BANC - Earnings call transcript Q3 2019 | Banc of California, Inc.

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Operator

Hello and welcome to Banc of California's Third Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Today's call is being recorded and a copy of the recording will be available later today on the company's Investor Relations' website.

Today's presentation will also include non-GAAP measures, the reconciliation of which and additional required information is available in the earnings press release. The reference presentation is available on the company's Investor Relations website.

earnings would statement direct in on earnings and we company's toward both begin, release Harbor Safe forward-looking the we like everyone to the the Before presentation. statements included

turn I would Wolff, of President California's conference to Chief Officer. Mr. Banc Executive the and now Jared over to like

Jared Wolff

results of about Welcome will California's XXXX CFO, shortly. Bogler, third who earnings our is conference morning everyone. California's today of Good call. in Banc detail more talk quarterly to Banc quarter With me John

quarter common the loss common $X.XX. finished net We with a to stockholders a and million diluted of share $XX.X loss per of

The As November you impact clear million initiatives our the progress reason fraudulent core XXXX purportedly on a this borrower this of on $XX by continued our our of of during to line scheme. had event, a incurred net for discuss the originated know earnings. to momentarily. is a make we we loss significant a will subject Notwithstanding main quarter related the team of in charge-off very to effects the a which bank quarterly charge-off credit strategic quarterly the

Let what the since we've learning me fraud. of done address first

the now. necessary to portfolio I of loan ensuring addition taking sure and there's the make to evaluating In to evaluate are should we steps aware be we recovery, pursue existing to itself wanted our nothing else

our for million held and internal secured each documentation parties, the directed I by of of event, loan, looked outside security, third-party not an extensive relationships is review of above converting outside this and we the and $X a loan real Following the and bank. existence all estate. of by credit collateral audit use Through collateral at C&I

that requested a have XX of we group addition, appropriate confirm to relationships in I top in documentation our warehouse lending place. In the also review

concerns that instances complete await documentations. or exist the confirmations material not our While not by third-parties loans, any not identified other are for the held we of have does final certain we reviews or and with fraud yet to-date concerns collateral

business, accomplishments plan. this past to our strategic overall some and on execute of our to much want to our of overall performance highlight ability Turning I represent quarter are indicative our more which the significant

As you focus of deposits, cost for three our we reducing expenses, non-core set forth quarterly recall may areas assets. of XXXX; operating and eliminating lowering our

upon All of will grow foundation this XXXX. the intended in which is create to we

we reduced deposits We our cost how continue as one the by test of view plan. QX, of to deposits our basis are cost key XX points. on and progress of great litmus In we executing for make

helped, deposit key While internally progress reflects our is non-interest-bearing bank to relationship-focused the deposits lower mix rates have the has we ability portfolio of the as have our the for long-term. a important a transform business to into effort most bank. generate made This significant component been

the third total now to we quarter non-interest-bearing over increased our $X.X portfolio. quarter, of they from deposits prior and almost In XX% saw the comprise by billion deposit XX%

up our than balances. Additionally, deposits we significant amount now brokered eliminated less of X% which of deposit make a

brokered and anticipate progress make continue funding up to increasing FHLB move down we We bridge low-cost on to our expect like deposit our funding, we to and levels balances reduced but running as forward brokered base. advances going at wholesale

the the of give opportunity the us would consistent bank. will of will process sold and a accretive side the long-term. longer and take expect more what will be to securities asset the lower It mortgage-backed in in community begin at balanced you opportunistically traditional duration On time with be quarter, fourth coupon remainder more to our build, a exited to building portfolio, This but to quarter. sheet, the with third balance we securities us

we extent a to opportunities reduced last and we'll duration. and to year, over reduce balances significantly for have the look comparable find the can those yield CLO We balances

As core ended a more billion playing the we quarter third prominent to a non-core at with of $X.X our profitability. result assets targeted eliminate role assets, efforts in our

Expenses quarter for adjusted were in gain partnerships. came investments energy on slightly nearly when alternative in the below and last flat

good, quarter viewed we second This as the a expense non-interest potentially point given was year. particularly the low for quarter's

our John on appropriate detail client our and business in size help will improving manage model. we and greater the talk expenses expenses focused complexity expenses on specifically. on the at level, both remain in cases a which to experience, level an will based overall But operating high and of us simplifying operations

on executives. Estate We continue Banking; & brought This Credit Hussain to very Sotoodeh as past Division; Commercial and talented a Vice Banking an Head place emphasis quarter of of Real professionals. Community Dyck Hamid to of Bob as Administration. President on John Executive talented we & experienced trio Head and hiring our

among ever step have These next year. executive into executives role the bankers will accomplished Officer Credit Kris Chief early Bob talented current with our CCO, worked are Gagnon the when the I rest most our retires of with. team along

of are incredibly and story is tremendous we have talent team taking very focused the The reflective Our advantage compelling of at we are is entire dedicated and California organization. Banc it. talented. and highly of on opportunity throughout These our leaders

detail before come I'd that, a up positive Go wrap ahead, bank. to the questions. back for John. take turn over we I'll to to on it Then the John what now was With to call quarter more like provide mostly

John Bogler

you, Thank Jared.

