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Home / Family / Edited Transcript of BANC earnings conference call or presentation 25-Jul-19 5:00pm GMT

Edited Transcript of BANC earnings conference call or presentation 25-Jul-19 5:00pm GMT

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Lastly, we need to ensure that our expenses are aligned with our size and footprint. I was delighted to see that our noninterest expenses in Q2 decreased by 30% from the prior quarter to $43.

6 million, although this was driven in part by a benefit from some one-time items. This would probably be a low point for the year, and we should see a more normalized run rate in the second half.

As such, we will continue to be surgically focused on the areas where we can create efficiencies and enhance the client experience.” data-reactid=”55″>Lastly, we need to ensure that our expenses are aligned with our size and footprint.

I was delighted to see that our noninterest expenses in Q2 decreased by 30% from the prior quarter to $43.6 million, although this was driven in part by a benefit from some one-time items.

This would probably be a low point for the year, and we should see a more normalized run rate in the second half. As such, we will continue to be surgically focused on the areas where we can create efficiencies and enhance the client experience.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”We executed on some very important initiatives these past 3 months and making great progress on our business strategy. Our community banking franchise has been strengthened, and our focus on relationship banking is already showing positive results within our business.

” data-reactid=”56″>We executed on some very important initiatives these past 3 months and making great progress on our business strategy. Our community banking franchise has been strengthened, and our focus on relationship banking is already showing positive results within our business.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”I’ll go ahead and turn the call over to John to give you some more detail on our quarterly operating results, and then I’ll return to highlight a few other initiatives. Go ahead, John.

” data-reactid=”57″>I’ll go ahead and turn the call over to John to give you some more detail on our quarterly operating results, and then I’ll return to highlight a few other initiatives. Go ahead, John.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”John A. Bogler, Banc of California, Inc.

– Executive VP amp; CFO [3]” data-reactid=”59″>John A. Bogler, Banc of California, Inc.

– Executive VP CFO [3]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Thank you, Jared. Our total assets in the second quarter were $9.

4 billion, a $500 million decrease from the prior quarter, driven mainly by our strategy to optimize our balance sheet. We reduced our securities balance to $1.

2 billion at quarter end through the disposition of $298 million of CLOs. In addition to the $178 million of multi-family sales Jared mentioned, we also sold $131 million of single-family loans.

The multi-family and single-family loans that were sold were longer duration, tended to be lower coupons and were not central to our relationship-driven approach to lending.” data-reactid=”61″>Thank you, Jared.

Our total assets in the second quarter were $9.4 billion, a $500 million decrease from the prior quarter, driven mainly by our strategy to optimize our balance sheet.

We reduced our securities balance to $1.2 billion at quarter end through the disposition of $298 million of CLOs.

In addition to the $178 million of multi-family sales Jared mentioned, we also sold $131 million of single-family loans. The multi-family and single-family loans that were sold were longer duration, tended to be lower coupons and were not central to our relationship-driven approach to lending.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Jared also touched upon the upcoming multi-family securitization through the Freddie Mac Q program.” data-reactid=”62″>Jared also touched upon the upcoming multi-family securitization through the Freddie Mac Q program.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”In preparation for that, we moved $574 million of multi-family loans from HFI to HFS, and we expect this to settle in August. The loan pool and the related hedge was structured to achieve an overall breakeven position and has a weighted average coupon of approximately 3.

80%. The proce from the sale will be used to improve our funding profile by paying down overnight advances, which currently cost 2.

49%. We’ve placed an economic hedge against the peer interest rate movement, which resulted in a onetime accounting loss of $9.

6 million for the second quarter. However, this will be offset by the realization of the increase in the fair value of the loans at the completion of the securitization.

” data-reactid=”63″>In preparation for that, we moved $574 million of multi-family loans from HFI to HFS, and we expect this to settle in August. The loan pool and the related hedge was structured to achieve an overall breakeven position and has a weighted average coupon of approximately 3.

80%. The proce from the sale will be used to improve our funding profile by paying down overnight advances, which currently cost 2.

49%. We’ve placed an economic hedge against the peer interest rate movement, which resulted in a onetime accounting loss of $9.

6 million for the second quarter. However, this will be offset by the realization of the increase in the fair value of the loans at the completion of the securitization.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”The overall loan portfolio yield increased 4 basis points to 4.80% during the quarter.

Although we did see some pressure on yields from a decline in LIBOR during the quarter, the activities we took to dispose of some of our lower-yielding SFR and multi-family loans more than offset any negative impacts from the LIBOR move.” data-reactid=”64″>The overall loan portfolio yield increased 4 basis points to 4.

80% during the quarter. Although we did see some pressure on yields from a decline in LIBOR during the quarter, the activities we took to dispose of some of our lower-yielding SFR and multi-family loans more than offset any negative impacts from the LIBOR move.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Preparing for the securitization, along with the previously mentioned multi-family and SFR sales drove the decline in HFI loans to $6.7 billion from $7.

6 billion in Q1. Currently, Camp;I and SBA balances are 30% of our total HFI portfolio, up from 26% in the prior quarter, reflecting our efforts to transform the mix of our balance sheet to a more relationship-based portfolio.

” data-reactid=”65″>Preparing for the securitization, along with the previously mentioned multi-family and SFR sales drove the decline in HFI loans to $6.7 billion from $7.

6 billion in Q1. Currently, CI and SBA balances are 30% of our total HFI portfolio, up from 26% in the prior quarter, reflecting our efforts to transform the mix of our balance sheet to a more relationship-based portfolio.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Moving onto deposits. Brokered CDs decreased by $916 million or 71% to $379 million by quarter end.

Additionally, higher costing money market and savings accounts fell by $98 million and $90 million, respectively. Overall, our targeted efforts to reduce our cost of deposits reduced the average cost by 5 basis points from Q1 to 1.

62%.” data-reactid=”66″>Moving onto deposits.

Brokered CDs decreased by $916 million or 71% to $379 million by quarter end. Additionally, higher costing money market and savings accounts fell by $98 million and $90 million, respectively.

Overall, our targeted efforts to reduce our cost of deposits reduced the average cost by 5 basis points from Q1 to 1.62%.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”We further reduced our wholesale funding by $88 million in Q2, which left us with an ending wholesale funding mix of 24% flat from Q1. When the multi-family securitization closes and we apply the proce toward overnight advances, this ratio should drift lower towards 20% to 22%.

