BANC - Earnings call transcript Q3 2020 | 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 for these and additional required information is available in the earnings press release. available company's is Relations presentation referenced on Investor the website. The

both to begin, Executive on to in now and turn we Mr. like we Chief over Wolff, I direct earnings forward-looking earnings presentation. the would included the statement Before and to Harbor Banc like everyone of Officer. would President release Safe the statements, to conference the Jared company's California's

Jared Wolff

of Good California's welcome morning, Banc third to call. earnings quarter and

Financial call as Credit are and will Lynn Smith, Joining Officer, me available Chief about results; who our Officer, in our quarterly our on be all well during detail more Chief today's will Bob Dyck, Officer; talk Hopkins, Q&A. Mike who Chief our Accounting as

quarter, momentum quarter demonstrate we delivered months report we third we quarter. and expected As executed had our we of in to financial and the results noted following on our the restructuring. to second earnings nearly earnings that building well the call toward, been pleased XX anticipated operating I'm third strong that for

significant of get income million in to many here pre-tax few in common the a of $XX.X in just positive call, of million will We into level net $X.XX pre-provision later the are quarter. had we this this or and our highlights quarter, generated $XX.X more fronts profitability, results income. on share generating but We improvement detail shareholders available per

our further were $X.X rate improve fifth large to interest base normal we still normalized our Our able our to of our to ability would quarter cost regular total actively reduce while available Lin end cost just net strong the common And our We continuing XX% income without bring income in to net tax our detail XX% new maintain to been majority deferred which asset rate, end third and with We've per second net in to later. to business. have a of structure continued of impacting or service the the part at of deposits. and quarter schedules, benefited is of existing than to growth, record quality, our dropping we're lower for firm monitoring our clients margin lowering at deposit the as tax loans DDA the and a ability non-SFR in at of will Adjusted loans, consecutive due a from from million $X.XX the the stockholders returning stable X% payment quarter. share. managing

reaching asset base, our that our characteristics in drive third the further quality, we've financial been underscores focus results of quarter many sharp to actively will our expect we loan credit and monitoring franchise out in portfolio efficiencies a forward. and seen With closely clients. of We've improvements quality, our and on our performance operating building, attractive going improvement deposit our that the kept

half level reserves trends built loan quarter deferrals. rapid and loan we're continues quality in contributed Our the the secured crisis real low to credit deferrals. reduction to of strong portfolio coverage and values to impacted limited. hold underwritten This decline remains a our limited seeing by a loan With well portfolio, and this year, decline up a estate significant to with our the service significant asset current areas exposure in in predominantly following the problem loss California encouraging debt a loans with by Southern and lower trend most ratios, relatively provision exposure, during of first well, expense

In are to have with further efficiencies, timing the come. several our third of our to the many operating made, progress will notable the of returns. of financial approach high still and which of deposit continued mix enhance our the us to base, In to assets liquidity. addition, our came capitalized operating conservative in most all higher performance, improvement have we earning leverage keep quarter, and us level improved improve quarters of opportunities which in very a led in continues well progress benefit with a dependent, earnings we and level Even to

Our total successfully shifting toward is continues as service deposits cost relationships, client deposits. to expand lower we deposit and our platform, based business customers which base relationship decline, bring new cost of further existing to the

yield, third basis cost the prior is from to XX the our points end end been At to quarter, the able of level or deposits loan hybrid the our existing mature not loans, points to to reprice quarter. scheduled for the XX Our have exposure portfolio, as basis two total protect relatively least limited at are fixed effectively rates time, we've in of the of within years. at repricing down average we same given which

lower helped yields in deposit steady stable As net stable the relatively prior quarter. costs X.XX% relatively and for points on the a our just average result, basis loan our third portfolio. offset us pressure yield yields the in margin from the interest was loan at securities quarter, The held two quarter. to We declining

were balance environment the impact the reduce the further the our added are clearly improved seeing in We very and structure. organization, our also we we Positive a power. to enhance quarter, talent money importantly, through we ratio our our the of operating we type an of efficiency our our made continue actions able to cost this smaller bank, On areas with we the total non-interest have significant result identified to results months, the resulting and And non-interest strategic is our value. at see $X now pleased we're actions we XXXX, that more over in to the sheet. million customers have despite solidified of this have a challenging put, strategies XX performance we of earnings trends of very foundation levels the having declined on the resulted than in adjusted franchise have in we that to deliver more earnings strong improvement key our prior relative Simply positive quarter strong by to these making improvement from execution taken the changes ratio all The expense assets. expense basis, last financial and are demonstrate quarter.

