Banc of California(BANC) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The net income for Q2 2023 was $17.9 million or $0.31 per diluted share, with adjusted net income totaling $18.4 million or $0.32 per diluted common share, compared to adjusted net income of $21.7 million or $0.37 per diluted common share in the prior quarter [11][12] - The net interest margin decreased by 30 basis points from the prior quarter to 3.11%, largely due to higher levels of cash carried during the first two months of the quarter [12] - Total assets decreased by approximately 7% to $9.4 billion, primarily due to a reduction in excess liquidity held in cash [15] Business Line Data and Key Metrics Changes - Total loans increased by approximately $102 million, primarily due to increases in core C&I and warehouse portfolios [16] - Noninterest income decreased by $1.8 million from prior quarters, mainly due to nonrecurring items in the first quarter [14] - Adjusted noninterest expense decreased by $825,000 from the prior quarter, reflecting cost savings from headcount reductions [14] Market Data and Key Metrics Changes - The average loan yield increased by 21 basis points to 5.28%, attributed to variable rate loans repricing higher [13] - The total cost of funds increased by 52 basis points to 2.20%, with the average cost of deposits rising by 45 basis points [13] Company Strategy and Development Direction - The merger with PacWest is expected to create the third largest bank headquartered in California, enhancing capital and liquidity while being accretive to EPS and tangible book value [5][24] - The combined strategy will focus on in-market relationship banking, providing superior customer service and robust treasury management solutions [24][25] - The company aims to reduce reliance on wholesale funding and improve profitability through strategic asset sales and operational efficiencies [18][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the merger's potential to create significant value for stakeholders, citing a favorable competitive environment in California due to other banks exiting the market [25][26] - The company anticipates a slow economic growth environment, with projections for loan growth being conservative until 2025 [75] Other Important Information - The merger is accompanied by a $400 million capital raise from sophisticated bank investors, which will support the transformation of the combined company [5][26] - The company plans to sell liquid assets and utilize excess cash to pay down $13 billion of wholesale funding, aiming for a loan-to-deposit ratio of approximately 85% [27][28] Q&A Session Summary Question: Cost savings from the merger - The $130 million in cost savings is derived from temporary elevated expenses at PacWest and identified overlaps in expenses for the combined company [36][37] Question: Deposit assumptions and growth - The plan is to achieve approximately 30% noninterest-bearing deposits at close, with expectations for growth [49][50] Question: Credit quality and portfolio management - The credit quality remains solid, with a focus on de-risking the balance sheet and improving the credit profile through asset sales [51][54] Question: Timing of merger approval - The company expects to close the transaction by the end of Q4 or early Q1, having previewed the transaction with regulators [84]