” data-reactid=”67″>We further reduced our wholesale funding by $88 million in Q2, which left us with an ending wholesale funding mix of 24% flat from Q1. When the multi-family securitization closes and we apply the proce toward overnight advances, this ratio should drift lower towards 20% to 22%.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Core deposits or nonbrokered deposits now account for 92% of total deposits, up from 81% last quarter.” data-reactid=”68″>Core deposits or nonbrokered deposits now account for 92% of total deposits, up from 81% last quarter.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Turning to the income statement. Net income available to common stockholders for the quarter was $11.

9 million or $0.23 per diluted common share.

The quarterly results were impacted by net noncore benefit items totaling $5.6 million, including $6.

2 million of legal and indemnification expenses, which was more than offset by a $12.6 million insurance recovery related to the same line item with an additional $158,000 reversal of the restructuring charge recorded in Q1.

” data-reactid=”69″>Turning to the income statement. Net income available to common stockholders for the quarter was $11.

9 million or $0.23 per diluted common share.

The quarterly results were impacted by net noncore benefit items totaling $5.6 million, including $6.

2 million of legal and indemnification expenses, which was more than offset by a $12.6 million insurance recovery related to the same line item with an additional $158,000 reversal of the restructuring charge recorded in Q1.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”After adjusting for these noncore items, along with the amortization expense associated with our solar tax equity program, our operating expenses for the second quarter were $49.5 million.

Normalizing our tax rate to 20%, operating earnings from core operations were $0.29 per diluted common share for the second quarter with reconciliations located on Slide 9 and 10, respectively, of today‘s deck.

” data-reactid=”70″>After adjusting for these noncore items, along with the amortization expense associated with our solar tax equity program, our operating expenses for the second quarter were $49.5 million.

Normalizing our tax rate to 20%, operating earnings from core operations were $0.29 per diluted common share for the second quarter with reconciliations located on Slide 9 and 10, respectively, of today‘s deck.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”The bank’s net interest margin increased by 5 basis points during the quarter to 2.86%.

This is mostly due to a lower average funding balance and lower cost of funds combined with a smaller asset base from loan and security sales and mixed with a slight negative impact from rate reset.” data-reactid=”71″>The bank’s net interest margin increased by 5 basis points during the quarter to 2.

86%. This is mostly due to a lower average funding balance and lower cost of funds combined with a smaller asset base from loan and security sales and mixed with a slight negative impact from rate reset.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Average interest-earning assets decreased from the prior quarter to $9.1 billion, with an average yield remaining flat at 4.

59%. Since the CLO investments are indexed to the 3-month LIBOR and reset quarterly, the securities portfolio average yield decreased by 30 basis points to 3.

83%. The CLO book largely reset at the end of April and will reset lower again towards the end of July based on LIBOR rates from 90 days prior or about 20 basis points from the current level.

” data-reactid=”72″>Average interest-earning assets decreased from the prior quarter to $9.1 billion, with an average yield remaining flat at 4.

59%. Since the CLO investments are indexed to the 3-month LIBOR and reset quarterly, the securities portfolio average yield decreased by 30 basis points to 3.

83%. The CLO book largely reset at the end of April and will reset lower again towards the end of July based on LIBOR rates from 90 days prior or about 20 basis points from the current level.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Net interest income decreased by $3 million from the prior quarter to $64.8 million.

Loan interest income decreased by $1.4 million in Q2 due to a $269 million decrease in average balances, somewhat muted by a 4 basis point increase in the average yield.

This was partially offset by a decline of $5.4 million in interest income on securities on lower average balances, including the LIBOR rate reset previously mentioned.

” data-reactid=”73″>Net interest income decreased by $3 million from the prior quarter to $64.8 million.

Loan interest income decreased by $1.4 million in Q2 due to a $269 million decrease in average balances, somewhat muted by a 4 basis point increase in the average yield.

This was partially offset by a decline of $5.4 million in interest income on securities on lower average balances, including the LIBOR rate reset previously mentioned.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Loan interest income and commercial loan interest income now comprises 86% and 64%, respectively, of total interest income in the quarter, up sequentially from 82% and 59%, respectively.” data-reactid=”74″>Loan interest income and commercial loan interest income now comprises 86% and 64%, respectively, of total interest income in the quarter, up sequentially from 82% and 59%, respectively.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”On the liabilities side, interest expenses on deposits decreased by $2.8 million on lower average balances and a 3 basis point decline in average cost of interest-bearing deposits.

Interest expense on FHLB advances fell by $792,000 from the first quarter, also on a lower average balance and with a sequentially flat average cost. The overall average cost of interest-bearing liabilities fell by 3 basis points in Q2 to 2.

09%.” data-reactid=”75″>On the liabilities side, interest expenses on deposits decreased by $2.

8 million on lower average balances and a 3 basis point decline in average cost of interest-bearing deposits. Interest expense on FHLB advances fell by $792,000 from the first quarter, also on a lower average balance and with a sequentially flat average cost.

The overall average cost of interest-bearing liabilities fell by 3 basis points in Q2 to 2.09%.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”With respect to potential reductions in the Fed funds rate or other indices, our modeled interest rate risk position is slightly liability-sensitive over the first 12 months, assuming a 100 basis point parallel shift down and more asset-sensitive in months 13 to 24.” data-reactid=”76″>With respect to potential reductions in the Fed funds rate or other indices, our modeled interest rate risk position is slightly liability-sensitive over the first 12 months, assuming a 100 basis point parallel shift down and more asset-sensitive in months 13 to 24.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Slides 14 and 15 included in today‘s deck presents information regarding the indices, rate floors and timing of rate resets for loans, investment securities, deposits and FHLB advances.” data-reactid=”77″>Slides 14 and 15 included in today‘s deck presents information regarding the indices, rate floors and timing of rate resets for loans, investment securities, deposits and FHLB advances.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”The provision for loan losses in the quarter was impacted by our balance sheet optimization, resulting in a net reversal of $2 million. Included in that is $2.

4 million in net charge-off activity and a $900,000 increase in specific reserves due mainly to one impairment. This was offset by a $6.

3 million decrease, mostly driven by a balance reduction in multi-family portfolio from the sales and the pending securitization.” data-reactid=”78″>The provision for loan losses in the quarter was impacted by our balance sheet optimization, resulting in a net reversal of $2 million.

