnings release and the earnings presentation, as well as the risk factors section of our most recent 10 ks. Joining me on today’s call are Jared Wolfe, President and Chief Executive Officer and Joe Cauter, Chief Financial Officer. After our prepared remarks, we’ll be taking questions from the analyst community. I would like to now turn the conference call over to Jared.

Jared Wolfe, President and Chief Executive Officer, Bank of California: Thanks, Ann. Good morning, everyone, and welcome to our first quarter earnings call. Our first quarter results came in pretty much as we forecast, reflecting both strong execution by our team and our ability to capitalize on our attractive market position. During the quarter, we showed positive trends in our core earnings including net interest margin expansion, strong loan growth and prudent expense management. We achieved our second consecutive quarter of broad based commercial loan production while continuing our steady growth and attracting new NIB deposit relationships.

As a result, we built up capital during the quarter and increased both book value and tangible book value per share while maintaining strong liquidity levels. Given our healthy balance sheet and commitment to deploying capital in a way that benefits shareholders, we announced 150,000,000 share buyback program during the first quarter. We benefited from the market volatility and opportunistically repurchased 6.8% of our shares and have completed the program. We announced yesterday that we are upsizing our buyback program with an additional 150,000,000 to 300,000,000 and we’ll expand it to cover both common and preferred stock. We will be prudent with this program and use it opportunistically and while our outlook may change, currently I do not expect us to deploy all of this remaining capacity immediately.

In the first quarter, our loan production including unfunded commitments was $2,600,000,000 up from $1,800,000,000 in the fourth quarter, resulting in loan portfolio growth of 6% on an annualized basis. Much of the loan growth came late in the quarter and has continued so far in Q2, which will provide a benefit to our net interest income in the second quarter. Strong loan production volume was broad based, but we saw our strongest growth in our warehouse lender finance and fund finance areas. Loan portfolio growth was also impacted by utilization rates, which have been trending up over the last year. Loan growth was partially offset by decline in construction loans due to payoffs and completed projects, some of which moved to permanent financing in our multifamily portfolio.

While our loan growth has been strong year to date, given the uncertainties that exist in the current environment around tariffs and the broader impacts of the economy, we are adjusting our 2025 outlook for loan growth to mid single digit growth. While we still strive to achieve high single digit growth, this is merely a reflection of the unknown for the back half of the year given the ongoing tariff noise. Importantly, we are maintaining our disciplined pricing and underwriting criteria while growing our loan portfolio. Our average rate on new production was 7.2% which helped our average loan yields and margin. Let me touch on credit for a moment.

During the quarter, we showed an uptick in classifieds as well as NPAs. These changes reflect some of the guidance I provided during our last earnings call. When I shared that we’ve adopted a fairly conservative posture on risk rating loans And that when we see signs of weakness in any credits, we’re gonna be quick to downgrade and careful to upgrade. This approach resulted in some additional credit downgrades during the quarter. The increase in NPLs was mainly driven by one CRE loan, a hotel property where we believe the risk is isolated specific to the borrower.

The loan is full recourse and we have adequate collateral coverage. The increase to our classified loans this quarter was mostly driven by migration of multifamily rate sensitive loans that are still current, have strong collateral values, and are in attractive California markets. Despite these attributes, the impact of repricing risk in the current rate environment results in a performance metric deterioration and subsequent downgrade. I believe this discipline is particularly important in an uncertain environment like the one we are in right now. It does not mean that such downgrades will result in losses.

In fact, 84% of the inflows to classify this quarter are current with no change in borrower behavior. And across all classified assets, 81% of all those loans are current. Furthermore, downgraded loans have strong collateral and low loan to values, which would also help to mitigate any potential losses. Historical performance of multifamily loans in California has been very strong as we have discussed. With regard to credit losses, our charge offs in the quarter were mostly driven by a loan that we had previously partially charged off.

We’ve fully reserved for the remainder of the loan and decided to charge it off in the first quarter. Our headline reserve level is 1.1% of total loans, and our economic coverage ratio is substantially higher at 1.66 of loans, which incorporates the unearned credit mark on the Bank of California loan portfolio acquired in the merger, as well as coverage from our credit linked notes. While uncertainties facing the macroeconomic environment have created volatility in the markets, we remain steadfast in our focus to help our customers through these turbulent times. Our strong balance sheet and attractive market positioning differentiate us and position us to perform well in a variety of outcomes. We are confident in our ability to continue executing for our clients while maintaining healthy capital and liquidity positions.

Now I’ll hand it over to Joe and as usual, I’ll bring back with some closing remarks before opening the line for questions. Joe?

Joe Cauter, Chief Financial Officer, Bank of California: Thank you, Jared. We reported first quarter net income of $43,600,000 or $0.26 per share, which reflects continued momentum in our core earnings drivers. Net interest income of $232,000,000 was slightly down from the prior quarter as the impact from lower day count, fewer loan prepayments and lower market interest rates was partially offset by lower deposit cost. Our net interest margin in the quarter increased four basis points to 3.08% due to a 13 basis point decline in our cost of funds, partially offset by a nine basis point decrease in the yield of average earning assets. Our cost of deposits declined 14 basis points to 2.12% as we continue to successfully pass through rate reductions on our interest bearing deposits.

Our spot cost of deposits at threethirty one was 2.09%. Our average interest bearing deposits as a percentage of total deposits was steady at approximately 29% for the quarter. Regarding the yield on average earning assets, we saw an 11 basis point decline in our average loan yields to 5.9%, mainly due to the full quarter impact of December rate cuts on floating rate loans, along with a lower accretion resulting from slower loan prepayments. This was partially offset by higher rates on new loan production, which came in at 7.2% for the quarter, driven by growth in warehouse, lender, finance and fund finance. Our spot loan yield at the end of the quarter was 5.94% and our spot net interest margin was approximately 3.12%.

The interest rate sensitivity of our balance sheet for net interest income remains largely neutral as the current repricing gap is balanced when adjusted for repricing betas. From a total earnings perspective, we are liability sensitive due to the impact of rate sensitive ECR cost on HOA deposits, which are reflected in non interest expense. Total non interest income of $33,700,000 was in line with our normalized run rate of 11,000,000 to $12,000,000 per month. Total non interest expense was $183,700,000 an increase in the prior quarter due to seasonally higher compensation related expenses, including annual resets for payroll taxes, four zero one contributions and incentive compensation, partially offset by lower rate sensitive customer related expenses and lower regulatory assessments. Note, our Q1 expenses included a $1,000,000 donation to the Los Angeles Wildfire Relief and Recovery Fund, which we established to support our communities following the devastating fires.