non-core As mentioned, to have we continued opportunistically assets. shed

assets in $XXX quarter. from ended the The mentioned by billion, a which on third driven the quarter million million the multi-family earnings $X.X total at $XXX prior securitization last Our decrease was settled change August. the call,

still building begin to sold the quarter, efforts million occurred during securities during fourth we securities We our mortgage-backed quarter. $XX a approximately which the MBS expect remainder more majority at of the quarter hold of of of the end. part diversifying to of $XXX traditional book, those sell and million as Additionally, and

MBS duration low and long reminder, a the As portfolio coupon. was

price-sensitive partially interest MBS to better fluctuations cash exit of the structure. swaps the position securities rate opportunity of less an sale $X.X middle we temporary an of portion million With The loss of the and decline process loss, in provide used the the of a with inclusive treasury securities. were and that the curve, the in flow begin diversifying price into the mitigate on a other to than charge presented resulted

This the assets to are less mainly Held-for-investment to are $XXX are this by end SFR loans XX%. sold due end multi-family at in increased focusing the payoffs. million on receivable year we shown billion expected as decreased as price-sensitive. the the securities balances, balance that an the $X.X the quarter XX% of total of by approximately quarter, and we loan on The relationship-oriented reduction sheet, be securities net was and to more to of level driven ratio loans will a expect

end, at component a XX% of The loan loan more of SFR portfolio the end percentage multi-family continue down expect portfolio. loans to at XX% prior reasonable from decline to and mix mix year, and of the to is quarter this we the

quarter, are C&I large million facilities lower to and net other credit as exiting portfolio, loan balances swiftly. Our relationship, $XXX potential managed continue utilization being ensuring million, we one for our of actively exits by the decreased prudently production revolving $XX due lower charge-off, risks monitor the to and credit-related

CRE decreased commodity variable loans institutions. rate our due higher other million. loan Rounding loan during The out basis refinanced coupon resetting portfolio, yield increased the points the loans and overall five changes to construction being X.XX% by and portfolio the in to balances to $XX quarter,

low yield the points benefit the a prepayment to did and of The the of coupon to addition accelerated due of higher in loan a loan of securitization from loans. see four loans, repayment fees level discount basis purchase multi-family

enough the offset fees to of combination a not falling the and prepayment was impacts negative However, of multi-family securitization, LIBOR. higher the

Currently, approximately flat XX% last compared total of C&I XX% quarter. relatively balances our HFI and are portfolio with

XX% XX% C&I of the the forward, to loans mix Going overall portfolio. to we comprise expect of loan

the by or to cost by deposits. brokered CDs to on $XXX decreased quarter Moving million end. Higher $XX XX% million,

to accounts savings Additionally, Overall, million funding higher costing and the FHLB to toward basis costs deposit targeted million, in XX primarily by average QX $XX overnight $XXX paying multi-family our reduced further $XXX costs from to the respectively. money securitization by X.XX%. fell funding wholesale We our by advances. market from applying lower down efforts reduced proceeds our million QX, due and points

we cost deposits as account lower progressively total deposits non-brokered now deposits, our alternative Core We expect relationship-based or and cost up wholesale of deposits. with XX% lower decline funding for to growing continue quarter. from funding last XX%

Turning to statement. income the

stockholders the was to for or of $XX.X $X.XX quarter common net loss common loss diluted million, a Our share. per

earlier, sale of in The the $X quarterly loss in and charge-off were described to which factors $X.X securities Jared preferred from million expense. loss historical million million mortgage-backed As additional pushed redemption. provision the the the $XX our the add loss up impacted calculation, $X.X by our used quarter, quarterly charge-off ALLL stock in an results million negatively

amortization the third along operating for tax expense common non-core rate net quarter located for by offset our $X.X per Reconciliations were today's within associated expense earnings Normalizing core partially share $X.XX After third million. solar with items expenses items were diluted for this charges our operations the adjusting presentation. to XX% the our program, noncore million. for outlined These benefit totaling with operating were are earnings $XX.X tax quarter. from equity

average indexed to to securities X.XX%. XX the Average points nine with to investments average basis billion, X.XX%. the yield portfolio by are interest-earning quarter reset from decreasing decreased to three-month yield and decreased the assets points the $X.X Since, prior CLO quarterly, basis LIBOR,

of LIBOR and rates higher is end currently level. The XX bank's margin funding mix days from yields. to about X.XX%. CLO basis prior, book on due LIBOR-driven of resetting largely decline lower The nine flat loan the the lower in points cost reset a securities based July interest rate LIBOR or of again was the net mostly quarter end at from of is at in the resetting This wholesale portfolio, to and QX effects deposits,

well Net million. decrease basis interest income point Interest income average lower million on Loan in by average $XXX in decline balances to previously interest quarter $X.X and rate reset a to on yield. portfolio LIBOR $XX.X declined securities by from million income balances mentioned. a QX, million million as average the $X.X by the decreased in $X.X due decreased a as five prior

quarter. by a from interest of interest-bearing overall quarter, average cost to slightly Interest mostly average prior decreased and by advances side, X.XX%. on million, being expense The liabilities points liability average basis second XX a points $XXX,XXX deposits $X.X average average or point basis in of cost five FHLB six the lower lower increased On cost fell basis the the expense on balances by higher the balance from deposits. XX% decline the to due from by by interest-bearing offset

quarter potential and to $XX the described The losses reductions rate in provision $XX.X related loan funds or provision position is respect included for to With charge-off in interest earlier. the million other modeled risk million rate additional indices, million our Fed increased slightly the asset-sensitive. and $X