Included in that is $2.4 million in net charge-off activity and a $900,000 increase in specific reserves due mainly to one impairment.

This was offset by a $6.3 million decrease, mostly driven by a balance reduction in multi-family portfolio from the sales and the pending securitization.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”The ALLL balance coverage ratio of nonperforming loans is 207%, while the overall ALLL ratio was 89 basis points.” data-reactid=”79″>The ALLL balance coverage ratio of nonperforming loans is 207%, while the overall ALLL ratio was 89 basis points.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Total noninterest expenses for the quarter were $43.6 million, which included the previously discussed noncore benefit of $5.

6 million and a $400,000 benefit from solar investments. Adjusting for noncore expenses, Q2 core operating expenses were $49.

5 million or 2.06% of average assets, annualized.

Q2 benefited heavily from the previously mentioned insurance recovery. And as we continued to align run rate expenses with our size and footprint, we should see a more normalized run rate expense level over the coming quarters.

” data-reactid=”80″>Total noninterest expenses for the quarter were $43.6 million, which included the previously discussed noncore benefit of $5.

6 million and a $400,000 benefit from solar investments. Adjusting for noncore expenses, Q2 core operating expenses were $49.

5 million or 2.06% of average assets, annualized.

Q2 benefited heavily from the previously mentioned insurance recovery. And as we continued to align run rate expenses with our size and footprint, we should see a more normalized run rate expense level over the coming quarters.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Our capital position improved during the quarter, mainly due to a reduced asset base. The common equity Tier 1 capital ratio was 10.

4% and Tier 1 risk-based capital totaled 13.9%.

” data-reactid=”81″>Our capital position improved during the quarter, mainly due to a reduced asset base. The common equity Tier 1 capital ratio was 10.

4% and Tier 1 risk-based capital totaled 13.9%.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Lastly, let’s move onto credit and asset quality metrics. Our nonperforming asset ratio for the quarter was 31 basis points, up 2 basis points from the prior quarter.

Total delinquent loans declined by $7.3 million or 12%.

We have a strong credit culture at the bank, and the credit performance of the portfolio is in line with expectations. We did not see any indication of broad deterioration in our portfolio.

” data-reactid=”82″>Lastly, let’s move onto credit and asset quality metrics. Our nonperforming asset ratio for the quarter was 31 basis points, up 2 basis points from the prior quarter.

Total delinquent loans declined by $7.3 million or 12%.

We have a strong credit culture at the bank, and the credit performance of the portfolio is in line with expectations. We did not see any indication of broad deterioration in our portfolio.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Nonperforming assets to equity continues to remain strong at 3%. Delinquent loans decreased $7.

3 million during the quarter, resulting in a delinquent loans to total loan ratio of 78 basis points.” data-reactid=”83″>Nonperforming assets to equity continues to remain strong at 3%.

Delinquent loans decreased $7.3 million during the quarter, resulting in a delinquent loans to total loan ratio of 78 basis points.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”With that summary of our second quarter financials, I’ll now turn the call back over to Jared.” data-reactid=”84″>With that summary of our second quarter financials, I’ll now turn the call back over to Jared.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Jared M. Wolff, Banc of California, Inc.

President, CEO amp; Director [4]” data-reactid=”86″>Jared M. Wolff, Banc of California, Inc.

President, CEO Director [4]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Thank you, John. This is my second occasion reporting Banc of California’s quarterly results, and over that time, I’ve had the opportunity to really see our employees in action.

Being a community bank is more than just being a depository institution for our clients. It’s really about building relationships with our clients and, through exceptional service and execution, being their most trusted banking partner.

It’s about having professionals and colleagues that come into work every day focused on what they can do to help create a better company and provide a better experience for our clients.” data-reactid=”88″>Thank you, John.

This is my second occasion reporting Banc of California’s quarterly results, and over that time, I’ve had the opportunity to really see our employees in action. Being a community bank is more than just being a depository institution for our clients.

It’s really about building relationships with our clients and, through exceptional service and execution, being their most trusted banking partner. It’s about having professionals and colleagues that come into work every day focused on what they can do to help create a better company and provide a better experience for our clients.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”We provide premium service and execution of businesses, entrepreneurs and individuals within our local footprint. As I’ve said before, we don’t have to do everything, just a few things really well.

And our dedication to being a relationship-focused community bank is creating positive effects on our business, as this quarter‘s results indicate.” data-reactid=”89″>We provide premium service and execution of businesses, entrepreneurs and individuals within our local footprint.

As I’ve said before, we don’t have to do everything, just a few things really well. And our dedication to being a relationship-focused community bank is creating positive effects on our business, as this quarter‘s results indicate.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”We’re also bringing in talented new executives. In the second quarter, we welcomed Ido Dotan as our EVP and General Counsel as well as Lynn Sullivan as EVP and Chief Risk Officer.

Both of these individuals have excellent backgrounds and extensive experience in the areas of corporate law and risk management, and they have both had meaningful impacts on the company since joining the bank around 2 months ago. I’m confident they will make meaningful contributions going forward.

” data-reactid=”90″>We’re also bringing in talented new executives. In the second quarter, we welcomed Ido Dotan as our EVP and General Counsel as well as Lynn Sullivan as EVP and Chief Risk Officer.

Both of these individuals have excellent backgrounds and extensive experience in the areas of corporate law and risk management, and they have both had meaningful impacts on the company since joining the bank around 2 months ago. I’m confident they will make meaningful contributions going forward.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”As we continue to execute on the strategy we have laid out, generally speaking, you should see our asset size continue to shrink through the rest of the year as we stay focused on reducing lower-margin assets which did not enhance franchise value. To that end, assuming markets cooperate, I could see us ending the year with $109 billion in total assets.

” data-reactid=”91″>As we continue to execute on the strategy we have laid out, generally speaking, you should see our asset size continue to shrink through the rest of the year as we stay focused on reducing lower-margin assets which did not enhance franchise value. To that end, assuming markets cooperate, I could see us ending the year with $109 billion in total assets.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”We’re also going to stay focused on keeping our expenses in line with our asset size and footprint. As I mentioned earlier, I see our noninterest expense, excluding exceptional items, normalizing through the back half of 2019.