And our expenses benefited from a few non recurring noteworthy items we referenced in our Investor Day. We expect our non interest expense for 2Q to increase and return to normalized levels consistent with the low end of our outlook of 190,000,000 to $195,000,000 per quarter. We expect positive operating leverage in 2Q as the higher expense level should be more than offset by growth in net interest income given the strength of loan production that came in late in the first quarter and that continued into the second quarter. However, we do have levers available to right size our expenses if conditions warrant. Regarding our growth in loans during the quarter, our credit reserve levels reflect the type of loans that are showing the most growth.

Our portfolio mix is shifting towards a higher concentration of lower risk and lower duration loan categories, such as warehouse, fund finance, lender finance, and purchase residential mortgages. These lower risk loan portfolios as a percentage of total loans have increased from 17% at the end of twenty twenty three to 25% in Q1 twenty twenty five. Under CECL accounting rules, these loans require very low reserves due to low historical loss content and short duration, and will have a more significant impact on overall reserve levels as they increase. Excluding these lower risk loan categories and their respective reserves, the remaining loan portfolio would have an ACL coverage ratio of 1.43% versus the 1.1% ratio for the total portfolio. In addition, and as Jared noted, our total economic coverage ratio is 1.66% when you consider the benefit of our credit linked notes and purchase accounting marks.

We provided additional color in our investor presentation of the ACL by loan category, and we also believe the assumptions and economic scenario weightings included in our CECL models, which reflect a 40% base case and a 60% recession scenario are conservative. Our results reflect the progress we have made strengthening our core earnings drivers, including high quality loan growth, lower funding and deposit cost, net interest margin expansion, and prudent expense and risk management. As we look ahead for the rest of 2025, we expect our strong execution will continue to drive consistent and meaningful growth in our core profitability. At this time, I will turn the call back over to Jared.

Jared Wolfe, President and Chief Executive Officer, Bank of California: Thanks, Joe. This quarter, we saw the thesis for Bank of California and Pac West merger continue to be proven out. We are filling the void of banks that left the California market due to failure acquisition and we are becoming the go to business bank in our markets. Yesterday’s announcement of the Columbia Pacific Premier merger is yet another example. It validates the attractive characteristic of our market and the further elimination of a good sized competitor like Pacific Premier.

As our results continue to demonstrate, we are capitalizing on our strong market position to add attractive commercial relationships evidenced by the loan growth and new NIB business relationships we brought on during the quarter. At the same time, we continue to add banking talent throughout our markets that will contribute to our profitable growth. We continue to monitor the economic environment and while we did not observe a meaningful change in borrower behavior in the first quarter or early part of the second quarter, there is more dialogue now regarding potential slowdown and caution among clients. In light of this, we will remain cautious in our loan production in terms of both industry and structure. We have also evaluated our portfolio for direct tariff impacts and for the most part, our exposure is both minimal and indirect.

Where it is direct, our clients have or are in the process of diversifying their product sourcing and making arrangements for slowdown in activity. Our product and geographic diversity are serving us well. With our solid foundation of significant available excess liquidity, a strong deposit mix, healthy reserves and capital, we are well positioned for the road ahead. I want to thank our team here at Bank of California for all their hard work and efforts in this environment. They have worked relentlessly to support our clients, communities, and shareholders in these times which are becoming increasingly volatile.

I’m proud to be part of this remarkable team. With that, let’s go ahead and open up the line for questions.

Conference Moderator: We will now begin the question and answer session. The first question comes from Ben Gurlinger with Citi. Please go ahead.

Ben Gurlinger, Analyst, Citi: Hey, I’m sorry. Can you hear me now?

Jared Wolfe, President and Chief Executive Officer, Bank of California: Yes, I can hear you, Ben.

Ben Gurlinger, Analyst, Citi: Okay. So at the risk of kind of rambling here, so when I look at bank, I mean, I see it in kind of two lenses. One is margin expansion, expense base is coming down, decent loan growth. So I mean, those are positives. The negatives would be credits kind of ticking up in the classifieds.

The ACLs are getting a little bit lower on a ratio basis. So I get the credit linked notes. So right, initially, the capital base is below peers. It’s not too thin, but it’s not where you want to be if there is a recession on the lower half of the list. So when you think about just the outlook over the next year to two years, given the uncertainty, I get you’re buying back shares, but is it the degree of confidence in credit going forward?

Is it the degree of profitability ramping? I’m just trying to understand the opportunistic approach you’re taking to buybacks in a little bit of a volatile period with a thinner than peer capital stack.

Jared Wolfe, President and Chief Executive Officer, Bank of California: Sure. Well, thanks Ben. It’s a good question. I understand the buckets and kind of how you organized it. So I think you laid out the positives correctly.

We do expect the opportunity to continue to expand our loans and bring in new relationships. We will have margin expansion. Our our spot rate at the end of the quarter was higher than the average for the quarter, and I think we’re gonna benefit this quarter from the loans that we brought on and continue to bring on it, a higher loan yield than the portfolio overall. Deposit costs should continue to improve over time. The heavy moving that we did with kind of our brokered portfolio, as I mentioned, was kind of expiring at the end of this quarter.

And so our deposit costs aren’t going to move down as quickly, but there still should come down and our margin will still expand. And then the noise, as you pointed out, credit. I think we’ve explained that pretty well. And it is worth reiterating that our coverage ratio for the non lender finance warehouse and single family and fund finance loans, which are very short duration and have no losses, is 1.43%. We also laid out in our deck the specific coverage ratios that we have by product.

And so it’s pretty healthy. I mean, run a very conservative CECL model as Joe pointed out. Our baseline, our scenario is 40% baseline and 60% recession. That is more conservative I think than what Moody’s recommends and it’s conservative overall. And I think that 1.43% for the majority of our portfolio, the 75% of our portfolio that’s not these low duration, no loss loans, is very healthy on a peer basis.