ALLL overall to million, is XX the The is benefit of held-for-investment the non-interest were net ALLL ratio quarter non-performing ratio for previously coverage while discussed Total the million. included $X.X of loans XXX%, expenses basis points. loans non-core $XX.X which

X.XX% QX average expenses expenses, $XX.X non-core of were core for Adjusting million, operating assets or annualized.

continue million. operating expenses we and align see footprint, expenses below near-term remain As $XX to expect to with our rate size run we quarterly

improved mainly increased position risk-based during asset capital year Tier one a The was X X Tier base. from ago. capital common quarter equity capital up And Our totaled the Equity Common to to due X.X%, XX.X%. X.XX% reduced ratio Tangible XX.XX%.

million, for QX, premium tender offer of dividend. the preferred accrued and and shares $XX consideration stock of During aggregate completed of Series total an a partial we Series for E D inclusive

the execute robust We on us and fairly a deems capital provides appropriate. Board which continue position, which allocate, to flexibility with capital strategies, maintain to

and Lastly, metrics. move credit quality to let's on asset

to asset the XX points, Credit, a prior basis to million the in from quarter. up which was late quarter Shared XX basis the quarter. non-performing $XX.X non-accrual ratio National points mainly reclassified due Our was was for This

by and Though amount. be payments in its to ratio resulting payment of delinquent to XX Total will fully current on $X.X applied reduce SNC the loans total continues increased delinquent points. loan remain received loans to basis status any million, subsequent loan

have SFR and the current. was upturn million mainly of are the driven Since The of end cleared, by loans loans. now delinquent quarter, $X.X

our Jared. financials, I'll turn third to of call summary over that With the quarter back

Jared Wolff

been at I've Thank bank. In the you, the John. months, seven

progress sheet becoming relationship-focused and our of of have bank. balance business advancing Banc California's We strategic tremendous made transforming priorities, a

This to past is And management quarter, continue capital. activities. a we excess transformation to capital strategies look easy. we'll Such undertook and not optimal for deploy significant efficient

the is in to do who short to a come And the a period than day, much day so credit and done every seeking each professionals work talented we've fact here before. the better to such

doing and while are our all expanding We client base. this, still serving

which the by Banc they're We of execution, getting most banking to to our exceptional aim needs, be ensure And and known. their client's trusted develop solutions. listening and partner, California service for working to is

faster. We platform on This initiatives improve we to are technology experience. launched working new numerous month, the to onboard client clients currently a continue and on to deliver,

And our with and in improve system And simplifying to we'll way soon clients access interact our clients. improving and our their will with us, business way business with that By investing do accounts, launch functionality core their the an upgrade system we clients we're our and for vendors. the clients. technology,

being all on which taking received. And through are feedback is action. we This driven client we

in of phase the out investor rolling ready investors real estate in program, are capital California. early to estate our real Southern sophisticated We providing

the health we banking to We're hold and now, roots all building care quarters. business program our also in lending program. are onto taking initiatives coming well These results our with that that as as show are expect

that market talented these we we of we around respond colleagues. built in with our believe can the need initiatives Each is to a see

and clients' building We to are our by needs. solutions relationships needs, address bringing those understanding

Looking execute funding critical strategic expect our on our bearing client deposit a of most which and success. continue areas we actively three I as build non-interest-bearing portfolio, ahead manage the down into relationships. see our the have to part overall on of will deposits we focus, coming become larger the to quarters, costs, our

introduced which have relationships, year to our And quarters will results. what were earlier this The than transactions. building see are just excited bring. more impressive on am deposit I employees to incentives few a shown centered rather

reducing aligned size. be made We've our with our progress incredible to expenses, more

going to We and will opportunistically forward. expenses, continue look our to improve efficiency

is transformed Additionally, quarters. our the sheet several last balance over

on exited of assets billion non-core over of can building we to foundation cost exit further beginning franchise have $X value. the higher allowing us and year, from the our a we grow which liabilities Since

for incremental sheet refinement, expect through I balance also a thoughtful accumulation drive value to high-quality additional finding we will assets. continue ways of our and

businesses will XX% loans, balances, the real up comprised to to loans initiatives XX% total expect construction loans of XX% incremental of our real This moving to remaining to for multi-family time relationship portfolio, and to generate expected see mostly CRE to estate portfolio commercial to which Over bank. XX%. grow our we C&I making be commercial the are the loan our due of while and estate closer

sides very I both balance us Overall, of on see well-positioned the sheet.

loan paid off make loans yielding progress working on deposits replacing reducing non-relationship We expect that cost And to asset funds. will continue to to loans bringing overall we deposits. remix low-cost in continue our the of relationship our and good portfolio side bring that with

our expect fill to also to more securities We with out portfolio start balance.

be pure ROA In backup the but short-term, earnings assets may lower as we grow. build should

foundation true we deserves generating for that have continue in deposits way a on as the we value for more forward, execute higher Community create and Importantly, the traditional strategy. a bank going valuation and franchise is that Bank our loans laid to to relationship-based

made significant progress we we've this I point. the get we to incredible our meaningful work whole, direction and in about the in with to strategic this some a As quarter. and goals made very excited very are strides pleased achieving heading am us

every have are talented colleagues executing very team successfully day. a We who of

look for I forward our call during full you on updating today listening in everyone Thank progress January. to next our year and

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

Operator

Thank you. question-and-answer we The gentlemen, [Operator now go Ladies and Please first Piper session. will begin Jaffray. of come ahead. our from will Matthew question Clark Instructions]

Matthew Clark

Good morning.