It should be approaching $50 million to $52 million in the fourth quarter and that should be reflective of our expense base for 2020.” data-reactid=”92″>We’re also going to stay focused on keeping our expenses in line with our asset size and footprint.

As I mentioned earlier, I see our noninterest expense, excluding exceptional items, normalizing through the back half of 2019. It should be approaching $50 million to $52 million in the fourth quarter and that should be reflective of our expense base for 2020.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”We will continue to endeavor to minimize our deposit costs by aggressively managing our high-cost deposit balances and seeking deposits which are centered on building relationships rather than just transactions.” data-reactid=”93″>We will continue to endeavor to minimize our deposit costs by aggressively managing our high-cost deposit balances and seeking deposits which are centered on building relationships rather than just transactions.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Heading into the second half, we will maintain our commitment to deploying our stockholders capital into areas where we feel confident we are achieving the highest possible return balance within appropriate level of risk. To that end, we commenced today a preferred stock tender offer for up to $75 million aggregate purchase price of the preferred D and E class shares.

We expect to execute the tender offer over the third quarter and anticipate an immediate bottom line impact for holders of our common shares. This action is the start of rightsizing of our capital stack and, in future quarters, we will continue to look at other options to deploy capital, including share repurchases, acquisitions and other initiatives to stimulate organic growth.

” data-reactid=”94″>Heading into the second half, we will maintain our commitment to deploying our stockholders capital into areas where we feel confident we are achieving the highest possible return balance within appropriate level of risk. To that end, we commenced today a preferred stock tender offer for up to $75 million aggregate purchase price of the preferred D and E class shares.

We expect to execute the tender offer over the third quarter and anticipate an immediate bottom line impact for holders of our common shares. This action is the start of rightsizing of our capital stack and, in future quarters, we will continue to look at other options to deploy capital, including share repurchases, acquisitions and other initiatives to stimulate organic growth.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Please note that in today‘s deck, we present the pro forma impact to Q2 capital ratios, assuming the full tender amount is executed and the pending securitization were both completed as of Q2.” data-reactid=”95″>Please note that in today‘s deck, we present the pro forma impact to Q2 capital ratios, assuming the full tender amount is executed and the pending securitization were both completed as of Q2.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”To wrap things up, we had a successful second quarter Banc of California. We saw the first sequential reduction in our cost of deposits in almost 4 years.

We took very important steps with our balance sheet by disclosing of noncore assets, and we reduced expenses to an adjusted level that is more closely aligned with our earnings profile. We also have numerous technology initiatives in flight that will improve the customer experience.

” data-reactid=”96″>To wrap things up, we had a successful second quarter Banc of California. We saw the first sequential reduction in our cost of deposits in almost 4 years.

We took very important steps with our balance sheet by disclosing of noncore assets, and we reduced expenses to an adjusted level that is more closely aligned with our earnings profile. We also have numerous technology initiatives in flight that will improve the customer experience.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”As we enter the third quarter, we remain focused on enhancing the value of our banking franchise for our clients, our employees and our shareholders and being a superior relationship-focused community bank.” data-reactid=”97″>As we enter the third quarter, we remain focused on enhancing the value of our banking franchise for our clients, our employees and our shareholders and being a superior relationship-focused community bank.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Thank you for your time today, and I look forward to reporting next quarter‘s results to you in a few months.” data-reactid=”98″>Thank you for your time today, and I look forward to reporting next quarter‘s results to you in a few months.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Now let’s go ahead and open up the line for questions.” data-reactid=”99″>Now let’s go ahead and open up the line for questions.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Unidentified Company Representative, [5]” data-reactid=”101″>Unidentified Company Representative, [5]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”All right. While we’re compiling some items for the questions, I wanted to remind everybody that 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 some non-GAAP measures. Required information, including reconciliation, is available in the earnings release.

The reference presentation is also available on the company’s Investor Relations website. We would like to direct everyone toward the company’s safe harbor statement on forward-looking statements included in both the earnings release and the earnings presentation.

” data-reactid=”103″>All right. While we’re compiling some items for the questions, I wanted to remind everybody that 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 some non-GAAP measures. Required information, including reconciliation, is available in the earnings release.

The reference presentation is also available on the company’s Investor Relations website. We would like to direct everyone toward the company’s safe harbor statement on forward-looking statements included in both the earnings release and the earnings presentation.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Operator, we can now move to questions, please.” data-reactid=”104″>Operator, we can now move to questions, please.

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8em)–sm” type=”text” content=”================================================================================” data-reactid=”105″>================================================================================

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Questions and Answers” data-reactid=”106″>Questions and Answers

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Operator [1]” data-reactid=”108″>Operator [1]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”(Operator Instructions) And today‘s first question comes from Matthew Clark with Piper Jaffray.” data-reactid=”110″>(Operator Instructions) And today‘s first question comes from Matthew Clark with Piper Jaffray.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Matthew Timothy Clark, Piper Jaffray Companies, Research Division – Principal amp; Senior Research Analyst [2]” data-reactid=”112″>Matthew Timothy Clark, Piper Jaffray Companies, Research Division – Principal Senior Research Analyst [2]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Jared, you talked, I think, previously about getting that margin back up to 3%. I know there’s a lot of moving parts here in the upcoming quarter.

With the securitization, paying down FHLB and, obviously, a rate cut potentially next week, I guess, how do you think about the trajectory of the margin given the remix that you plan to continue?” data-reactid=”114″>Jared, you talked, I think, previously about getting that margin back up to 3%. I know there’s a lot of moving parts here in the upcoming quarter.

With the securitization, paying down FHLB and, obviously, a rate cut potentially next week, I guess, how do you think about the trajectory of the margin given the remix that you plan to continue?

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Jared M. Wolff, Banc of California, Inc.

President, CEO amp; Director [3]” data-reactid=”116″>Jared M. Wolff, Banc of California, Inc.

President, CEO Director [3]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”We had a lot of deposit changes late in the quarter, and I think we’re going to see the benefit of that this quarter. So there was some stuff that came off.

We didn’t get the full quarter benefit of it. We held our loan margins — our loan yields at a pretty flat level, and the repricing that’s going on in the market, at least what we’re seeing, we’re trying not to compete at the lower end of the range.

And obviously, we’re rebalancing our portfolio in the multi-family side. We’re trying to do more front-end lending where we get paid more instead of that back end kind of commodity-type lending.