And that’s even before you take into account the CECL, the credit linked notes and the marks on the bank California portfolio. So it’s it’s actually higher than that. So we take a lot of comfort in that, and our board has looked at this carefully, and I I feel very good about it. In terms of the migration, I don’t wanna see that trend continue. I I think that we exercised a fair amount of discipline.

I tried to tell people last quarter we were gonna be doing this. You know, we kinda go through the portfolio with it with a heavy hand and look at it and say, okay, folks, let’s let’s let’s start preparing for a downside scenario. So I think that we are ahead of the curve. I think we’re doing this. Maybe others will follow us.

I don’t know what others are gonna do, but I think this was a prudent thing to do. And I just wasn’t gonna worry about the the noise of the migration if I don’t believe there’s gonna be losses. Like I said, I think our reserves are healthy. Addressing capital. This was opportunistic.

You are correct that on a pure basis, I think our capital levels are not as healthy as some of the other ones, but they’re not low. I mean, think it’s important to remember where well capitalized is. And most banks got into an extra healthy position. I think there’s some expectation that the baseline capital levels are gonna come down a little bit. And that’s also why I said I didn’t expect to use the excess buyback announcement that we made for another hundred 50,000,000.

We’re gonna be patient with that. And we are building up capital pretty quickly as well. You know, we’ve been growing our earnings or or starting to migrate upward. And after the transformation we did last year, we we’ve really had done a good job. I think our team’s done a good job of steadily building earnings.

And we could expect that to continue. So we think our capital is gonna build pretty well as well. So let me pause there as an answer to your question. It’s a little bit philosophical, but I agree with your comments, and that’s kind of how I see it.

Ben Gurlinger, Analyst, Citi: Gotcha. No. That that is really helpful. And then, like you said, there’s another one to add to the list for California. So you look over the past couple of years, Silicon Valley, First Republic, Union, Bank of the West, a whole bunch of little small deals.

Do you think there’s more opportunity today for free agency on lenders? I guess the disruption obviously opens the door for new clients. But when you just kind of think through the noise on top of an economic potential headwind, are you looking to add new clients in that regard knowing that the economic outlook is probably more uncertain now than it has been a couple of years?

Jared Wolfe, President and Chief Executive Officer, Bank of California: Yeah. So I will say this, you know, three months ago, the economic outlook we all thought we were, you know, I would say the start of the year, so maybe it’s four months ago. We were all like, oh my God. We were dealt a great hand, new administration, lower taxes, you know, good economy, favorable regulation. Look where we’re going.

I think that the economic cloudy outlook is self induced. Right? We were in a pretty good spot. So I think this is relatively temporary, but we don’t know if that temporary means through the end of the year or for the next couple months. There’s obviously a lot of saber rattling going on right now.

And we just are gonna be cautious and we’re gonna take into account. We’re not gonna ignore it. But we are gonna be prepared to move positively as the market relaxes and as things return to normal. So yes, we will be hiring people and making inroads even in a slow economy. The Southern California market is doing very, very well.

And there’s so much business to take from the larger banks given the removal and the elimination of so many competitors as you pointed out. And I keep that list on my desk and I was happy to add PPBI to the list of banks that will no longer be competing with us. Umpqua’s already here and they’re changing their name to Columbia. They’re already in California. So there’s no new entrants in California.

They’re just gonna be competing in a different way, and there’ll be one less competitor. I think it presents tremendous opportunity for us. We are in the fifth largest economy in the world in California, and LA is the engine that powers that economy. We are excited to take market share and serve clients that are at banks that might not be serving them as well as we think we can serve them. There’s a lot of competition to go around, though.

There’s a lot of clients to go around, and I I think that, you know, it’s just a validation of the quality of this market.

Ben Gurlinger, Analyst, Citi: Got you. That’s helpful color. Thank you.

Jared Wolfe, President and Chief Executive Officer, Bank of California: Thank you.

Conference Moderator: The next question comes from Jared Shaw with Barclays Capital. Please go ahead.

Jared Wolfe, President and Chief Executive Officer, Bank of California: Hey, good afternoon.

Conference Moderator: Hey, there.

Jared Shaw, Analyst, Barclays Capital: So I appreciate the comments about the allowance ratio and the migration of the positive migration of sort of the loan portfolio. But when you look at the backdrop from what we’ve seen, we’ve seen more banks adding to the qualitative overlay or adding to the adverse scenario and growing the reserves. I think just looking at the allowance going down with that backdrop is what some people are focused on. I guess if everything stays the same and we continue to see this migration of the loan portfolio towards the higher quality stuff, should we think that the allowance continues to trend down from here? Or is there an opportunity to maybe add to a qualitative overlay to actually see the allowance move higher or stay flat here?

Jared Wolfe, President and Chief Executive Officer, Bank of California: No, look, I don’t want to be an outlier. First of all, I think it’s important that we highlight that 143 coverage ratio for loans that are not in those low risk categories. It’s just very healthy. And that is real. And that’s before we include any extra resources from CreditLink notes or from marks in the Bank of California portfolio, which is double counting in CECL.

That money is movable to anywhere in our portfolio. So it’s real coverage. So I want to emphasize that point. You’re asking the question of whether we would let our coverage ratio go down further, and I would prefer not to do that. We do have a model.

We do apply subjective lenses to it. I would prefer to be increasing our ratio every chance we get, but we do have to follow our model and do it with discipline. So Jared, what I’m hoping to show in subsequent quarters is positive migration from a risk rating standpoint because we got ahead of it early. And I think that will, you know, hopefully show that our coverage ratio is flat or growing if we can justify it under our model. That’s what I would like to be able to do.

And it’s kind of I’ll know it when we get there, but I appreciate your question. We don’t wanna be seen as an outlier who’s who’s bringing it down. But I I do think it’s important to highlight how strong our coverage ratio is when you actually look at the numbers at one forty three for kind of these non low risk portfolios.

