Banc of California(BANC) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a net income of $43.6 million or $0.26 per share, reflecting continued momentum in core earnings drivers [23] - Net interest income was $232 million, slightly down from the prior quarter due to lower day count and fewer loan prepayments, but offset by lower deposit costs [23][24] - The net interest margin increased by four basis points to 3.08%, driven by a decline in the cost of funds [24] - The average loan yield decreased by 11 basis points to 5.9%, primarily due to the impact of December rate cuts on floating rate loans [25] Business Line Data and Key Metrics Changes - Loan production, including unfunded commitments, was $2.6 billion, up from $1.8 billion in the previous quarter, resulting in a loan portfolio growth of 6% on an annualized basis [8] - The strongest loan growth was observed in warehouse, lender finance, and fund finance areas [8] - The average rate on new loan production was 7.2%, contributing positively to average loan yields and margin [10] Market Data and Key Metrics Changes - The company is adjusting its 2025 outlook for loan growth to mid-single-digit growth due to uncertainties in the current environment [9] - The company maintained a disciplined pricing and underwriting criteria while growing its loan portfolio [10] Company Strategy and Development Direction - The company is capitalizing on its strong market position to add attractive commercial relationships, evidenced by loan growth and new non-interest-bearing (NIB) business relationships [36][38] - The company is focused on maintaining healthy capital liquidity positions and is well-positioned for future growth [46] Management's Comments on Operating Environment and Future Outlook - Management noted that while there is more dialogue regarding potential economic slowdown, they did not observe a meaningful change in borrower behavior in the first quarter [40] - The company remains cautious in loan production, particularly regarding industry and structure [41] - Management expressed confidence in the ability to continue executing for clients despite market volatility [19][46] Other Important Information - The company announced a $150 million share buyback program, which was upsized to $300 million, covering both common and preferred stock [6][7] - The total economic coverage ratio is 1.66%, which includes the benefit of credit-linked notes and purchase accounting marks [33] Q&A Session Summary Question: Outlook on credit and profitability amid buybacks - Management acknowledged the positives of margin expansion and loan growth but noted concerns about rising classified loans and capital levels compared to peers [58][59] - Management expressed confidence in the credit quality and the health of their coverage ratios, indicating a conservative approach to risk management [68][70] Question: Opportunities for new clients amid economic uncertainty - Management indicated that they would continue to hire and seek new clients, particularly in Southern California, despite the economic outlook [102][108] Question: Allowance for credit losses (ACL) and its decline - Management clarified that the ACL decline was not due to an improved economic outlook but rather due to a conservative approach to risk ratings and modeling [157][160] Question: Expectations for net interest margin (NIM) and accretion income - Management provided insights on baseline accretion income and its impact on NIM, indicating a stable outlook for the second quarter [171][176] Question: Growth in deposits and HOA balances - Management expressed intent to grow HOA balances, emphasizing the stability of their deposit base despite some outflows [225][231]