So I think all of those things are going to help protect our margin and drive it higher. John, what do you think?” data-reactid=”118″>We had a lot of deposit changes late in the quarter, and I think we’re going to see the benefit of that this quarter.

So there was some stuff that came off. We didn’t get the full quarter benefit of it.

We held our loan margins — our loan yields at a pretty flat level, and the repricing that’s going on in the market, at least what we’re seeing, we’re trying not to compete at the lower end of the range. And obviously, we’re rebalancing our portfolio in the multi-family side.

We’re trying to do more front-end lending where we get paid more instead of that back end kind of commodity-type lending. So I think all of those things are going to help protect our margin and drive it higher.

John, what do you think?

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”John A. Bogler, Banc of California, Inc.

– Executive VP amp; CFO [4]” data-reactid=”120″>John A. Bogler, Banc of California, Inc.

– Executive VP CFO [4]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”I agree. The piece I’d add is put some numbers behind it.

Matthew, we had roughly $630 million of brokered deposits that we ran off, a combination at the very end of May and very end of June, split kind of evenly between those 2 periods. And so that’s what Jared’s referencing.

We should begin to see that benefit — the full quarter benefit in the third quarter.” data-reactid=”122″>I agree.

The piece I’d add is put some numbers behind it. Matthew, we had roughly $630 million of brokered deposits that we ran off, a combination at the very end of May and very end of June, split kind of evenly between those 2 periods.

And so that’s what Jared’s referencing. We should begin to see that benefit — the full quarter benefit in the third quarter.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Matthew Timothy Clark, Piper Jaffray Companies, Research Division – Principal amp; Senior Research Analyst [5]” data-reactid=”124″>Matthew Timothy Clark, Piper Jaffray Companies, Research Division – Principal Senior Research Analyst [5]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Okay. And then just on the balance sheet size.

With it being slightly below $9 billion at year-end, I assume the shrinkage will continue into next year. Does that expense outlook be in the $50 million to $52 million range reflective — be in that range in 2020? Does that contemplate further shrinkage in the balance sheet? Or would you reassess that expense base?” data-reactid=”126″>Okay.

And then just on the balance sheet size. With it being slightly below $9 billion at year-end, I assume the shrinkage will continue into next year.

Does that expense outlook be in the $50 million to $52 million range reflective — be in that range in 2020? Does that contemplate further shrinkage in the balance sheet? Or would you reassess that expense base?

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Jared M. Wolff, Banc of California, Inc.

President, CEO amp; Director [6]” data-reactid=”128″>Jared M. Wolff, Banc of California, Inc.

President, CEO Director [6]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”No, we would reassess it. I mean we’ve got to get to an — what we’ve said before is there’s not a specific size that we’re targeting.

What we’re trying to find is the equilibrium for this company between kind of the earning assets and the right amount of expenses to run the company with a solid ROA. We’ve got to get to good before we get to great, and so we’re trying to find that equilibrium now and looking at all the pieces.

If all of a sudden we start generating really good loan volumes from a particular unit at good spreads and we’re comfortable with credit, then that affects things. So right now it’s just kind of — we’re figuring it out as we go in terms of where that equilibrium is, but I think we have a size in mind.

We would reevaluate our expenses if we got lower and that target is based on being around $9 billion. And if we get lower, then we’ll have to figure out the expense side unless earning assets are producing at a much higher level even though we’re at a lower asset base.

” data-reactid=”130″>No, we would reassess it. I mean we’ve got to get to an — what we’ve said before is there’s not a specific size that we’re targeting.

What we’re trying to find is the equilibrium for this company between kind of the earning assets and the right amount of expenses to run the company with a solid ROA. We’ve got to get to good before we get to great, and so we’re trying to find that equilibrium now and looking at all the pieces.

If all of a sudden we start generating really good loan volumes from a particular unit at good spreads and we’re comfortable with credit, then that affects things. So right now it’s just kind of — we’re figuring it out as we go in terms of where that equilibrium is, but I think we have a size in mind.

We would reevaluate our expenses if we got lower and that target is based on being around $9 billion. And if we get lower, then we’ll have to figure out the expense side unless earning assets are producing at a much higher level even though we’re at a lower asset base.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Operator [7]” data-reactid=”132″>Operator [7]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”And the next question comes from Gary Tenner with D.A.

Davidson.” data-reactid=”134″>And the next question comes from Gary Tenner with D.

A. Davidson.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Gary Peter Tenner, D.A.

Davidson amp; Co., Research Division – Senior VP amp; Senior Research Analyst [8]” data-reactid=”136″>Gary Peter Tenner, D.

A. Davidson Co.

, Research Division – Senior VP Senior Research Analyst [8]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Just wanted to ask a couple of questions. I think, John, you’ve mentioned that you see the margin at an inflection point and, obviously, we saw some positive move this quarter.

When it comes to net interest income, though, given the shrinkage of the balance sheet over the next quarter or 2, if not more, were probably a bit of a lag on the NII side of things. I just wanted to make sure I’m thinking about that the same way that you guys are.

” data-reactid=”138″>Just wanted to ask a couple of questions. I think, John, you’ve mentioned that you see the margin at an inflection point and, obviously, we saw some positive move this quarter.

When it comes to net interest income, though, given the shrinkage of the balance sheet over the next quarter or 2, if not more, were probably a bit of a lag on the NII side of things. I just wanted to make sure I’m thinking about that the same way that you guys are.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”John A. Bogler, Banc of California, Inc.

– Executive VP amp; CFO [9]” data-reactid=”140″>John A. Bogler, Banc of California, Inc.

– Executive VP CFO [9]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”That is correct. Yes, we should see that have a little bit of downward movement as well.

” data-reactid=”142″>That is correct. Yes, we should see that have a little bit of downward movement as well.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Gary Peter Tenner, D.A.

Davidson amp; Co., Research Division – Senior VP amp; Senior Research Analyst [10]” data-reactid=”144″>Gary Peter Tenner, D.

A. Davidson Co.

, Research Division – Senior VP Senior Research Analyst [10]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Okay. And then great, great detail on the funding outlook and the maturity side of things there.

Can you give us a sense of how much ability you think you’ll have assuming we get a rate cut upcoming here next week to actively reduce your non-CD or your retail CD deposits?” data-reactid=”146″>Okay. And then great, great detail on the funding outlook and the maturity side of things there.