Jared Shaw, Analyst, Barclays Capital: Yeah. No. Appreciate that and understand that. But you know how it is when people stack rank companies by ratios. It’s sometimes tough to be an outlier on

Jared Wolfe, President and Chief Executive Officer, Bank of California: Yeah. So, I mean, you’re asking the question about, so we’re gonna come up on a screen and you’re saying, well, if somebody’s not gonna do the work, they’re just gonna look at the headline number and you don’t wanna be somewhere where the headline number looks worse. You know, because they might not do the work to look at it more deeply, and I think that’s fair. And I think that we have to be cognizant of that. There’s certainly people that fall into that category.

And I think for the reasons I mentioned, we’d like to see our ratio improve either because we’re gonna have positive migration or the ratio’s gonna improve or both. And so let’s just see what we can do. But hopefully I answered your question.

Jared Shaw, Analyst, Barclays Capital: Yep. No, you did. Thanks. And then maybe shifting to the goal or the target of 30% DDA, What sort of drives that? What’s the timeline to get there?

And once we see 30% or get to 30%, what’s the percentage of that that is subject to ECR?

Jared Wolfe, President and Chief Executive Officer, Bank of California: Thank you. So 30% is our near term target, which is through the end of this year. We’re striving to get to 30% non discretionary deposit percent of total deposits. We’re currently at 28%. We had a little bit of outflow this quarter, but I think we held our ground pretty well when you look at relative to following some others and what the trends are.

We are growing new business relationships and we expect those to benefit us over time. But man, it’s a big effort. I don’t think it’s an easy thing to do as you’re growing the bank to also grow the numerator and denominator together on NIB and have the numerator grow faster than the denominator. So we’re trying to do that and it’s a meaningful target. And once we get to 30, we’ll set a new target at 35 and we’ll set some reasonable goals to get there.

I think your second question was what percent of NIB has ECR attached to it. So we have approximately 3,700,000,000.0 or $3,800,000,000 of HOA deposits. And most of those deposits have ECR attached to them. What I would need to do is tell you what percent of those HOA deposits are technically NIB. And I don’t have that number in front of me, but I’m asking Anne to just kind of look in the background and we’ll give that number out during this call.

I just don’t have it handy, but we can calculate it.

Joe Cauter, Chief Financial Officer, Bank of California: Okay. Thank you.

Jared Wolfe, President and Chief Executive Officer, Bank of California: Yep. No problem.

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

Gary Tenner, Analyst, D.A. Davidson: Thanks. Good morning. Jared, the press release notes that the ACL declined because the economic forecast improved versus 4Q. That seems like it runs a little counter to what your commentary was around kind of where the outlook was around the turn of the year versus where we are today. So maybe I misunderstood something or misinterpreted something you said, but

Jared Wolfe, President and Chief Executive Officer, Bank of California: can you kinda talk about that? Because I

Gary Tenner, Analyst, D.A. Davidson: was bit surprised to read that.

Jared Wolfe, President and Chief Executive Officer, Bank of California: That’s a misstatement. If it says that, that’s a misstatement. I mean, the economic outlook did not that’s not why our ACL went went down. So you you get the close reading award. Our ACL did not go down because the economic outlook improved.

Our ACL went down because of all the reasons we mentioned. And we started putting a more conservative readout for the economy back in the third quarter where we went to 40% baseline, 60% recession scenario. We started that back in the third quarter of last year. So I think what we meant by that language is probably that when you run the model today, the economic outlook for Moody’s is probably more favorable. And that model output ended up resulting in the reserve levels that we have, including all the overlays that we put in there.

So I think it’s probably a little bit more complicated than we stated there, but I understand your question.

Gary Tenner, Analyst, D.A. Davidson: Okay. I appreciate that because it caught me off guard a bit. Then the second question is, in terms of the NIM guide for the year, which wasn’t changed, I just wonder, obviously, starting at a lower point this quarter, partially impacted by lower accretion income versus the fourth quarter. So Joe, don’t know if you could update us on your expectations for accretion income for the year just to give us a baseline as far as what’s in your range.

Jared Wolfe, President and Chief Executive Officer, Bank of California: Yes. Joe, before you jump in, let me just add two things. One is there’s both what we call scheduled accretion, which is just kind of the base that we have in our model. Then there’s the accelerated accretion, which we never know what it’s going to be. And so we’re happy to address that.

And then before I forget, the question was how much NIB we had in HOA? And the answer is $1,200,000,000 So Joe, why don’t you go ahead and address what we think or what our guide is for kind of accretion. Joe, you might be on mute.

Joe Cauter, Chief Financial Officer, Bank of California: I’m sorry. So in the first quarter, we had a little bit over $16,000,000 of total accretion. And as Jared says, generally have what we call baseline accretion and then accelerated. Because we had almost no accelerated accretion in the first quarter, it was very abnormally low quarter after averaging about $3,000,000 of accelerated per quarter in 2024. So that baseline probably shouldn’t since we didn’t have any prepayments should stay pretty consistent as we look into the second quarter.

And then assuming we revert back to a normal level of loan prepayments, that should step down at approximately, I think we’ve told you before, about $1,000,000 a quarter or so. But the amount of accelerated prepayments is hard to predict. And so we’re not really dependent upon those as we look out to the rest of the year.

Gary Tenner, Analyst, D.A. Davidson: Okay. But to clarify, so the baseline is what’s kind of embedded in your NIM guide?

Jared Wolfe, President and Chief Executive Officer, Bank of California: Yep, exactly.

Ben Gurlinger, Analyst, Citi: Yes.

Gary Tenner, Analyst, D.A. Davidson: Okay. Fair enough. And if I could sneak one last question, and just, Jared, as you kind of you had a couple of questions earlier about the buyback and capital. As you kind of work through that kind of calculus around your comfort level on CET1, let’s say, any thought to any risk weighting relief on mortgage warehouse or anything like that, that you’re kind of thinking about that gives you extra comfort of being opportunistic here?

Jared Wolfe, President and Chief Executive Officer, Bank of California: I think we obviously want to keep our capital levels strong. And we like being 10% and above. We could dip down in a quarter if we’re gonna move past it pretty quickly with what we see for our earnings outlook. But I think that’s kind of guide for us of where we are. Also wanna be Our buyback program that we announced, the timing couldn’t have been better, obviously, given where stock prices went.

And so we had a predetermined program through an investment bank that was a 10 B five one program where we had given them ranges to buy within certain bands. And then it was, you know, the maximum per day if it ever got below this number, which it did. And so we were able to buy opportunistically. I don’t expect it to return to those levels. And so normally you would be exercising a little bit more caution and maybe patience with a buyback program.