We're to the million. $XXX XX, across decreasing Of September $XXX created XX% borrowers payment million regular loan majority the some and of returned year balances they in deferral. million few commercial the deferment While clients and liquidity utilize lower also in by these the a very remains deferments second the the or built by period. we quarter. deferments have portfolio, the with opportunities. entire forbearances the end to second the pandemic and Loan deferral beginning operating to require in markets the of second investment our fund $XXX increased of a during forbearance to are their had have we from Deferments loans on forbearances up decreasing of million of some commercial customers. and loan had SFR that challenging, balances from half schedules health environment are seeing the behavior from Most our within transaction signs the and and encouraging received are deposit see financial $XXX our a to first

deposit the able we to which acquisition most expansion kept these existing our relatively the part, outflows balances relationships, deposit the clients offset of of through though, stable. For and were new

specialty opened to than and all contributed deposits. DDA business million deposit private, banking. we quarter, continues our units, contributions have and banking third commercial accounts the During more estate from of newly strong results $XXX engine business The of banking, and with cost real that low built produce coming community

also are traction our bringing teams portfolio. to gaining we the help lending family Our runoff in offset new loan are relationships in and planned single

commercial of during in balances XX% the the move the and our quarter, at of time quarter ago. annualized our total an direction. this year continued increased XX% loans, customers from At to rate in at September result, the the increased X% portfolio end mix while As at a loans up a XX, desired of prior XX% to total loan the to

the show and our the that the in ball We franchise down goal leverage, process. earnings. keep terms As in higher I've value and to said quarter moving in deposit is the of each operating growth clearly this past, quarter progress quality improved our improved field and did

hand who’ll then some I'll line our for questions. color operational have performance remarks more over it we'll and on provide up the to Now opening Lynn, closing before

Lynn Hopkins

Jared. you, Thank

diluted of as or I mentioned as income the to quarter be deck, refer balance can please our review statement I'll to was highlights our sheet income moving website, million start investor Net before First, performance. common our $X.XX found third our some for per stockholders which $XX.X to the trends. available Investor Relations of share. quarter on by reviewing on third our

from million pre-provision the quarter. income $XX.X was adjusted increase pre-tax an million, $X.X of prior Our

I funding a was As a to due an tax offset net our income normal the been per have a an declined quarter. to sale in Jared X.X% will by income. Adjusted increase estimated income versus net $X.X quarter, in detail income prior costs, the lower interest strong primarily third net The XX%, share. The million, securities $X $X.XX than due $X by effective decline more still X% compared for later. diluted on increase decline was of or gain income to or net million a which quarter income Total of offset interest at mentioned, a than effective tax million in would in million none from $X.X in income. benefited revenue in non-interest interest decrease mainly lower rate rate, in prior is the non-interest as

the net funds yield cost Our from offset a prior decline was largely $X.XX% was average as lower our our by earning assets. margin unchanged quarter, on interest of in of

down liquidity our in asset basis our average as declined yield million temporary the yielding portfolio portfolio held second the X.XX% the the earning third due from primarily market, assets. X.XX% being CLO repricing yield impact The well quarter on to of excess points, as declined in current in quarter. to Our XX CLO lower $XXX into

we quarter. on in earlier the repricing beginning However, stabilize, anticipate after pressure fourth yield LIBOR year, CLO portfolio significant the limited with declines to this the

for the declined months to the basis to from The points by in yields the X we account lower average from Our average loan life time delay estimated of extended change processing provide government's months. SBA PPP the to yield due to in forgiveness applications. on X part loans estimated as quarter, in XX is our prior additional loans life just

our loan our As of process. dollars representing the October XX% loan in count forgiveness of were XX% about about PPP XX, of PPP

clients process, to actively our opportunities. are opportunity and lending additional the to relationships through identify with the forgiveness We help working them using deepen and

will We life to forgiveness the monitor to process. ability the relative manage continue estimated government's to our

was total XX total XX XX basis the third The end end to basis period our at second cost of highlighted average. quarter Jared average for cost of our quarter deposit quarter below points points. fell or XX points points, As the basis deposits basis

to Looking over have ahead, of X.X%, about of of the we With million see likely weighted loans, quarter. our maturing decreased funds reduce trending we with funds. excess cost the further and the income the of expansion potential to $XXX next rates which considering our months our into will and advances FHLB to in cost Non-interest million. meaningful deploy fourth continue $X $X.X CDs lower average NIM liquidity million six opportunities for

As the on our completed quarterly earnout income. division, the the approximately other average which quarter, last of our the I of mentioned sale banking from $XXX,XXX, year fee lowered which bank's income second three in contributed mortgage call

$X quarter of $XXX,XXX million the of the securities prior held current included approximately $XX.X a gain the of of while In on quarter addition, sale. for on million, of included sale loans a gain sale

to lower to benefits $X.X last a third the contributors quarter quarter, quarter. decrease a to year, for differences declines continue advertising settlements to from actual lower XXXX, of million from The XX% same significant a efficiencies XX% most the earnings and million effective on made which rate our were to negative expense, Based and quarter a the operating the other legal expense, $XX.X and expense, XX%. tax were last in rate drive We change core expenses or from approximately we've full-year and lower for included ranging decrease the tax X% our tax expenses. declined the for in and estimated projected in latter of as the prior level salaries

quarter effective a of change, the third result rate XX%. applied the As the in was tax

quarter effective to rates be XX%. expect our fourth approximately We tax

decreased Turning in third $X.XX balance assets quarter the to $XX our total billion. million sheet, to our by

reduced of we assets. brokered have excess a both end the add the if earning growth third support deposits, investment our in maturing securities, quarter loans future, Towards other of this in add to the we high our the liquidity repay to funding and But flexibility in of our terms reduced sheet. as and wholesale temporarily the assets portion balance and earning selectively quality of needed we to strategically size overnight

details by third run Our than of family loans during residential portfolio. $XX by held in underwritten growth The multifamily single loans debt our and estate loan and low growth high continues The weighted the investment be million CRE increased supported off towards includes on value. updated for quarter and largely offset C&I, strong portfolio our real to are with loan more loans as service ongoing which collateral investor to presentation coverage quality legacy portfolio.