Can you give us a sense of how much ability you think you’ll have assuming we get a rate cut upcoming here next week to actively reduce your non-CD or your retail CD deposits?

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”John A. Bogler, Banc of California, Inc.

– Executive VP amp; CFO [11]” data-reactid=”148″>John A. Bogler, Banc of California, Inc.

– Executive VP CFO [11]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Yes. I think there will be some good opportunities.

We have some depositors that historically have been rate-sensitive. And so as rates went up, they were looking for higher rates.

And so I think as rates go down, we’ll have the ability to reset those deposit rates once the Fed funds rate decrease comes through if it comes through.” data-reactid=”150″>Yes.

I think there will be some good opportunities. We have some depositors that historically have been rate-sensitive.

And so as rates went up, they were looking for higher rates. And so I think as rates go down, we’ll have the ability to reset those deposit rates once the Fed funds rate decrease comes through if it comes through.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Jared M. Wolff, Banc of California, Inc.

President, CEO amp; Director [12]” data-reactid=”152″>Jared M. Wolff, Banc of California, Inc.

President, CEO Director [12]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”We have 3 buckets of deposits that we really look at. Specialty, which are kind of rate-based institutional deposits with companies that kind of — we bought some volume periods back and have it on our — as part of our funding.

And I guess I could come up with another bucket for FHLB, but putting that aside in terms of funding. We have our CDs and then we have everything else.

And so to John’s point, we’ve been prioritizing dropping the rates on CDs because they mature annually, and we’re taking the opportunity to reduce those rates. And we’ve been watching retention.

Retention has between 15% and 20% as we dropped rates. And so that’s been pretty good.

” data-reactid=”154″>We have 3 buckets of deposits that we really look at. Specialty, which are kind of rate-based institutional deposits with companies that kind of — we bought some volume periods back and have it on our — as part of our funding.

And I guess I could come up with another bucket for FHLB, but putting that aside in terms of funding. We have our CDs and then we have everything else.

And so to John’s point, we’ve been prioritizing dropping the rates on CDs because they mature annually, and we’re taking the opportunity to reduce those rates. And we’ve been watching retention.

Retention has between 15% and 20% as we dropped rates. And so that’s been pretty good.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”And then as it relates to everything else, we’re trying to maintain those relationships and put people in the right product for their ne. There was a huge volume of products here.

We had many, many different types of products, and it was kind of a convoluted menu. And so we’ve been shrinking that, making it less complicated and trying to get the clients in the right products for their ne.

We instituted a pretty attractive earnings credit rate for our clients, and so that’s something that’s going to be helpful going forward as we roll it out. So we’re trying to think very strategically about the deposits.

And the other thing that I have mentioned in the past, Gary, is we’re not doing any loans with our deposits. And so we’re helping ourselves by making sure that we have all the deposits we can from everybody that borrows from us.

” data-reactid=”155″>And then as it relates to everything else, we’re trying to maintain those relationships and put people in the right product for their ne. There was a huge volume of products here.

We had many, many different types of products, and it was kind of a convoluted menu. And so we’ve been shrinking that, making it less complicated and trying to get the clients in the right products for their ne.

We instituted a pretty attractive earnings credit rate for our clients, and so that’s something that’s going to be helpful going forward as we roll it out. So we’re trying to think very strategically about the deposits.

And the other thing that I have mentioned in the past, Gary, is we’re not doing any loans with our deposits. And so we’re helping ourselves by making sure that we have all the deposits we can from everybody that borrows from us.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Gary Peter Tenner, D.A.

Davidson amp; Co., Research Division – Senior VP amp; Senior Research Analyst [13]” data-reactid=”157″>Gary Peter Tenner, D.

A. Davidson Co.

, Research Division – Senior VP Senior Research Analyst [13]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”And just one last quick question, if I can. The $800,000 adjustment on the occupancy line, what did that relate to?” data-reactid=”159″>And just one last quick question, if I can.

The $800,000 adjustment on the occupancy line, what did that relate to?

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”John A. Bogler, Banc of California, Inc.

– Executive VP amp; CFO [14]” data-reactid=”161″>John A. Bogler, Banc of California, Inc.

– Executive VP CFO [14]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”That was some technology initiatives that we had previously undertaken, and we’ve opted not to pursue those initiatives any further, and so we just wrote off the capitalized cost.” data-reactid=”163″>That was some technology initiatives that we had previously undertaken, and we’ve opted not to pursue those initiatives any further, and so we just wrote off the capitalized cost.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Operator [15]” data-reactid=”165″>Operator [15]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”And the next question comes from Andrew Liesch with Sandler O’Neill.” data-reactid=”167″>And the next question comes from Andrew Liesch with Sandler O’Neill.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Andrew Brian Liesch, Sandler O’Neill + Partners, L.P.

, Research Division – MD [16]” data-reactid=”169″>Andrew Brian Liesch, Sandler O’Neill + Partners, L.P.

, Research Division – MD [16]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Just a couple of follow-up questions on the size of the balance sheet here. With the securitization plan for next month beyond paying down some borrowings, what’s the — is there any other use for the cash that comes in there? And then how should we be looking at the size of the securities portfolio? I mean if I just take out the securitization, the total asset base is going to fall below $9 billion this quarter? So I was just kind of trying to get a sense of how these parts are all working together.

” data-reactid=”171″>Just a couple of follow-up questions on the size of the balance sheet here. With the securitization plan for next month beyond paying down some borrowings, what’s the — is there any other use for the cash that comes in there? And then how should we be looking at the size of the securities portfolio? I mean if I just take out the securitization, the total asset base is going to fall below $9 billion this quarter? So I was just kind of trying to get a sense of how these parts are all working together.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”John A. Bogler, Banc of California, Inc.

– Executive VP amp; CFO [17]” data-reactid=”173″>John A. Bogler, Banc of California, Inc.

– Executive VP CFO [17]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Thank you, Andrew. So if you start with where we are today and, obviously, take out the securitization, we’re in the high $8 billion range.

I would think about that as kind of be in the level that will be at for the balance of the year. There are some other variables that will come into play.

We did see an uptick in the rate of repayments in the multi-family portfolio. If interest rates decline, that may stay at an elevated level.