And so we’ll use it over time. Certainly, we can use it in a way that minimizes dilution from vesting of stock awards and things like that. I think that’s kind of a common way that many banks use their buyback program. I think we can be a little bit more aggressive than that. And certainly, we have now the opportunity to look at the preferred.

But I think if you do the math, given where stock prices are today, it makes a lot more sense to do common than preferred. But that may change over time. So we’re just going to be opportunistic and look at it and do what makes sense under the given circumstances. But capital levels are something that we’re keeping squarely in focus.

Ben Gurlinger, Analyst, Citi: Thank you.

Jared Wolfe, President and Chief Executive Officer, Bank of California: Thank you.

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

Matthew Clark, Analyst, Piper Sandler: Hey, good morning, everyone.

Jared Wolfe, President and Chief Executive Officer, Bank of California: Good morning.

Matthew Clark, Analyst, Piper Sandler: Jared, what are the I know it’s somewhat dependent on where your stock trades, but what’s the probability of you tendering the preferred this year?

Jared Wolfe, President and Chief Executive Officer, Bank of California: Matthew, I can’t put a number on that. It’s so dependent upon other circumstances like the overall environment. As we just touched on, our perception that we need capital for other reasons that we wouldn’t want to dilute if the economy sours. There is a ceiling on the preferred, The par value is 25, and it’s trading at a discount currently. So I have a hard time handicapping what that is.

But we’re gonna be smart and if it makes sense, we would do it.

Matthew Clark, Analyst, Piper Sandler: Okay. And then I think during your prepared comments you mentioned that you guys changed your methodology around risk ratings to be maybe more conservative. Can you just give us a sense for when that occurred and what changed?

Jared Wolfe, President and Chief Executive Officer, Bank of California: Sure. So I would say that we applied more discipline starting in the first quarter, a little bit in the back half of the fourth quarter. But we do portfolio reviews. And

Timur Braziler, Analyst, Wells Fargo: we we had a

Jared Wolfe, President and Chief Executive Officer, Bank of California: lot going on last year. And there’s a lot of things that we can do with this company to continuously improve ourselves. I think our credit is very strong. I think our coverage ratios are are healthy as as we’ve as we talked about. And I like the loan production that we’re doing.

There are certain things I think that we can improve on on the portfolio management side and just kind of being ahead of things and not waiting for them to get better, but forcing them to get better. And the discipline that I’ve always exercised at all the banks that I’ve been at in terms of pushing things to a solution as opposed to waiting for a solution. It’s just my preferred way of dealing with with credit. And it’s I found it to be more effective. And so I’m kind of with our credit administrators and with our executive team here, we’re we’re training the company a little bit differently than we’ve operated in the past.

And and I think that’s a very positive change. It does not mean that you’re gonna have losses. It does it just means that you’re looking at things through a different lens. And that’s just the way that we decide to do it. There was no outside influence that caused us to do this.

It was our own decision and evaluation, and I feel good about it. But we’ll be monitoring it closely. And I hope, as I said, that this causes positive migration in the future, which it should as we move toward unlocking some of these changes that we’ve made.

Matthew Clark, Analyst, Piper Sandler: Okay, great. And then last one for me, just around ECR deposit balances. They’ve been bouncing around $3,700,000,000 for the last few quarters. Wanted to get a sense for your outlook there, whether or we should assume those balances remain relatively flat for the rest of the year? I’m just trying to get, you know, again, a sense for volume versus rate, assuming we get a couple of more rate cuts this year that would help.

Jared Wolfe, President and Chief Executive Officer, Bank of California: Yep. Yeah. As you know, we don’t have any rate cuts in our in our forecast. Our HOA business has been very stable as you pointed out. I mean, if you look at the last couple of quarters, it’s been about the same.

It started off in the ’3, but we migrated out some more expensive customers. And our team is doing a phenomenal job in this space and we love the business. We put in the deck enough information to people to calculate kind of our average cost which is about 3.3% of our, in terms of deposit cost for our HOA business overall. And as we mentioned, 1,200,000,000.0 of those deposits are NIB. We will benefit meaningfully if rates come down because the ECR is gonna come down.

Similarly, if rates go up, ECR will go up. But I think we’ve managed kind of the program on the ECR side pretty well. Are we gonna grow HOA balances? That’s our intent. We would like to.

Absent a few of our larger customers, we have some sizable customers in HOA that have the bulk of the cost. The overall cost of our deposits, excluding some of our larger customers, is much, much lower. So when we do bring on new HOA clients, the average cost is much lower than our overall HOA average cost. So it is a business that we would like to grow. It’s very competitive, And our team does a great job.

As you know, they’re sticky balances, which is why they don’t go down too much. And hopefully, can grow them over the course of the year.

Matthew Clark, Analyst, Piper Sandler: Great. Thanks again.

Jared Wolfe, President and Chief Executive Officer, Bank of California: Thank you, Matthew.

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

David Feaster, Analyst, Raymond James: Hi, good morning everybody.

Timur Braziler, Analyst, Wells Fargo: Good morning.

David Feaster, Analyst, Raymond James: I just wanted to get a pulse of your client base. Obviously, there’s a lot of volatility in the market. You know, we got the trade wars. You got those. You got all sorts of kind of things.

I’m curious, I guess, first, how the pipeline’s shaping up, and then, you know, where where you’re seeing opportunities today? Do you still expect to see, you know, growth primarily concentrated within, you know, lender and fund finance? Just kind of curious, again, the pulse of your clients, the pipeline, just is there any risk to more falling out of the pipeline just given this uncertainty?

Jared Wolfe, President and Chief Executive Officer, Bank of California: So thank you for the question. Our growth in the first quarter, as we mentioned, was fairly broad based. And we see the same thing in the second quarter. We did point out kind of areas that were growing a little bit faster, warehouse, lender, and fund finance. I don’t know that we’re going to expect the same volume of growth in those areas, But our commercial and community bank is growing really well as we bring over new relationships.