Jared Wolff

Good morning.

Matthew Clark

here, at going stabilize a billion like or the than balance sheet. level we around like to overall around size start balance you it's I should little that? outlook, $X.X we we we or that X% feel but into guess lower year? go about I feel Do next mean, the on brokered I as get you down how on $X.X just could of sheet can billion Maybe size bouncing of CDs think of the the guess kind the from

Jared Wolff

No.

I hard we're will than repayments and for think remixing payoffs replace we're now and of expect quarter But had pace pretty growing right now ended repayments the it's we probably the to know we'll at what's then is so loan generation more the good assess. to $X.X our to hardest I exactly, We and have but predict. that and billion.

The the looking maintain we're to side. balance on liability is that

where into on again. growth that a so loan pace. get position our can And don't side a doing we really the we're good is that. generating We're pressure substantial we I that job liability way in deposits on think put a keep So

remix I short-term expect grow. time over the in So expect I us we're then and going to to that

Matthew Clark

Okay. And we'd above expansion anticipate sheet, beyond I help. would then outlook, maybe done of assume the a sides the get I X% guess, color any of some on see that work the we the here. from just given thoughts on the margin? both can balance lot NIM on are trajectory of And your would but I what you've

Jared Wolff

We about it. we're enough, trying can't but get Yeah. to there fast be smart

think a the now in it's I movement quarter good out right all was there especially given there's being rates, flat of pretty pressure lot it the with competitive. on very

originations on Our X.XX%. yield portfolio was new of above yield X.X%, loan our was which

we're so it's loans why protect expect enhance that enhance going remix, our when yield. I or still portfolio, And to current is we which above generating -- our

we're deposit then side on cost expect we to continue and continuing the liability our make it to And decline. to move

downward. we lot significant have the in We fourth maturing a a CDs to number of that expect re-price quarter,

X% and this And sooner rather to say exactly quarter. is progress but we about as where to can going hard to so going somewhere you. I move think we're It's as want much we've than it's to get that's I give to, said color later that to make

John Bogler

the the down And we primary quarter. of had X.XX% fourth very between due a will talked that benefit we all full down are and they We down. focus is repriced deposits reprice that fourth retail in those, CDs to have carry and they that we retain ran of the really that as will As and we'll had in driving get CDs rates mentioned, and quarter, will necessarily those past materialize amount substantial retention quite Jared brokered late of that off bit quarter our got so about on X.XX% that. we've in the and in of the out we'll expect don't the come be of cost but some

our are So deposits. drive to to of see those opportunities drivers we of the down where couple a continue cost

Matthew Clark

they're way non-accrual. the maybe in SNC of Okay. us And in? much color just into you in the And the second? the how stood maybe remind of where or versus give And some went type of us terms have that just just the industry criticized then on Can third classified at your end a then follow-up SNCs? as you in the quarter business

Jared Wolff

Sure.

So on industry a apparel the private $XX.X deal SNC, billion It's and the equity-led it's retail. a in relationship.

I forced circumstance and this changed properly regulators where I pay already are therefore, rating in a And so all a it had came it, we but the but adjustment, on think same guess the is on to the we reserved it make current a and bank. was on reserve we're it's and loan the lead for paying. it

nothing so in being don't we mean National control that really really why which of like hate over, I was any had And I is Shared I Credits. it these.

We in have our at Credits left Shared the right Credits million. National looking are commitments $XX.X National five approximately the relationships sheet now Shared is and five I'm total

we're but where exit So huge we we'd it's not like What amount, to second them question was your Matt? can. a --

Matthew Clark

of third your the the Just end on classified second? to the at relative criticized quarter stood where

John Bogler

though as component improvement would quarter. the disclose a in the earnings. classified of part we've overall That's criticized say for that seen the don't truly we I

Matthew Clark

Okay. Thank you.

Operator

question Bohlen The comes ahead. go Please Jackie from of KBW. next

Jackie Bohlen

morning. good Hi,

Jared Wolff

Jackie. back Welcome

Jackie Bohlen

the PE loan is a leverage discussed National when to well sponsor? was first a I quarter The be same the that the Thank know you. because the Shared we Good on SNC that as with Credit from back. quarter

Jared Wolff

one the have loan We so quarter and them have off And is were the two don't leveraged It's two one of that and able we them. actually one a had to yes. we one. two -- I of left we I loans, told so three that have one of we them. rid This We to out which had leverage was you out in left. got I guys is we this left. get trying of of get remember

Jackie Bohlen

Okay.

decline been forward And assets, opportunities in Thank so reshuffling it and themselves provide in Okay. large balance of interpret a terms going then you. be of that of sheet work in it's did the terms changes, like going sounds done without has I gradual as correctly? to most remix things significant

Jared Wolff

Yes.