cost the and of bearing other Demand the from increased initiatives. franchise in to quarter XX% as deposits, goal deposits, been DDA were quarter, million impacted up $XX included all on result brokerage we’ve represented offset deposits, sectors deposits our continues million within focused cost flat sectors that to $X representing The prior to value. in increase at drive the X% quarter the in our of the very from $XX Deposits non-interest-bearing, of relatively by limited continue remain end end, plus closely decrease in end. at pandemic. quarter activity our non-interest interest a million have mix monitor portfolio, focused quarter. deposits fifth We interest to and But last low by we deposits. at credits at exposure checking our $XX growth, very very consecutive increase improve total billion most a a XX.X% our of bearing a Non-interest-bearing a by

deposits, debt the a efforts points environment our quarter. costs, we down year and basis to the bring deposits with of significant total reduce a points million of ago new portfolio $XX by unrealized year, from improvement and with increased securities end the proactive BBB $XX.X XX%, A and at our XX XXX up all-in million. reflecting relationships AAA lower driven achieved average The lower of are mostly a rated subordinated demand portfolio from in securities. basis unrealized our slight million Over deposit XX% of $X.XX to and in our corporate was the securities quarter majority net $X.X and of deposit billion, of the composition cost The base. ended purchases million. the XX% XX% rated to in drove remaining BBB securities net of made to $XX.X quarter deposits AA the bank the security increase, We investments. past losses have rate of increased combined this in This gain

For the consecutive tangible in portfolio. to book share added this our the credit quarter the loss relative in tighter The to improvement quarter. our $X.XX pricing prior per second CLO quarter, reduced unrealized spreads value

value. spreads improvement CLO As to the the to economy stabilizes directly narrow the and tangible will our book continue contribute

resiliency Next, to spite a few pandemic. show by comments the in continues quality the on asset overall of challenges created quality. Credit

that at highlighted X.XX% deferrals XX, million decreased $XX.X quarter third September $XX.X total to million Non-performing or September $X.X in in the decreased are $XX loans loan of earlier. Jared our to We as by XXXX. million million of loans trends loans the XX. pleased Delinquent

value quarter, However, offset that included The three quarter $XX.X or of million payment secured $XX.X by this national in relationship since loans non-accrual XX% decrease million represented million family and well loans million $X.X with secured ratio million of status includes properties The number mortgage $X.X one, ratio estate are of loan balance of XX% and with are large net to loan million of and family loans $X.X non-performing reasons. single a classified real $XX.X $XX.X commercial XX%. a is to These new relationships of balance non-performing loans. last residential and single XX% total a average our legacy consist for loans. but totaling million other by $X.X legacy end an shared or credit million of residential current loan value

totaled likely $XX.X quarter our fourth Based family residential non-performing to shared show totaled during is this credit believe single non-performing on reached be once in the quality non-performing will asset and improved relationships, end a $XX.X things largest to we remaining a additional put three resolution would us that current million. discussions, the the equal, $XX.X those from loans year. Aside loans million All of the again our at loans, without being position reserve requirement. any million on national it good

turn me Let briefly. the to our quarter provision for

loss since assumptions of quality modestly growth, not our model asset provision quarter. we've discussed published and our ACL forecasts. that methodology Economic in losses numerous includes our nationally drive quarter. for This, improved forecasts $X.X component As many forecast peer the recognized quarter third historical based third in assumptions, our improved in loan did and methodology additional past, the and provider, by the ACL have just our portfolio modest the model expense uses with second Accordingly, third-party loan current which resulted a data, provisions include the our credit on combined metrics being million. economic

the losses Following total expense totaled total ratio the an our $XX.X X.XX%. quarter, coverage in third recorded loans represents of for to allowance which provision million, allowance credit

loans Excluding X.XX% the XX, while XXX%. to which coverage PPP was coverage guarantee, ACL non-performing at a the allowance total ratio loans, have ratio the government XXX% was September

the has a the ratio Our quarters. X of and past strategic common several equity capital strong remains XX.XX% benefited completed position tier with from over actions

protecting at the use We benefits will to franchise while uncertain. a our to maximize well position very and outlook strategic and capital to of be continue time when build our to shareholders capitalized prudent with remains the value

capital, deductible to I or coordinated Jeremy. lower there when as prior X% turn of the coupon the issuance a of through this is At the supportive, tax time, will over back remains such cost presentation debt. environment other an with vehicles, current repurchase to As with preferred stocks opportunity we've noted in over our quarters

Jared Wolff

Lynn. you, Thank

we Looking we meaningful key to ahead, performance. as optimistic have are initiatives long deliver related setbacks additional pandemic, on make progress to will in as be don't the our any to financial improvement that able we continued

we the in pandemic albeit and restructuring, As now on mentioned mode, a economic our profitable completed quarter's growth environment. we are to last having temporary due slower call,