We saw a downturn in construction, some payoffs of some larger LITECH loans, low income housing tax credit and general construction. And some of those loans converted to multi family permanent loans, which is what you saw in the uptick in multi family was just the conversion of some of those. But more paid off than stuck with us, which is why overall construction, overall we had a downturn there and on the construction side it was a pretty big drop. We have some construction loans that are in the pipeline, although they take a while to fund because the equity of the borrower goes in first. Generally, we’re seeing some good pickup in C and I, but we’re being careful, right, because of the cloudiness that we see out there.

But we are taking a long view and we’re banking companies are solid in that local sourcing, good manufacturing and distribution companies that provide products that are needed, are generally sourced locally. We’re being careful on things that need to come through the ports. The Port Of Long Beach in Los Angeles and San Pedro, One of the largest ports in the world, has tons of volume that comes through it. And obviously, it’s impacted by tariffs, so we look at that. Generally, David, I’m very optimistic and our desire to reduce our forecast from high single digits to mid single digits, not a huge move in my part, just a little bit of a nod to you know, that we’re seeing some clouds, but there’s plenty of good business for us to pick up in these markets because of our position and who we’re competing with, which is increasingly the large banks.

David Feaster, Analyst, Raymond James: Okay. That’s good color. And maybe on the other side, I mean, performance, you guys have done a great job. I mean, you saw nice growth, nice decline in deposit costs. Could you touch on the competitive landscape for deposits today?

Where are you seeing growth opportunities coming from? Is it the commercial side? Is it the specialty lines or even the retail side of the business? So just how you think about growth and even opportunity to further cut deposit costs even exclusive of Fed cuts?

Jared Wolfe, President and Chief Executive Officer, Bank of California: So it’s very, very competitive. I was just on a call earlier with our team. It’s very competitive and we are starting to see pricing demands come back in in uncertain times. Right? People start managing their books a little bit more tightly.

They start looking at their numbers a little bit more closely. And they’re like, hey, maybe we need to get more on our excess deposits. And so that’s one of the things that happens when people start getting nervous, is they start focusing on the minutiae again. Which is, by the way, what we do on the credit side. Right?

Where we start focusing on and exercising that discipline. We really should have it at all times. And maybe, you know, but clients get a little bit more finicky about different things. So I would say that the deposit landscape is very competitive. Where we’re winning is number one, you know, we will not do loans without deposits.

And so people have to bring over their relationship to us for us to be willing to do a loan, and that’s where we’re bringing in. And as we bring in new clients, we’re bringing in deposits. Second is we are winning deposits generally from people that just want to bring over that might not have any borrowing needs today, but are just unhappy. Their relationship manager left. You know, they were at First Republic, and now they’re at Chase, they can’t get the same attention, and we’re doing that.

We do not have much of a retail presence. We do have branches. We have 80 branches. Some of them have been more retail oriented in terms of consumer oriented than others. But our fundamental approach and outreach is really on the business side versus the consumer side.

We don’t launch consumer campaigns. We’re not pushing that the same way that many other banks are that might have a wealth management platform or might be a home mortgage lender. We don’t have the tools to serve consumers the way others do. And my belief is that you really need to have a fairly large footprint to serve consumers well because they want the branches and they want to be in the branch talking to people. And it’s just a different client base than what we’re set up for.

That doesn’t mean that we don’t have them and that we’re not serving them as well as we can with what we have. But it’s not a growth area for us. It’s not a focus for us today. It might become in the future, but today it’s not.

David Feaster, Analyst, Raymond James: Okay. And then, you know, we’ve touched on this a bit, you know, just you talked about just kind of given the volatility and conservatism tweaking the approach to risk ratings. I’m curious, has there been any changes to underwriting at all? Or have you tightened the credit box? And then, I mean, there anything that you’re avoiding or deemphasizing or maybe watching a bit more closely?

Jared Wolfe, President and Chief Executive Officer, Bank of California: Yes. So I wouldn’t say we’ve tightened our credit box. I think the discipline that we’re exercising now on the management side of credits should be in place at all times. And similarly on the credit side, you might say, look, I don’t want to go longer in industrial storage around the port right now. I don’t want to go longer in deals that are really dependent upon want sole or double source products out of the country right now.

So those are the ways that I think you tweak your underwriting. And it’s really more of a selection process of what credits you feel comfortable with. We had on construction loans, have a big construction loan that we’re looking at right now. And I said, look, I want it to be full recourse. There got to be this trend where construction projects somehow got to be partial guarantees or burn off guarantees or we’ll pay you through getting it vertical, but we’re not gonna guarantee the product after that.

That’s never been my approach is I’m not a I don’t know how to operate an apartment building. And I don’t wanna own it and rely on the value. I want somebody to commit to me that they’re gonna stand behind it. So I think going back to just kind of core principles is the way you operate in all markets. And I think when when things are cloudy, it reminds you of all the things that you need to emphasize.

David Feaster, Analyst, Raymond James: Okay. That’s helpful. Thanks.

Jared Wolfe, President and Chief Executive Officer, Bank of California: Thank

Conference Moderator: you. The next question comes from Anthony Elan with JPMorgan. Please go ahead.

Ann DeVries, Head of Investor Relations, Bank of California0: Hi, everyone. I’d like to start on the expense outlook. You’re still guiding to the low end of 190,000,000 to $195,000,000 per quarter. But Joe, you mentioned that there may be levers available to right size expenses if conditions warrant. I’m wondering if you could outline some of those opportunities that will be available to beat your expense number.

Joe Cauter, Chief Financial Officer, Bank of California: Yeah, thanks for the question. You know, there’s always a couple of things that levers that management has in their back pocket in terms of incentive levels, projects project spend that you can either accelerate or slow down as appropriate or other expense items all throughout the expense space that is in a very difficult situation. You could take action to slow down.

Jared Wolfe, President and Chief Executive Officer, Bank of California: It’s well said, Joe. I mean, Anthony, the first thing that comes to mind is just accruals for bonuses. Right? If things are slow and you don’t see that you’re going to achieve your goals, then you can bring down your accrual. You really don’t want to do that at the beginning of the year because it’s really hard to make up at the end of the year.

So that tends to be a tool that you would use later in the year. As Joe mentioned, CapEx and just kind of slowing down projects. We actually put in the deck this time, which Ann put together, which I thought was a nice slide, that showed kind of the spending that we have on projects. Because we get that question from time to time. And in our supplemental information, we have a list of our projects that are underway and what the breakout is.