am really the I I these that's we've non-core obviously shedding create the right. mean We on bank our to very from we're to I frustrating there. for growth that the think legacy that, some to of deposit I on and execute some made have obviously assets significant for cost. objectives can have forward. was substantial that the going to noise really then pleased done of on kind foundation room specific going grow is what with we've on think but and plan. the progress It's expenses to kind the progress continue distract

we've the of have pull. think for I couple growth We So going a still laid levers forward. foundation to

spigots going grow we've of been Holding to where too kind in in say rate easy, right I'm place. turned just we If not down infrastructure fast, I can up our much we grow was is were. would trying I a as above portfolio back one get the our And yield. keep kind we're but we of our we faster, at but the loans margin deposit now -- right thing originating actually that Jackie to end level environment

sure we don't or the So and a I we're on quarter fast, start maybe of here make too a that couple quarters. need to in engines quarter going but to half growing turn another

John Bogler

still have elevated the those see could with low Jacque, could two loans could environment. $X.X said roughly increased environment, in billion single the in repayments. $X.X again the earlier where we and roughly multi-family billion and rate with Jared see what repayments pressure we I'd family rate some that see categories We is say so

the of would that in So on a sheet put bit overall little size. terms balance of us pressure

Jared Wolff

the to But that's We holding higher rates and the that's we mean on. can fast we better we do drop the commodity with engine commodity asking some look, we're actually think trying yielding and replace leave stuff the fine. rates fast them but good runoff. won't mean, just is I there's pretty pretty on we're it if just can I can goes what I generate if pricing put pretty multi-family because the SFR our relationship than for loans. levels deposits turn if but we we're to Yes.

so we're And to for now to the we're right the term. do the balance right and long that's holding way trying this

Jackie Bohlen

your -- said earlier you you when when that comments, you So could grow faster.

If you wanted referring to growth? more or liability to new in of the the understanding managing as look Is that's pricing way your in else that there growth mitigating something you're you're side some you'll well. and to see loans quarters is future that that

Jared Wolff

Two things.

would is right we've We're executives these do products credits to we putting making brought we're and right that's patience and so we discipline actually the the just teams. looking relationship do right that than place new more that First -- the they're teams sure a And the in these lead way priced I in to the deals. be from bring out lot should and deals and that at a say the standpoint. right to

into pipelines those market get we our as And that's introduce going up take to time. the they building so are and teams as and out

and right On trying the to multi-family side, deals. the again do discipline exercise we're

important really a I portfolio. our think of it's part

full really the past, lie financing you're a fact think which to bridge is do as acquisition first and that cradle-to-grave in mile competitive is lender, in be going the construction I've and rehab in the we a on about front-end really, marketplace. takeout I as on end the and the then permanent do can talked lending,

have more can prospects that talk turn doing can. and way. and in but as clients, to attracted a it to I and we certain want that do capacity There aren't on that always and more are lenders run multi-family the it it a faster. let lot to engine We of very the and do to they're we And

franchise up now I at to I think we're for grow a Right front-end now it more lot it deposit rate of focused. how -- a our it's is is kind we and building trying game. without mean, a we're of pace that of run rate can lending appropriate the right that to

front-end financing a bring lending, on clients lending, less the it's first-mile As the it's those permanent at the for because project an less of option and providing more a rate we we're about for game certainty. end it's rate-sensitive of

in to looks And it'll of of that's so it now. you a give kind coming quarters like but that's normalize the the what right balance sense and

Jackie Bohlen

Okay, that's last me Thank I'll then helpful. you. one one back. And step just and from

have the they're mentioned or were You can't capital a the items looking were about you in when press to that But the that becomes recall redemptions release actions you remarks. does flexibility prepared if preferred talk other I or refer whether additional as dumped you for do? there future that to possibility

John Bogler

June year. All options of at are on the in callable table, but certainly we are looking the becomes pref that next

a position we of -- decision -- call be that that series. the the Board want we that if to that's could in will we the So

Jared Wolff

Yes.

those preferred looking those and both of looking So doing we things. at the at whether optionality should do for common

Jackie Bohlen

Okay. Great. Thank you.

Jared Wolff

Thank you.

Operator

Liesch go Andrew of ahead. The next question comes O'Neill. from Sandler Please

Andrew Liesch

Hey, morning. guys, good

here stay you low or million from here for $XX the here? a saying this for below $XX from quarter so below some have know back Just are decent from how outlook of the that to to it's initiatives the low circle and $XX I or million. rate going I planned. kind year wanted guess is to expense million? build and your going far -- it's mean to is kind of I run build this

John Bogler

those that as over that of launched. being talked lot earlier online will got we've we some You And we it technology are coming quarters roll that it's of are described got for was we've couple and know instance about a underway out. still platforms Andrew, past initiatives and in be that launched the

savings to we'll materialize opportunities those start to that efforts we're build see line. at some continuing So out to from front look the expense but

to hesitant any I'm that, around guidance million. below but be sort give comfortable I of feel So increased do it $XX will that

Andrew Liesch

to added the fraud factors forward your adjust that risk to And captured related then in going that the this from going quarter? -- the provision that here. it's of all here was Okay. is on or provisioning necessitated the effective Is

John Bogler

next affects provisioning called balance it move factor provisioning, whatever type. that the isolated in will the It But into the is. out component we will a for changes extent once CECL loan be be It necessarily loss affect our balance that within year, and to does to that it calculation. as in we so loan change the our loan part have won't of CECL net factor that

Andrew Liesch

Okay.