We did not see an uptick in repayments in the single-family portfolio, but if rates persisted at a lower level, we could see an uptick there. We are seeing some decent production coming out of our Camp;I book, which should help to normalize it.

” data-reactid=”175″>Thank you, Andrew. So if you start with where we are today and, obviously, take out the securitization, we’re in the high $8 billion range.

I would think about that as kind of be in the level that will be at for the balance of the year. There are some other variables that will come into play.

We did see an uptick in the rate of repayments in the multi-family portfolio. If interest rates decline, that may stay at an elevated level.

We did not see an uptick in repayments in the single-family portfolio, but if rates persisted at a lower level, we could see an uptick there. We are seeing some decent production coming out of our CI book, which should help to normalize it.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”So overall, we’re looking more at a remix within the loan book. And then in terms of the securities, we’ve largely been dependent upon what the market will give us in terms of our ability to reduce our exposure to CLOs.

So if we were to see some spread tightening and some opportunities to further reduce our exposure to CLOs, we would take advantage of that opportunity, but that really is a bit market dependent.” data-reactid=”176″>So overall, we’re looking more at a remix within the loan book.

And then in terms of the securities, we’ve largely been dependent upon what the market will give us in terms of our ability to reduce our exposure to CLOs. So if we were to see some spread tightening and some opportunities to further reduce our exposure to CLOs, we would take advantage of that opportunity, but that really is a bit market dependent.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Jared M. Wolff, Banc of California, Inc.

President, CEO amp; Director [18]” data-reactid=”178″>Jared M. Wolff, Banc of California, Inc.

President, CEO Director [18]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”To John’s point, Andrew, we have a couple of levers to pull on the loan side. We saw the rate of repay on multi-family for loans that paid off was double of what it was previous quarters.

So of $600 million of production, $128 million was single-family. We, obviously, don’t expect that to continue.

We’re trying to look at both rate. We are looking at both rate and credit as we’re making decisions on what loans to originate.

We have — we could amplify our volumes if we wanted to, but we’re just trying to balance it with the right yields right now because they’re getting pretty low and, I think, long term is probably not the best play to put those on our books. So we’ll just have to see where the market goes.

” data-reactid=”180″>To John’s point, Andrew, we have a couple of levers to pull on the loan side. We saw the rate of repay on multi-family for loans that paid off was double of what it was previous quarters.

So of $600 million of production, $128 million was single-family. We, obviously, don’t expect that to continue.

We’re trying to look at both rate. We are looking at both rate and credit as we’re making decisions on what loans to originate.

We have — we could amplify our volumes if we wanted to, but we’re just trying to balance it with the right yields right now because they’re getting pretty low and, I think, long term is probably not the best play to put those on our books. So we’ll just have to see where the market goes.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Operator [19]” data-reactid=”182″>Operator [19]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”(Operator Instructions) And the next question comes from Timur Braziler with Wells Fargo Securities.” data-reactid=”184″>(Operator Instructions) And the next question comes from Timur Braziler with Wells Fargo Securities.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Timur Felixovich Braziler, Wells Fargo Securities, LLC, Research Division – Associate Analyst [20]” data-reactid=”186″>Timur Felixovich Braziler, Wells Fargo Securities, LLC, Research Division – Associate Analyst [20]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Maybe just following up on that CLO question. So to the extent that there is incremental reduction in that portfolio, is that going to be reinvested? I guess how should we be thinking about securities to total assets relative to kind of that 15% level that had been thrown out in the past?” data-reactid=”188″>Maybe just following up on that CLO question.

So to the extent that there is incremental reduction in that portfolio, is that going to be reinvested? I guess how should we be thinking about securities to total assets relative to kind of that 15% level that had been thrown out in the past?

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”John A. Bogler, Banc of California, Inc.

– Executive VP amp; CFO [21]” data-reactid=”190″>John A. Bogler, Banc of California, Inc.

– Executive VP CFO [21]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Yes. I think as we go forward and we simplify our balance sheet and remove some of the choppiness from it, we’re a little bit more comfortable having a lower mix of investment securities to assets.

So 10% to 15% range is probably a little bit more — or probably a better way to think about it here in the near term. And so to the extent that we do have a reduction in CLO balances, I think you will start to see us build out a much more traditional securities book of business.

So that’s something that, I think, will start to take place in the latter part of this year and then into next year.” data-reactid=”192″>Yes.

I think as we go forward and we simplify our balance sheet and remove some of the choppiness from it, we’re a little bit more comfortable having a lower mix of investment securities to assets. So 10% to 15% range is probably a little bit more — or probably a better way to think about it here in the near term.

And so to the extent that we do have a reduction in CLO balances, I think you will start to see us build out a much more traditional securities book of business. So that’s something that, I think, will start to take place in the latter part of this year and then into next year.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Timur Felixovich Braziler, Wells Fargo Securities, LLC, Research Division – Associate Analyst [22]” data-reactid=”194″>Timur Felixovich Braziler, Wells Fargo Securities, LLC, Research Division – Associate Analyst [22]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Okay. That’s helpful.

And then in the press release, I think you had mentioned that the period-end reduction in DDA balances is a bit transitory and you expect that to rebound. I guess what have DDA balances done thus far in the third quarter? And what gives you the confidence to think that you’re going to get that rebound back from the second quarter reduction?” data-reactid=”196″>Okay.

That’s helpful. And then in the press release, I think you had mentioned that the period-end reduction in DDA balances is a bit transitory and you expect that to rebound.

I guess what have DDA balances done thus far in the third quarter? And what gives you the confidence to think that you’re going to get that rebound back from the second quarter reduction?

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”John A. Bogler, Banc of California, Inc.

– Executive VP amp; CFO [23]” data-reactid=”198″>John A. Bogler, Banc of California, Inc.

– Executive VP CFO [23]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Most of the growth that we saw in the first quarter came in very late in the quarter and then reversed back out at the start of the second quarter. So if you look at the average balances for [NIB], it was actually up quarter-over-quarter.

And then in terms of kind of our confidence that those would return, it’s much more based upon our relationship and knowledge of the clients and how they operate. And so that’s — our belief is that those deposits will return.

” data-reactid=”200″>Most of the growth that we saw in the first quarter came in very late in the quarter and then reversed back out at the start of the second quarter. So if you look at the average balances for [NIB], it was actually up quarter-over-quarter.