We are continue are improving deposit believe quarter. we to be growth more loan the to third expect crisis base grow even cautious returns as economy earnings still more as earning this drive the we greater prepared environment. expenses, returns in we carefully And demand opportunities good to level, and improves. more operating and there we managing a expect had on credit progress and normalized from we to higher make the in be will Moreover, to But our managing leverage, current and did emerge to commercial assets in rapidly as continued for shareholders. additional

to runoff single our to terms loan end previously the with likely will significant in We but loans year XXXX. expect is as flat year less or communicated, investments more continue portfolio, see we balance building the steadily pipeline sheet our the and in and end of family

the value opportunities, to a more to as we mentioned, expect To expand CDs months. stabilized sheet, Looking for at significant maturing financial and additional will positively other areas eventually have can that CLO positively have these our that tangible create book we next other level that and continue to a per we value values CDs we impacting on performance of over of our our that six will pull shareholders. impact amount believe more bit Lynn preferred our to we we redeem levers stock share. balance return may reprice,

the at will our goal we're by of cost XXX at basis [ph]. to issuing deposits is replace these even we always, CDs if with with CDs lower deposits drop As them cost rates these least current points. replace But

the be for our level capital. regulatory believe discussion When to stock take a certainly program considerations, optimize preferred of to stock. We as continues permissible, stock as common our be expect our would to as we opportunity redeem the to company. for well, expect we good on Subject a investment initiating table repurchase to advantage will that particularly trade

our achieve of very end the are franchise. we have improvement we quality XXXX, the dramatic approach in able this we we've to what of and excited As about the made year been

credit effectively provide continuing continuing the streamlined pandemic in areas exceptional to talent, operations invest are institution. managing during a level and the and through good build to to challenging of quality of right us to an of foundation and in while and customers We've reduced while our unprecedented and technology our strength, culture help deposit have time. expenses capital terms We service maintained an focused a

we're daily seeing new a bank the bringing results are the quality quantity client of and efforts of clearly the that We our in basis. into relationships on

the our creates of a asset we growth, a of interest generate expand strengthens. near-term ongoing earning for that earnings higher to believe level very as deliver well-positioned leverage While realize returns the we our are margin, net level and uncertainty, operating and additional pandemic economy shareholders

of an We our I during have of our improved has these the our work tremendous Banc will the Banc in of colleagues times. accelerate done bank and bank execution. economy challenging only so California want communities thank in become to for dedication California and that notwithstanding hard and their progress. relationship Banc business the effort to focused to environment their go tireless markets. California thanks standout is

and coming With in about day-out Banc hope operator, experience. is that, of now safe healthy, that look people, exceptional let's proving and the the I open day-in and are the existing clients listening sharing your up families that an for California's you products team forward Banc to and you to California Thank today. I both go of deliver more for has ahead to services quarters. banking questions. prospective and progress lines and Our and

Operator

Thank you. [Operator Instructions].

Timur comes ahead. question from Please go first Fargo. Wells The Braziler of

Timur Braziler

Hi, morning. good

Jared Wolff

Good morning.

Timur Braziler

boxes that starting you in Maybe of at lot remaining four. of left slide outlined the where and some you guys on Jared off good looking a opportunities, off have checking a done the job off,

that there, redeem the to capital the Is table is now the two on there. is or as with keep option the stack? where could best not redemption preferred marks the of choose Looking green it part the of we what's to that still scenario and just remaining conversation stock, there the replace at a you start

Jared Wolff

stock to debt. preferred to with preferred we'll issuing speak do good We redeem still redeem it, to find intend it's you. to nice likely our sub approval We regulatory Well, stock. and do a morning, way need

so is, is that they that -- is to Fed based not right everything is looking we Fed to that clear The bunch has And on any have action my redeem the -- now it at approval. of that made read, allowing capital. banks take regulatory subject I've a banks understanding

so And just that for we're and right to when we think down approach the something think we waiting the it's are will that's We do time them. appropriate, we likely to be able road.

Timur Braziler

advantage Okay, or the the would redemption, attractiveness you market in maybe be advance take the a more sub-debt that and of now of of issuing of would concern?

Jared Wolff

it would we hard mean, think it's perfectly. really at time I look I to that.

market time I And they option. it try But to too think would we're be so good being what be the it do are, conditions at both same to constantly looking a to hard time. would what at

So we're be opportunistic. to going

Timur Braziler

of in reduction to Okay, losses, CLO the that entirely remaining of and portfolio reduction book, guess in the CLO was now? million, the I then mark the that negative switching over unrealized right $XX portfolio on and what's great, that

Jared Wolff

Lynn, address you that? want to

Lynn Hopkins

Sure.

[ph] was So portfolio entirely securities, due net in gain majority related remaining the portfolio. million. an has about the the a to was the CLO moved it improvement the CLO markets portfolio all in and There across unrealized improvement to the the the $XX but generally in not that slight unrealized loss loss, net was to

Timur Braziler

Okay, and…

Lynn Hopkins

so that's after bit tax little its pre-tax, And lower.

Timur Braziler

thanks. Okay,

balance recovered, little you bit the more of they just replace is that of is where talk with So us too loss going likely transition be things off? out Or out kind to that can through longer going piecemealed CLO something of that when it to sheet kind of just to that broad looking else mature, maybe on a levels sale is be as book? as Is larger the really detrimental table? a

Lynn Hopkins

Sure.

sheet. costs, the to So would we're their with to recover pretty It that there kind concentration investments from be what the to a are on that other talked available needing the be to balance a risk-adjusted us returns we've we we goal. on a yield these related basis able something think and a carrying that would we we working look to I transition our rate would at low to think But out to think to risk on opportunities flat generally transition about. get. extent what what environment CLOs I a alternative recognize and of That curve, could is are kind I look to of other lower standpoint, interest