Jared Wolff

address and Andrew, let go the back question me expense as well.

Andrew Liesch

please. Yeah,

Jared Wolff

and we we're then stuff find realized And XX% and and something drops seems close more something every and we quarter running we take can to so we down like out. it that's it find

I pretty surprises much all now. those of think done are

had something so we generated earnings something is spend I that on I would we find a knowing if think a that to And and think thought say opportunity that great would is that we do that sustainable. quarter it. I that really good we

each to But another the are, there, come I'm -- take we is why that. pretty there's opportunity, stuffs feeling of said, but hey, to and we holding kind up about obviously, And continue let's quarter that's to where of be going John but opportunistic. we're because where good a XX%, range that's advantage

Andrew Liesch

I have questions. you. other Got you. my covered Thank all

Jared Wolff

Andrew. Thanks,

Operator

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

Gary Tenner

comments quarter what you're dollar kind of you and that Thanks. earlier Good you that CD subset there, tell us be the maturities CDs John the on keep? are your fourth delta could just rough amount the what of would the the morning. on repricing on yields in and

John Bogler

retaining know so Again, $XXX high In CDs at month higher, a going of that teens, the roughly continue high the somewhere able the Yeah. we to quarter. about the don't the mature X.XX% It's X.XX% at the we've million to percentage. we're to past, been but it's range. in retain maturing each that if to of is be with CDs on passing rate across

retention drop the So CDs. down rate might into start rate higher as we the to get

Gary Tenner

And said? in that teens, retaining you been high said what you've you is the

John Bogler

Yeah. high teens. The

Jared Wolff

we We've be where products. -- in our based think pricing other on selectively on we to been we volumes like coming on based retention other set need

retention of would retain and price price probably can that's CDs all say XXX% and to need. XX% we generate we we So XX% to can them this or

based exercise And And the each we're if more or quarter. happy get we're we through what that this to on of flat. to with We'll volume assets that be based generating going kind out With we're assets that's if might retain it our figure more generation. the go price. retaining on going fine, stay of that's asset we volume are of CDs, because our

most. as But most the out in pointed price-sensitive -- the I they're clients -- that the have expect be sensitive that the John range to higher of would and going and you're go would end so you rates shop when

tested, to ability So at continuing to I lower much retain we're on we have do costs deposit generate pull to levers rate a will but now that. lot our think and be to right a our other

Gary Tenner

course second or color. loan of average noticed Good right. quarter with driven the All quarter points in new coupon commitments table that of is Thanks. the from third the something the The release was the the it that XX Was over press LIBOR by decline else C&I originations weighted the the in there? quarter. of down mostly basis

Jared Wolff

that's so have best new It's kind now environment on of right bring just on production. very and we're we competitive, that So the the trying the just competitive credit. to

So credit and bring quality that on good a to credit is rate. to if demand we're quality lower credits the going is willing

drive by And had as so quality Obviously of the cuts probably think quarter. that's the kind some we environment. rate best I in affected rate and described a toward also

Gary Tenner

just adjustments would that XX that be non-interest number? last run could them through I I'm Okay. to then sure, you've Great. terms And million. all what for seeing you the me. to deck, get wonder of I'm $X.X there in question the slide not the items John income of total in the Slide On embedded if

John Bogler

here Let page Gary. me the again please? Which put page

Gary Tenner

XX. Slide

John Bogler

The earnings profile?

Gary Tenner

income non-interest what you've Yes. $X.X And the that the of adjustment embedded in there? million, just are items

John Bogler

the in is That related that on efforts quarter. securitization the largely went to

sale So adjustments some the around offset some loan, there's just the on by of other factors. gain

recall, kind the securitization. you had if So process we with a of two-step

$X.X gain the amounts securitization million. there were And on then net it in recognized the so, and quarter third roughly the some to offsetting down to the we

Gary Tenner

Thank Okay. you.

Operator

comes Fargo The Wells Timur of next Braziler from question Securities.

Timur Braziler

morning. good Hi,

John Bogler

Timur. morning Good

Timur Braziler

Maybe with lead just National of -- the bank? retail Credits any circling back the or in to Shared remaining same those

Jared Wolff

was we that led of other or by question Credits same downgraded? not the that your National any the the leaving Shared one Is party have that's whether

Timur Braziler

Yes.

Jared Wolff

No.

Timur Braziler

Okay. And Shared industry wise the any in remaining retail? of National Credits

Jared Wolff

so. – like don't no, think I Looks is there

Timur Braziler

sure, want right. just I make to I heard this And

place is I So that a and not estate and Was loans complete. real the it of of plus just review? review portion ongoing top the the review by warehouse for that or the loan that's taking are reviews million still think here $X kind clients, I all think of XX yet that warehouse was for the mentioned

Jared Wolff

No.

that. address me Let

we it estate So, real by to a the size. not all certain take secured that above opportunity was were loans that review important