So it’s on page 26 of our deck and how those projects break out in terms of what they’re supporting. And so those are two things that are pretty meaningful.

Ann DeVries, Head of Investor Relations, Bank of California0: Thank you. And then on loan growth, you reduced the outlook to mid single digits. But Jared, you’ve outlined before in earlier in your prepared remarks the strength of Southern California and the exits of other banks. So I’m just wondering how I marry up the reduction in loan growth outlook with the level of optimism you still have for Southern California. Thank you.

Jared Wolfe, President and Chief Executive Officer, Bank of California: Tony, you’re right. I mean, like, we’re we’re being conservative here. I I so far second quarter strong. The reason why we’re we’re tempering it is because I really don’t know what’s gonna happen in the back half of the year. So things could shut down and then, you know, we end up with because what we the guidance we gave was was mid to high single digits for the year is what we were gonna average.

And so so far 6% in the first quarter, let’s assume we do, you know, six or 7% in the second quarter. That means that we’re there, but the back half has to hold that up to hold it up there. So that that’s that’s why we brought it down. We’re still optimistic, but if it ends up being 3% or 4% in the back half of the year versus 7% in the front half of the year, we’re not gonna hit the we’re not gonna hit the high end. We’re only gonna hit the mid end.

So that that was what was behind that. It’s not that we don’t believe in this market, but to maintain that level, a lot of things have to go right. And we’re trying to be prudent and not overly aggressive if we see storm clouds.

Conference Moderator: Thank you.

Jared Wolfe, President and Chief Executive Officer, Bank of California: Thank you.

Conference Moderator: The next question comes from Chris McGratty with KBW. Please go ahead.

Gary Tenner, Analyst, D.A. Davidson: Hey, Joe. Hey, Joe. Good morning. I just want to zero in on NII, a lot of discussion on margins and balance sheet, just dollar NII, right? In the quarter, was down about $3,000,000 You talked about the accretion moderating.

How do I think about based on the late quarter growth and the pipeline that’s pulling through in Q2? Like help us frame how much NII should be up in the second quarter?

Jared Wolfe, President and Chief Executive Officer, Bank of California: Good question. Joe you want to take that one?

Joe Cauter, Chief Financial Officer, Bank of California: Yeah. So know, you start off with there was a $5,000,000 impact in net interest income just from day count. I think we have that called out on one of our slides in the investor deck. So you can start with that. And then, you know, if you look at our loan growth as we continue to grow at the levels that Jared has said, the, you know, we will continue to expand our net interest income.

And I think you could probably think about it as somewhat consistent with our loan growth, mid single digit increase in that.

Gary Tenner, Analyst, D.A. Davidson: So NII actually could be up 5% in the second quarter just from the factors that you laid out. Okay.

Joe Cauter, Chief Financial Officer, Bank of California: Yes. I would say anywhere from yes, seasonal.

Jared Wolfe, President and Chief Executive Officer, Bank of California: I think that’s reasonable. Yes. Okay. That’s actually all I had. Thank you.

Thanks, Chris.

Conference Moderator: The next question comes from Timur Braziler with Wells Fargo. Please go ahead.

Timur Braziler, Analyst, Wells Fargo: Hi, good morning. Good morning. I want to starting just on the loan growth outlook. I’m wondering if you’re growing loans more slowly or more cautiously and the focus here is to bring over the whole client relationship, slower loan growth projection at all impacting your ability on the deposit side? And then as a corollary, just how much of that expected DDA growth is needed in order for you guys to hit that three twenty to three thirty NIM guide that was unchanged?

Jared Wolfe, President and Chief Executive Officer, Bank of California: Yes, that’s a good question. So first of all, I think loan growth in the second quarter, as of now, it’s very strong. And like I said, our guide for the year was we brought it down to mid single digits for the year because it’s just hard to know what’s gonna happen in the back half of year. And at the end of the second quarter, we’ll tell you where we We’ll update it again if necessary. What we’re trying to do is just tell people what we see today.

And if we see a change, then we’ll update. But I didn’t think it was that significant a change. So the larger question of how does deposit growth need to keep pace with loan growth to affect the margin is is exactly what we think about. Obviously, for every dollar of NIB that we bring in, it’s much cheaper than having to fund loans with broker deposits. It’s rare that a borrower will have enough deposits to cover their cost of their loan.

Right? And so you’re going to need to fund the loans somehow. And so we factor that into our pricing and everything in. We don’t bring over necessarily a full banking relationship. We require deposits that are substantial for us to bank somebody.

It doesn’t mean that they’ve eliminated every other banking relationship that they have. In most cases, we try to be their primary banking relationship and bring over the relationship. But it is a circumstantial thing. Most borrowers have multiple banks. Certainly real estate borrowers do.

And real estate borrowers tend to have the lowest level of cash available. Timur, it’s a balancing act. And you’re right, if we only required full relationships, that would certainly slow loan growth. I think we require substantial relationships. And so far, it’s been fine.

Timur Braziler, Analyst, Wells Fargo: Okay. And then I guess more specific on DDA pipelines, obviously a key objective for you guys. Now those balances have been flat or down now for four straight quarters. I guess as you’re looking out, how do those pipelines look? Then just maybe remind us if there’s any kind of seasonal cadence to the DDA growth that you’re expecting.

Jared Wolfe, President and Chief Executive Officer, Bank of California: Yeah. It’s hard to say that there is a seasonal cadence. You could say that first quarter has tax payments and all that stuff. But as you point out, it’s been flat to down. I would say that what we’re seeing, and I think this bears out when we look at some of our peers.

Although you’re probably a bigger student of all that data than I am. Although I try to absorb as much as possible is that generally balances are flowing out of the economy. And I’ve been talking about that. So where we’re able to stay flat or even grow is because we are bringing over new relationships. And so those are offsetting what might be otherwise larger outflows.

Most balances of most businesses are flat to down because they’re reinvesting it and their cash balances aren’t growing. It’s just what’s been happening. And we had all this money that was in the economy from what we all know for for many reasons that inflated balances and now it’s being pulled out. So our ability to stay flat, which is why our 30% NIB growth, that’s a that’s a really meaningful goal. And we’re trying hard to get there.