I we'll well. think there opportunistic be as

Timur Braziler

I was you Okay, one, if remaining half then roughly is balances I it seems one of great. looking And that at of in level just the last like made the comment on deferrals, could, resi. that that still what's request, six majority portion know second granted? originally that second or also of the resi the remaining deferrals is deferrals. months a Are is

Jared Wolff

conversations as managed and the of, kind legacy or third non-core No, being it's they're very it, to us. with get different the a either arms portfolio. deferral, is it by it's you on our -- they're having the manage consumer party, We're for around what I in we're focused second process it, SFR, we the of though. second we've And request rules being to in reviewed. obviously, a -- they're got portfolio our are, servicer constantly they in in a mean, way.

bunch I think period make, you months, can't six other whole family sum to payments. it and one whatever that's thing the clear huge a up unlike months, make some loans lump of a really is, three initial the money people just after was, single come of expect with about deferments, deferment

out money. And they if money. were Or furlough, have they a don't so have the job, don't of the if they they're on

at and their him pay start it making at forward, single loan, the they missed take payments, to re-fire relates get was, period Generally, it they you're of what new is so and family. as a start payments, at the going new then the you end on And And the put paid of sale. to happens you them going current.

the closely And deferment, it of content of so with our the loans there? think second a on is those Bob working in when don't any a for of little But second. moving than most depends is of are yes, I of second the being kind but a really in Dyck, just portfolio. bit process There lag, we the it then either lost there. there's that to a your reviewed rest started, but answer or lot manage comments servicer, them of question are, are deferment. differently We're most

Bob Dyck

No, think that's Jared, accurate a very representation. I

most a have on come they consideration. We the or all first at through under second deferral said, Jared because And as of of most moved either once. buckets, into moved them didn't have

Timur Braziler

I'll there. that's color. Thanks. Okay, back great step Nice quarter.

Bob Dyck

thanks Yes, Timur.

Operator

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

Matthew Clark

morning. good Hey,

Jared Wolff

Good Matthew. morning,

Matthew Clark

it. I'm I'm you missed to -- offhand? interest sorry, this So, have if NIM? can between another quarter But juggling happen net a PPP we Do calls isolate income. the related that here. number core income and two I

Jared Wolff

you guess. Lynn have Sure. that, I

Lynn Hopkins

is quarter. points. $X.X basis income this interest it's believe I Sure. XX million At impacted that to fees the margin interest positively our that net came

Matthew Clark

on on Okay. pipeline, side? seeing Where side And deposits, both opportunities new the update And us Got commercial you there? it. then business you deposit on again, the an well? the loans both give can are and as

Jared Wolff

Sure.

and see opportunities taking lot we We're quarter even we of bridge that to some thought It's of building healthcare, throughout, in had permanent good We're term it the look, in opportunities, would. they of to opportunities pipelines things lines business for in opportunities credit and, seeing multifamily great we're financing. loans, as in and as commercial and pretty opportunities continue of SBA on side normal. all a well. are a there. the balanced, opportunities as So entertainment And units, in opportunities our on back lending, seeing get terms

still a show believe production the So production. at that of to to business terms our outpaces off all we're We to able in we're place end quarter run the where looking be of units going outstanding. across

end quarter-over-quarter. year that flat platform, earnings will So, really base deliver from a we provide and, year. or to, lower up next with the of end the, slightly improving And expense really good last our solid that especially keep

new deposits. seeing lot side, we're of we're On relationships some new as use the starting we're bringing mentioned, a see deposit though we're and Even same of liquidity, thing. still to we the

have closely the for DDA base to very relationships services credit. it. not the And right that of won't I terms high type making I to well, and quality five while this quality risk. the Because focused the quarter mean have it relationships go That's second. end from may think, want managing after focused that to of flows proud deposits very by existing to got visibility that environment, that balances in in we I loans, back the being we're in last going do safest really, on a think little to we the bringing hurt at this know up. now. existing we're would likely someone's to if as we're at are it's that given be is road from show loans, selective We're bring loans And where the looking hard deposit highest we're just that a quarters very to on which going down which I to very, our that the we terms bit and fluctuate, our loans that on we higher delivering and bringing and CLOs take expect we're economy going we strong. company NIM, lower of the yields. most grow, in really as and we're of. in, will I positive Everybody good we by we a we're clients. so quality, are say new exactly continue this we're we're to very loans growth And credit, in new and offset that's the the protect, at may going about bringing client yield. want have go as can say it's to which NIM going to actively to on because But managing, sure re-pricing. Matthew,

And holding-up. so I do NIM see the

yield of and side. to actually is I maybe still to hard on deposit I the go as room we quarter. our now, bit. originations think NIM on are little held-up in our going have so the that how going. loan expand But believe was costs to much deposit things We where of hold pleased our drive continued a kind to see But it's down. well with

Matthew Clark

happen have you on Great. along And rate to quarter? the lines, average those then production did this weighted new

Jared Wolff

this X%, is. loans it was Last all was quarter around PPP because average. because that yield to the it's what for of Production weighted sure quarter, see not hard on. Yes, came lower that

Matthew Clark

Yeah.