And so, this review. directed I

And It loans collateral all $XXX secured relationships. million extensive. to representing lending not real and We it in was above commitments, interest. the bank's was $X security on estate. collateral It the and was documentation million support and focused by about almost XX relationships XX confirmations

was and it independent do that. a audit coming had in was it. coming had third-party Protiviti that review internal then -- in Our department led It and we actually we and

lot identified of fraud any aren't there large reviewed third-party, the so a that existence credits on us of anything collateral are not there of the had nor those other And our we bank identified the by so concerns we circumstances apparent held a but over give would few. behalf of for

validation their we confirmations, ourselves that give the of we're people is but in work it would I that's just did but the final can't Obviously review that terms work and kind we our perfect, all. results say for -- of waiting opposed final the in was of to still completing as kind of insurances work the

and separate something that was we review was that did. warehouse the then just And

by these secured $XXX real estate. really representing are commitments confirmations around of the XX larger So million not the loans

John Bogler

the the the sale some there adjustment, you there's to there's kind Gary securities loans. lines of so loss, you gain there's impairment to detail is of the give sale non-interest loss that on up income go an on statement then the more income if of the majority and make on of that three

Jared Wolff

Hold on.

Gary's question? to back going You're

John Bogler

the asking He about was reconciliation the $X.X million.

Jared Wolff

Right.

Okay. the review? Timur did we answer your on question

Timur Braziler

then corollary And just to Yes. a maybe that.

the the or a was loans of result C&I portfolio remix decline remix C&I XX% to book the this at that balances of any linked in XX% the C&I quarter quarter and this exited loan of loan XX%, the from review? CRE Looking

Jared Wolff

I that of – matter we and with result Federal com loan One that the wasn't it's charge-off thing, should say had against of the this That's yesterday jointly No. funding about we're is title the the complaint the Chicago the Court review. filed we in creditors that other complaint was we with company the with so partnering Title, the damages. million $XX along creditors seeking with one which one main filed other main of actually

the We're two complicated if understand you how very the jointly you creditors. to fraud complaint, And prominent and by represented scheme will firms. was elaborate read the

to can't are say in aggressively we we'll but continue pursue insurance's complaint any itself. regard, I that We Obviously, give and would speaks the that recovery. for

that And action aggressive our the make recover so taking best do example an of to we here. that's are to sure we

Timur Braziler

helpful. the costs up color. Should cost Okay. me, trends That's down? just on deposits. from and that brought earlier in a reduction And fast acceleration are one of any color how question acceleration more on would in those at the deposits we continued there, good question guess, just expect be I those following of looking Matt's good

Jared Wolff

right although Yeah. Well, is rate hard environment really, now certainly working our to are generate really teams relationships. the helping, new

I any money So, bringing them. progress expanding from more you as relationships and have the was basis how made on then, and think something clients, in well, that quickly thoughts bringing points And in we're and do new thought was quarter. Do over we're to from relationships move? asking XX John, existing going with And – business we accounts on our their we're for new great you accounts. businesses

John Bogler

Yeah.

quarter, million the so CDs the to we're quarter CDs retail don't a again we so based matured items be brokerage going very $XXX the full that contribute earlier the a carried quarter, get rate, is that of quarter. in that that. they X.XX% So benefit will we'll of quarter and the And I spread and had going late on around full mature touch to the we get have then, to that across fourth

balance start would noninterest-bearing that at our but up quarter, The around $XXX look was deposits we the is by that, average thing only other $XX to $XX I million in million. million, the grew

to added stick that quarter. deposits benefit So, we the noninterest-bearing should the extent see some those throughout

Timur Braziler

Okay. have end deposit quarter John, do the the at rate you of for spot costs? the And

John Bogler

disclose No. I I'm that. truly have not we that. sure don't can

Let me look.

Timur Braziler

Okay. Thank you.

Jared Wolff

you, Thank Timur.

Operator

go Coffey next Janney. The question Please of comes from ahead. Tim

Tim Coffey

Thanks. Good morning, gentlemen. Great.

Jared Wolff

Good morning.

Tim Coffey

quarter? in right loans go? like And percentage As to how to total of the lending warehouse kind it warehouse you we look what's it the down And at line, lending much was would where the of now?

Jared Wolff

Well, I business. warehouse the like

job. we do good really I think really, a

we balance think reasonable our percentage place. It perfect sheet. needs I team of have a in a remain to

of John, And much it last But we the under $X down something number? size, the so $XXX end if like billion. now don't have we think And looked or a could right you million our internal I grow given that. I faster. know it time was quarter I soft I cap have just think to

John Bogler

It's ballpark. that in

Jared Wolff

Yeah. But to quarter. expect expand that each I

Tim Coffey

just right? that your correct repositioning remixing. with me, down pretty all comments then securities I'm from And the Is Okay. portfolio if you're sounds much wrong it like and

John Bogler

No.

stages. in I think the we're early kind of

remixing sold traditional be of more are very So quarter, And we'll bank Agency coupon. community much a the the long into end complexity. duration for of MBS, we out those that our size are low at portion the then, large of a and securities

more overall portfolio start to across different expect And the be so called not on portfolio. reasonable high be necessarily be further. component spread then size where of any number a time CLO We they over side in of may CLOs bit CLO that's the little the do a will sell time security our that still to of as investment looking types, out the securities we'll be we the something book. and will much over We're

Tim Coffey

multi-family California. entire is that Okay. business? state is common your And How the of then to control to impact going rent