And we might be successful, we might not. But we’re putting it out there because that is our goal. And we will get there eventually. And once we get there, we’ll go to 35. And I think that the discipline that our teams are practicing in the way that we track things, the way we monitor them, and the relationship building that they’re doing is exactly the right discipline that’s necessary to be successful here.

It’s what we did at Bank of California over many years and saw steady growth. It’s not a straight line, but the activity levels I see are very, very solid. And so I don’t know that I can predict for you what’s gonna happen quarter over quarter other than I don’t know that this quarter is gonna be worse than last quarter. It’s just hopefully it’ll be better. I thought last quarter was fine.

So I think we’re exercising the right muscles and I think the results will play out over time.

Timur Braziler, Analyst, Wells Fargo: Okay, fair enough. Thanks for that. And then just lastly for me, a couple part question just on payoff activity. Really high in 1Q. I guess, a, was the driver there?

Was there any pull forward from 2Q? Second part of that question is, what is your appetite to continue maybe taking some of that payoff activity and putting it onto your own balance sheet as permanent loans? And then the third part of the question, you had mentioned that the payoff activity on the multifamily side both some of the higher migration into the classifieds on the repricing risk. I’m just wondering if that payoff activity remains kind of at this existing pace. Is there incremental risk to classified migration as that further continues?

Jared Wolfe, President and Chief Executive Officer, Bank of California: Yeah. I I don’t think that they’re connected. So the payoffs came in a couple different areas. One was we had a lot of, as we mentioned, construction loan pay downs of, you know, larger loans. Second is we had a lot of cycling in our warehouse business that cycled through.

I mean, think it’s pretty amazing when you look at the chart on page 13. The amount of production that our team did, really proud of the work that they did, really strong loan production including supporting our clients with line utilization. And line utilization rates are moving up as you can see. And so I wouldn’t say they’re peaking, but we don’t really see it much above the mid sixties. And so we’re kinda getting there.

And so we would expect some pay downs there. The payoff balances were kind of As we mentioned, we took some of the construction balances and put them into multifamily. But I think the multifamily that we’re seeing, these are a lot of been on the portfolio for a while. Maybe they were part of a broker portfolio and just kind of there’s a discipline of managing what happens when something is at a historical 3.5 rate. And you know it’s going to go to six.

And getting the financials from the borrower, confirming the amount of equity in the property, making sure that you have a plan, you’ve talked about it with the borrower, what the plan is. Are they gonna put in more equity? Are they gonna take us out? Are they going to what what is the plan? Are they going to Fannie or Freddie?

And that’s the discipline that I want documented for those loans. We don’t see losses because you look at multifamily in California. I mean, there’s a huge shortage. But there is a discipline that’s necessary for us to do this the right way, and I I think we’re we’re doing more of that. So but the recent loans that we’re putting on are obviously in a current rate environment, is very different than the stuff that kind of migrated in the quarter.

That answer your question, Timur?

Timur Braziler, Analyst, Wells Fargo: It did, yes. Thank you.

Jared Wolfe, President and Chief Executive Officer, Bank of California: Okay, thank you.

Conference Moderator: The next question comes from Andrew Terrell Please go ahead.

Ann DeVries, Head of Investor Relations, Bank of California1: Hey, good morning.

Timur Braziler, Analyst, Wells Fargo: Good morning.

Ann DeVries, Head of Investor Relations, Bank of California1: If I could just stick on the multifamily point and Jared appreciate the color on kind of the classified moves. If I just look at Page 20 of the presentation, there’s a couple of billion dollars of multifamily maturing or repricing over the next two years or so. I’m just hoping you could maybe give us some color on how much of that was reviewed and resulted in kind of the classified move this quarter and kind of where I’m going is, is it fair to think that we could see continued moves up in classified as these loans go up for maturity or do feel like you’ve gotten ahead of that?

Jared Wolfe, President and Chief Executive Officer, Bank of California: No. I we’ve gotten ahead of it. And this was a specific group of stuff that we looked at. We have a project called Project Reset where we’re taking I mean, just to give you some color, we have a fairly large brokered multifamily book. Loans that are three and a half or 4% that in the current environment are repricing around 6%.

They fully carry. They fully debt service. And they commit. In fact, we are actively talking to those borrowers and trying to get them to stay on our balance sheet at 6% versus going to Fannie or Freddie at five and a half percent. And so our experience and we’ve had success with 152 hundred million dollars worth of loans.

And some of those borrowers, they floated up into the eights, and they were just waiting for certainty on rates before they fixed it. So overall, the portfolio is solid, and that’s the experience with most borrowers. But, you know, there’s a handful where they’re they’re currently in their interest only periods. And even if the interest only periods are gonna extend for another year, we’ve got to be monitoring it. And they’re fully current.

They’re paying now. And they’ve got a ton of equity in the property. But you’ve to look at this and say, okay, what is the plan? And I think it’s more of a documentation question. So I don’t think that we should expect to see some sort of large uptick in migration.

Our experience is different than that. But I don’t have a problem being disciplined about it now. I think what this the other thing, Andrew, is I think what this page shows, and your question is a good one, like what This page does show that we have a lot of loans that are going to reprice higher. And so one question is, from a credit perspective, they absorb that?

And the answer is yes. That’s the experience that we have today. And the second question is, what does this mean for our income? And it’s definitely a positive tailwind that will come in over the next two years.

Ann DeVries, Head of Investor Relations, Bank of California1: Yeah. And that’s exactly where I was going, was whether or not you had the potential downgrades out of the way. And so now we can just more focus on the spread pickup as those loans reprice. So thank you for addressing.

Jared Wolfe, President and Chief Executive Officer, Bank of California: Yes. Look, I hope we can. I think we were pretty aggressive this quarter and we have a plan to kind of migrate stuff. It will take a couple of quarters. But we expect the trends to get better after this and hopefully that will not get in the way of the spread pickup that we are expecting.

Ann DeVries, Head of Investor Relations, Bank of California1: Thank you.

Jared Wolfe, President and Chief Executive Officer, Bank of California: Thank you.

Conference Moderator: This concludes our question and answer session and Bank of California’s first quarter earnings conference call. Thank you for attending today’s presentation. You may now disconnect.

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