Jared Wolff

I thought good. have pretty me. I which, was broken everything across doing, it around don't X%, we're And But blended it out in without that of that front was

Matthew Clark

I cost million of all run around costs overhead now. -- kind guys just a quite banks a X.X%. And a we're are initiatives. these I of That here, then just dropped lot on been adjusted okay. while knowing have cutting here. assume $XX But ratio bottom other know, under announcing for even further you rates hitting Yeah,

curious Just some might be ever if opportunities? still you incremental you be think if there

Jared Wolff

Lynn, to? you want

Lynn Hopkins

Yeah, sure.

[ph]. Something here

ordered think I you it correct.

incremental I opportunities. is think opportunity there --

current look I for or expenses whether them it's efficiencies with continue leveraging at fit opportunities, we look objectives think technology, operating refine and, our to habits and and operations.

getting there's that probably to we things normal. things more small that be when operations, when leverage maybe I that to normal we'll have where, base, return need return able an probably sort So opportunities so to some it to think expense of back to we're

Jared Wolff

right now. I've I think evaluating shared we're pretty team, a is at, stuff We'll find our should our doing everything, constantly constantly are things. to pretty good in is at good, mean future. as with and a constantly way we looking the way at that past most we're team in the spot looking something done be doesn't do the because we're that efficient we've And just it way certain incremental

but I'm growing looking our layer we're we're keep to top can earning to we And base do of on earnings. and on -- we we confident that. So got existing assets constantly

Matthew Clark

thank Okay, you.

Jared Wolff

Thanks, Matthew.

Operator

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

Gary Tenner

morning, Good Thanks. folks.

Jared Wolff

Good morning.

Gary Tenner

Hey, or provision. a with points real tax about I of lower but this to term strong about interim think, quarter. the basis rate kind XX as of I an you're we've ROA X% sort as goal, journey thinking quarter, target curious low was talked about XXXX, and pretty

that front kind just XXXX, you, path think thinking do about to So still next as for the ROA of of level is you year? in you're

Jared Wolff

quarter have we but tremendous seeing we them It's and hit terms in, we on that going everything suggests we're amount of side about earning which putting it do. will. to hard know expense really in the think still a I assets on. I'm costs. to opportunity There's that It's of deposit

are of that we have We to be points. plus $XXX going we're million maturing, basis to take CDs able out XXX where know

relationships going kind time based mature talked give re-price. some about some other are have benefit to other that stock have some I of us. larger with are we preferred deposits incremental We can that and -- the that

I our the So the I still a in putting really on there's and terms of in in think numbers that can lot leverage assets, do that. then expense -- on side on believe of teams earning

see, And get I is X% pushing that basis do on a normalized to year. we'll hard know certainly really we're is something try there. that to but exactly, so achieving Hard be next able ROA a to to

and of are to The in opportunity missed We that, that and in back still the we're we other didn't teams to we're off tangible money that climb. value fundamentals, terms past, of just were thing plenty is, going our past. of for stuff it's we're on, get have job maybe collecting back to an get, are noticed they're company is whether plaintiff, things litigation pure continue finally whether the that that tried and finding that done legacy our where of reimbursements the things that -- in book to going where we like to that making exceptional the they've gone to just have insurance economy But things some there's that's -- find, assets. were resolving to additive value. to continue some as the tangible straight we're going our that Not only are the obviously going improves, will be re-price money tangible CLOs charged

of those to to contribute to share higher to to contribute going we're things addition expanding all fact going price, be book to which earnings. in a value, the tangible are So we're going that our

optimistic about of I'm both things. those So

Gary Tenner

the you'd be end said that you then said? clarify, for And expect year-over-year, you thoughts -- whatever loans to thanks flat to year -- just is Great, there. that think I

Jared Wolff

Yes, I assets. earning about think we quality think -- earning

sub debt, or end whole So in and cash. amounts there investments, year, bank portfolio which run of lower at bought cash I to loans to investments, of for points the which, should was replacement year be year, our the being and variable investment the loans of bunch in of end in last flat terms in terms year, higher earlier combination at the a of and a because of relative up the the think different good of we we with --

Gary Tenner

to be where like of the though, we I because 'XX, versus sounds was it of lower. now, so right loans will of if loans, Okay, combination are investments likely saying overall actually, you're But end loans and up? isolate the

Jared Wolff

fourth quarter 'XX Lynn. -- ahead, -- go might Loans see let's of

Lynn Hopkins

about so of at We loans, be decrease think Let only we may third some expect process we forgiveness sheet have the of those actually, that there in The the me balance end be our portfolio. opportunities. the starting, I the on make quarter. one comment. million into And that $XXX some believe there think one PPP where visibility thing we that have are growth would

balance, drive may think overall our addition in the somewhat growth loan loan in portfolio. that other I to

beyond that the is mentioned And think control. that's bit that So I a dependent comments, process. governmental help our my on there -- through in agency number, to it's the I little pinpoint move as to

Jared Wolff

focused the investments, high each more on We we on ability, quality enough those on putting are earning this And high where then more continue and have the between two most company of obviously, loans. earning putting and quarter. to quality

well. to proper from high to we keep and those on the we quality earning well put we're to that get sure duration that And this we But yield, right really and duration as integrate have an perspective earning so find forward. want a make great investments going company then place obviously, to if going asset

Gary Tenner

you. Thank

Operator

of go David Please from The ahead. next Feaster Raymond James. comes question

David Feaster

everybody. Hey, good morning,

Jared Wolff

Good morning, David.