Jared Wolff

good question. a That's

first in working up all, of one pure sideways. who So, the lunch a go had rent was sure it rent Sacramento actually with largest wasn't been the in that of the developers state control, this make with governor to didn't it control,

to allow that So, good kind estate to annual they to negotiated percentage I think industry expand. them of felt a enough was continue an increase percentage the increase real --

going hard just not of kind weaker obviously increasing able it's to to But out owners, rents you're I values. to of a going have is occupants. delay be as the a of to and path there fast to going improvement suppress time property think properties units. for those them some it's the moving They're for increase to going

cash properties, existing on the change flows. doesn't For obviously multi-family. on it projected cash And existing not permanent flows underwrite cash for flows we

in. to going the cash still flow, are them coming had to they're way going properties we those still So, underwrite

harder portfolio extent question the effect refinancing, for bit hold going but people out? longer probably the loans they I is to might think on expected to bigger It a of the time real it's going in a I or that to fact going to longer properties forward. the a take have you those think the than you going takeout little are on have valuations have

it not cash going going have to properties getting need based that owners property find improved larger capital improve some be to to to You're to they're because flows do faster. to on have the to be able

Tim Coffey

Right. Have the rates? in see you to market higher started cap

Jared Wolff

not yet. No,

infill One like housing in very have very, very construction of are one concrete. of and the housing issue I And California is stable. properties the -- we is is a multi-family -- Southern reasons these for I It's the shortage. big that and like very, reasons

It's coming collar for of very end see housing, stable occupancy through the new is And housing, and young professional I workforce changing for market are market. for professional high sea housing, and there all products the just older into housing. even very they for the blue and because enough very, very don't The isn't the very, on way then stable. that

Tim Coffey

can in provide your portfolio? you you of average or All right. multi-family collateral age track Do the the

Jared Wolff

know that. have we I if don't

Tim Coffey

book the how And then construction much to is Okay. of multi-family?

Jared Wolff

half. big of probably it A part

John Bogler

it and has half probably be-- to Yes,

Jared Wolff

banks right of is We what is single-family, we to a lot have work going construction that's in expect the be my at in going do previous do doing of do single-family will construction this. this some what and now. to relationships best that but with have We're lot now multi-family demographic forward so sponsors space. a a living of infill best it housing That's in the to mean forward. going to our more for and we right for I a I've offers sponsors areas and done the with

Tim Coffey

all you Those very my questions. Okay. much. Thank are

Jared Wolff

you, Thank Tim.

Operator

go The ahead. Please of Riley Steve next FBR. question B. comes from Moss

Steve Moss

Good morning guys.

Jared Wolff

morning. Good

Steve Moss

on I up de-emphasis the to circle single-family loans. just wanted on

Just wondering over go those how low time here? balances could

Jared Wolff

sold them, we to could if go Well, they zero.

think Hard us Doc coupon. is which I far. loans right a time don't to have to decent There is giving on higher that clip relationship predict. probably headroom Alt how to know to I harder at now but at which put some they're refiing fine because paying are a are off a good they loans, going it that do

with I don't we -- don't not relationship it. business, it's deposits have It generated a any was a in fashion. brokered

a any can So, refi, predictability these using we to are wouldn't it's remix our to could and portfolio, hard predict we that the loans fast but But in extent to for pull run to the that otherwise it's there's it one of lot it's always can me, off. kind it sell. going how of them leverage to refiing of of we're just out

John Bogler

Yes, category we're actively product that not it's a originating.

to certain an we're of looking accommodation of originate. product will clients. our it's not that more We it But as a to do

Steve Moss

structure Okay. And unique then, primarily on Alt within about the there or the single-family Doc those anything delinquencies? delinquencies those loans were was

Jared Wolff

-- just this But this current portfolio. No. the is late, a it they if of they pay out is And we that's was important it's of lay the it. they But know pay interesting they just pay. this SFRs their there's run really in part show to a And leading that lot our economy. of really not way I late. don't indicator people that that but thought I know

delinquencies the out, our laid presentation delinquencies not rise are We're six can seeing you see that page And across the we board. from. on in where coming

In the fact, throughout of portfolio. our declining stable to rest they're

you largest. delinquency can as as of But SFRs And they're a low, percent very, the is see. our very

Steve Moss

It were like And change? just book quarter looks Okay. versus CLO the, reported quarter? this last quarter purchases the this my portfolio, didn't question yield then, of last there

John Bogler

the no occurred third sales that second were quarter, had nothing quarter. in There No. purchases We the during some in but the quarter.

Jared Wolff

On million. $X.X $XXX approximately We're we're we're $XXX the million. at CLO billion. And book,

we're I it am closely. we where And credit. with very are. think comfortable And monitor we I the comfortable with

If there the is CLOs, that out are bit. alternative now to we products a build it securities would portfolio as to do our we normalize into little de-concentrate trade time and in

not good X%. interested we getting have and I'm yield the in out is around But it, on that just which abandoning

the we'll So alternatives. got And of there are we're ladder that MBS. position we holding I securities good unless with our portfolio that now think, other out comfortable stuff some

Steve Moss

All you much. thank very right,

Jared Wolff

Thank you.

Operator

conclude you. and the and the this session, Thank does Ladies teleconference. gentlemen, question-and-answer

your disconnect may And thank at participation. your this time. for lines You you

Banc of California (BANC) 23 Oct 192019 Q3 Earnings call transcript