Banc of California(BANC) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a CET1 ratio above the 10% target, achieving nearly $15 in tangible book value, surpassing previous guidance of the mid-to-low $14 range [5][6] - The estimated spot rate for loan yields was 6.18%, with a net interest margin of 2.75%, up from 1.69% in the previous quarter [11][12] - The company expects the net interest margin to approach 3% in the first quarter of 2024 due to improvements in earning asset yields and a reduction in the cost of funds [12][13] Business Line Data and Key Metrics Changes - The company completed the sale of approximately $6 billion in assets, including a $1.7 billion SFR portfolio and $700 million of the multifamily portfolio, which contributed to a significant reduction in higher-cost wholesale funding [7][8] - The company retained a portion of its multifamily portfolio, which has attractive yields, indicating a strategic decision to maintain well-performing loans [9] Market Data and Key Metrics Changes - The company is now the third largest bank headquartered in California, with a strong presence across the state and a focus on serving businesses with tailored solutions [6][7] - The company has started to regain operating deposit accounts from former PacWest clients, indicating a recovery in client relationships post-merger [10] Company Strategy and Development Direction - The company aims to optimize its balance sheet and enhance profitability through strategic asset sales and a focus on low-cost deposits [9][19] - The company is organized around community banking and specialty alliances, providing a range of financial services tailored to specific industries [16][17] - The company sees significant opportunities in the California banking market due to competitors exiting or reducing their presence, allowing for the acquisition of new client relationships [18][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the credit quality of the loan portfolio, stating that the merger process allowed for a thorough review and resolution of weaker credits [21] - The company anticipates a reasonable level of loan demand and expects total loan balances to be flat to slightly down by the end of 2024, with growth expected in 2025 as economic conditions improve [20][21] - Management highlighted the importance of maintaining a strong focus on profitability, regardless of balance sheet size [31] Other Important Information - The company expects to achieve cost savings from the merger throughout 2024, with a target OpEx ratio of approximately 2% of total assets by the fourth quarter of 2024 [14][15] - The company is actively working on its payments ecosystem, which includes merchant processing and issuing credit cards, with expectations for meaningful contributions to fee income in the future [70][71] Q&A Session Summary Question: What are the expectations for expenses in the upcoming quarter? - Management indicated that the OpEx ratio is expected to be between 210% and 220% in the first quarter, with ongoing initiatives to realize cost savings throughout the year [24][25] Question: How should we think about overall average earning assets this year? - Management expects earning assets to remain relatively flat, with potential for slight reductions as liquidity is deployed against high-cost deposits [30][31] Question: What is the appetite for a buyback given the current capital levels? - Management stated that once sufficient excess capital is built up, various options, including share buybacks, will be considered [34] Question: How do you plan to manage deposit levels throughout the year? - Management emphasized the importance of non-interest bearing deposits and maintaining a loan-to-deposit ratio below 90%, with initiatives in place to grow non-interest bearing deposits [36][38] Question: Can you elaborate on the types of talent being added to the company? - Management mentioned the addition of leaders in various areas, including venture banking and corporate communications, while managing expenses within targets [40] Question: What is the expected contribution from the payments business? - Management indicated that the payments business is expected to contribute meaningfully to fee income in 2024, with ongoing developments in merchant processing and credit card issuance [70][71]