David Feaster

I just earning topic. asset wanted to that kind on of follow-up

great done a You on guys have front. growth the job

guess, look curious I the be of to all, as you as are that single [ph] year? next continue this abate much And kind we alluded you're there? of how quarter, and of then about on just was and the run-off XXXX, how into to you to somewhat go growth of up I what to, guess C&I out business you as family we that First thinking of loan bank, head seeing was warehouse much as

Jared Wolff

take first. the broke of second C&I. don't I think versus me warehouse we part what's other let parts Well, out

our year. feel good pretty don't that So all balanced. it. about business Hard publicly before, stuff had was next we terms to disclosed in like we predict of have in of our production said units. that, we across mean, think And it I I I

a up to good grow. we this than out slower why than highest I this to dependent. last. would balance trying because kind peers. in credits, the holds environment, how visibility to conservative slower knowing economy no to go the specifically we're the relatively we If you're sheet be after make figure growing our economy. trying we feel taking decisions, quality and the long pandemic And the not certainly really approach, reason not to is going mean need going it's If economy of There's how is

are. have I think working know lot But teams what a hard say building. looking here. to everything, bring at I in aren't sticking relationships They're in of to our we're that have are we to it That's we the not trying so And and and new doing to lend really to borrowers. strongest our relationships. well mine pipelines and come really confidence we existing

that X% I production to throwing highest we year. level that past for our So need on I'm that assets know next can out terms number earning to a march of put don't in But the I have base and expense we David, toward of a ROA. there existing on

gets levels, if normal to economy happen. think to returns provisioning so And what's that's assuming going and better, the I

David Feaster

Okay.

Lynn Hopkins

some think provide additional add comment, portfolio. investor we to the just C&I would in materials, our do detail one I I related

sector the that's our And C&I within portfolio. think the second I and third the in insurance quarter. So both I see, think finance can and quarter you

C&I includes of centered is our majority warehouse the insurance growth and the portfolio, which in the lines. So of our part finance credit

David Feaster

-- that Okay, makes

Jared Wolff

that we're several And a And company because come we've have said points get focus favorable lending I'd perspective, deposits, that very short million opposed very portfolio, very as around We've regarding from because that And team their institutions say low that have that we're say, out to an to it. going I But to growth. cost in it and very portion appropriate positive CECL of is loss haven't duration. with we midsized above had that And yields, would experienced. our our our of built largest it's bankers, basis never make on hundred warehouse, it's portfolio. we that we mortgage below folks. a the XX of average we It's us. in relationships

keep portfolio. very So But kind a over it take our of so we size it's within -- balanced. become range, that doesn't

David Feaster

then to And aren't The expands get good forward, as of I I the kind kind do margin expansion guess, clear, for where then you're kind to Okay. getting should your the a yields. bit. pricing, earnings is back franchise? your positive mean of the back just margin on we to, based that of think headwind. power on you target a I through that the where CLOs think of like, following-up path what's pretty right? mean, you

Jared Wolff

good it's Yes, a question.

rates deposit very that they're as feel and because is floors as certainly neither sensitive. base the not today. fast deposits now on move. that ability that back the obviously, have check-in, service we're right really much So set interest costs, we're up, bearing expectation And to going low originating cost businesses to rates yield, will putting company to down non-interest move are liability to loans when but we’re Because way That we're somewhat not because really the reprice we're emphasizing of up trying all the drive our putting on focused. deposit from

expect heavily than the environment. more in the a so we'll participate take to And opportunity, able upside than to rising And rate be on so we downside.

in where of of our a know why -- But margin margin terms it's So in function to, rates don't how wouldn't. our quickly go I move. a would

know relative if today. to any have don't David, interest play on some we'd you have scenarios, that? think rates comments I I Lynn, where with

Lynn Hopkins

it summary. a think be I I that's would a No, And number. think good difficult pay to

the structure opportunities things to expect and business is through NIM I mentioned, And environment to deposits, then, would I Jared rising the expansion And important. growth, still as all in -- of pricing, costs environment equal, position improvement But earnings in working stronger we'd of a we're there. have with as we're the well. mix good initiatives. our the some obviously, being think, loan think help think rate would a advantage which interest with those rate take and the I same improve then, loan

David Feaster

That's for sure.

deferrals second million one, any Or there's okay, just do put round on just then $XX front. of $XX So potential borrowers out? in it And there? million there. I additional relief? go have for about remaining, that trends kind might done so it that work the you point, last concentrations how in then deferrals job are on that. guys that deferral the And you would I Of a a the those think great Was on as expire, curious at need and rather you ahead noticed non-accrual the there CRE any guess, you in appreciate that third and TDR just or whether

Jared Wolff

Bob Well, me and first address to open that up Lynn. and let

look not on or loan that be changed and well. deferral, we actively deferral, putting when rate to looking whether looking at at needs loan we're at So risk a we're as second

aware the that loans, it on that any as we're of are it's our sure that actively it's and looking appropriate. the ratings making see deferral, it, leave risk a let's to content is. We're we So extent making can blind, everything sure at not and loss

-- months. again they fundamentally couple our it, another So it check also secured we're it's path, and in at we're clients recourse lender. That of if giving a a kind being look let's just not let's a said, have

we're borrowers, at them. their have reason them don't kept And they that at to they our have, and path working are, I a we're there's we recovery been they looking then collateral pandemic So think the we're fundamentally, with shouldn't. if at holding The taken not advantage are it's and quickly has -- making still possible. being looking looking as sure and while we're we're working that statements, as any we help what doing where borrowers for can of we're their that more holding things rules this there -- a And through time everything ground reason. our the to in

In and really not months kind three three every of -- deferments, of giving we've terms -- monitoring it been months.

any not aware deferrals. Bob, strategy? if let been I'll on answer three we're of, not doing Bob deferments. we've deferment doing that but longer I'm month color there our generally So there's any

Bob Dyck

you're the philosophy to indicated, practice. an months and I absolutely at their our question, examine gives determine and to If Three our going be doesn't and only right us we get problem to that deal answer continue there, third, we it better your to going path like down with if a do away. improvement for considered Otherwise, to recovery. to to need look get movement we're if path if to you it's a see that That borrowers them appropriate. Jared, right. -- David, We're opportunity think looking fundamentals. you to, most as phrase recovery. to the but is And used is a the that it's

Jared Wolff

to have the on of I at retail. office Page then as retail, do what's look very of it's And [indiscernible], multifamily and CRE On risk deck, the what's you have we our and we breakout hospitality, a know CRE, areas. we in whether XX where exposures concentration high low have it’s

area where lot So retail is an have focus. I a of

XX retail XX% of top retail represent borrowers our exposure. about Our

We at mentioned we relationship it red, and carefully through every went last I quarter, group. marked and yellow, green. looking As that were very

far have more in the quarter. did last We category than we green

we group moving is it of migration that the as so along And hoped would.

well-heeled it feel pharmacy about anchored are grocery I of so good And and with it. is that Most shopping borrowers. centers

the that that And kind monitoring would very of we're about. that's concerned concentration so CRE closely. really be most I But

holding office up. Our is

have very As we hospitality. you know, little

David Feaster

Okay, thank you very much.

Jared Wolff

David. problem, no Yeah,

Operator

ahead. Steve next Riley. comes [Operator Instructions] B. Moss And Please of from question go

Steve Moss

the questions think assets? securities do questions mix sheet large should Most balance here. have portfolio Jared, term, we kind and obviously, want how the curious been you loans. my -- be small my to morning. one, of longer Good I to most we think been how was have of relative answered about just of grow just and earning A asked as about

Jared Wolff

the about there? target talked that what's we've Lynn,

Lynn Hopkins

yeah, me liquidity There's of about talk for a moment. let marketplace. the lot in a So that been

and had a than generally historically. So I percentage that cash securities speaking, probably think larger

So down normalized, XX%, securities a versus would I look between, to it, think I get and as XX%. being call trend to for liquidity cash is to back XX% above

does rated have -- and of well. in of CLOs, portion invest our corporate triple a portfolio then we B as that the the debt portfolio in Given is did concentrations that

probably XX% the sheet would considering down balance own closer our it think I be to driving versus liquidity. lower

Steve Moss

go sorry, ahead, Lynn. Okay, great. I'm

Lynn Hopkins

go No, ahead.

Steve Moss

Okay. maybe, about And forward. here, the expense in I economy on guess mean, -- provision way. I one think how how and do seems heading to the obviously, going the we be just right just should

So in Kind perhaps about future as just should provision relatively periods, to curious may charge-offs. we thoughts think matching have you any of there?

Lynn Hopkins

fill and CECL, think, simple have I as I it just again. the the you with was bucket you of adoption to then wish a as charge-off, get

variables the drive a like. process, look We are the the forecast look at macro going economic does taking a robust through models, the that portfolio, what

provision, asset the quarter, loan this we we the positive did is function We portfolio. mix quality provision trends, but do loan our a factor the is have in us of for reflected the forecasts. also into, did but economic have Fortunately, only and also not which the I positive growth, the modest think, of

some of product others. higher will, has And ratios loan coverage you if the than

was look be cautious that quite been the realized we may I yet, fact economy if remain I improves, as pushed not that damage may to do into the recognize we have the all think forward, and have XXXX. to from to the So pandemic

charge-offs to absence expect But we of would then provisions could loan I be the in growth, that there grow have the and some we that offs, think what extent expense expect address charge So still we're some even would are. I as the we would loans. in to participating

Jared Wolff

and a Moody's. these CECL it's seems models have a getting [Indiscernible] are of little tends with comfortable it getting to everybody's days, think lot I you're bit, if Yes, using power tweaked. still

people the here. pandemic work. that is when get huge think variable I back to a And

There without office LA working work to people are happen that's back remotely. not of terms are, of Angeles, parts environment. are fundamentally to are an And which parts through the in of still We going in there San end of would being hit but think of in I the Los get I bill, the County Diego, is a Orange And going think most the yet. economy lot that to suffer. aren't a like stimulus back schools this we everybody And lasts likely. is obviously And probably longer major year, else.

pretty of a a secured too. more lot we're vaccine. we're stuff the because residential not get that to don't up of stimulus And before there'll long XX% us, late get the makeup will has our and of by held lasts this on based think, real estate. but be Hopefully a have coming to enough, other that's hit if be in here times. it going we very, to hopefully very case. But pandemic I portfolio, we will well lot if difficult And

Steve Moss

I All right. Thank you appreciate that. very much.

Jared Wolff

you, Thank Steve.

Operator

Thank you. today's This Ladies conclude gentlemen. and does teleconference. Q&A session and

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

Banc of California (BANC) 22 Oct 202020 Q3 Earnings call transcript