And then in terms of kind of our confidence that those would return, it’s much more based upon our relationship and knowledge of the clients and how they operate. And so that’s — our belief is that those deposits will return.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Timur Felixovich Braziler, Wells Fargo Securities, LLC, Research Division – Associate Analyst [24]” data-reactid=”202″>Timur Felixovich Braziler, Wells Fargo Securities, LLC, Research Division – Associate Analyst [24]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Okay. And then switching to credit, the charge-off, the $2 million Camp;I charge-off this quarter, is that related to the 2 leveraged loans that were put on NPL last quarter? Or is that something different?” data-reactid=”204″>Okay.

And then switching to credit, the charge-off, the $2 million CI charge-off this quarter, is that related to the 2 leveraged loans that were put on NPL last quarter? Or is that something different?

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Jared M. Wolff, Banc of California, Inc.

President, CEO amp; Director [25]” data-reactid=”206″>Jared M. Wolff, Banc of California, Inc.

President, CEO Director [25]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”No. It was something totally different.

It was a loan originated a couple of years ago actually. And so just went south, and we just took it off.

On the leveraged loan side, we have 3 direct leveraged loans we did and 1 we got out of this quarter, which was great. We’d like to get out of the other 2, but there are — they’ve got some hair on them.

But we did take the opportunity to get out of one of them, which we were pleased to do. It was refinanced out, and we just didn’t participate.

” data-reactid=”208″>No. It was something totally different.

It was a loan originated a couple of years ago actually. And so just went south, and we just took it off.

On the leveraged loan side, we have 3 direct leveraged loans we did and 1 we got out of this quarter, which was great. We’d like to get out of the other 2, but there are — they’ve got some hair on them.

But we did take the opportunity to get out of one of them, which we were pleased to do. It was refinanced out, and we just didn’t participate.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Timur Felixovich Braziler, Wells Fargo Securities, LLC, Research Division – Associate Analyst [26]” data-reactid=”210″>Timur Felixovich Braziler, Wells Fargo Securities, LLC, Research Division – Associate Analyst [26]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Okay. Understood.

And then just one last one for me. It seems like the SEC levied a charge last month that was related to some of the 2017 headlines.

Glad to see that the bank was not mentioned at all in there. Does this close the chapter on that part of the story? Or I guess any color that you can provide, that would be great.

” data-reactid=”212″>Okay. Understood.

And then just one last one for me. It seems like the SEC levied a charge last month that was related to some of the 2017 headlines.

Glad to see that the bank was not mentioned at all in there. Does this close the chapter on that part of the story? Or I guess any color that you can provide, that would be great.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Jared M. Wolff, Banc of California, Inc.

President, CEO amp; Director [27]” data-reactid=”214″>Jared M. Wolff, Banc of California, Inc.

President, CEO Director [27]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”So I’ve gotten up to speed thoroughly on all the open legal matters. As I mentioned last quarter, I think they’re getting better for the bank, not worse.

The thing that you’re mentioning in terms of the charges were not directed at the bank, so I don’t have any comment about those. But we are making progress and, hopefully, that we can resolve our open legal matters soon.

They’re covered by insurance and so, obviously, it’s a little bit lumpy in terms of the reimbursement of expenses, but we hope to be out of them soon. And there’s nothing I see that makes me think it’s going to get worse.

As I said, I think it’s going to get better sooner rather than later, hopefully.” data-reactid=”216″>So I’ve gotten up to speed thoroughly on all the open legal matters.

As I mentioned last quarter, I think they’re getting better for the bank, not worse. The thing that you’re mentioning in terms of the charges were not directed at the bank, so I don’t have any comment about those.

But we are making progress and, hopefully, that we can resolve our open legal matters soon. They’re covered by insurance and so, obviously, it’s a little bit lumpy in terms of the reimbursement of expenses, but we hope to be out of them soon.

And there’s nothing I see that makes me think it’s going to get worse. As I said, I think it’s going to get better sooner rather than later, hopefully.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Operator [28]” data-reactid=”218″>Operator [28]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”And the next question comes from Luke Wooten with KBW.” data-reactid=”220″>And the next question comes from Luke Wooten with KBW.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Luke Simeon Wooten, Keefe, Bruyette, amp; Woods, Inc., Research Division – Associate [29]” data-reactid=”222″>Luke Simeon Wooten, Keefe, Bruyette, Woods, Inc.

, Research Division – Associate [29]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Just wanted to kind of dig in. I know you talked about it a little bit with the tender offer, just kind of capital management going forward.

You talked a little bit about repurchase opportunities. I just kind of wanted to hear — I know that the Series D is redeemable in 2Q ’20, but just kind of I wanted to see what you were thinking about up to that point and going forward through 2020.

” data-reactid=”224″>Just wanted to kind of dig in. I know you talked about it a little bit with the tender offer, just kind of capital management going forward.

You talked a little bit about repurchase opportunities. I just kind of wanted to hear — I know that the Series D is redeemable in 2Q ’20, but just kind of I wanted to see what you were thinking about up to that point and going forward through 2020.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”John A. Bogler, Banc of California, Inc.

– Executive VP amp; CFO [30]” data-reactid=”226″>John A. Bogler, Banc of California, Inc.

– Executive VP CFO [30]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Yes. Thanks, Luke.

We will continue to evaluate. And obviously, the Board has to be part of this decisioning process and continue to look at options, but as you indicated, probably our next focus is going to be on being able to call the Series D in 2Q of next year.

If there are other opportunities that come up in the meantime that we think are appropriate to take, we will, obviously, evaluate those and move forward as appropriate.” data-reactid=”228″>Yes.

Thanks, Luke. We will continue to evaluate.

And obviously, the Board has to be part of this decisioning process and continue to look at options, but as you indicated, probably our next focus is going to be on being able to call the Series D in 2Q of next year. If there are other opportunities that come up in the meantime that we think are appropriate to take, we will, obviously, evaluate those and move forward as appropriate.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Luke Simeon Wooten, Keefe, Bruyette, amp; Woods, Inc., Research Division – Associate [31]” data-reactid=”230″>Luke Simeon Wooten, Keefe, Bruyette, Woods, Inc.

, Research Division – Associate [31]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Okay. That’s helpful.

And then just on expenses a little bit. I know there’s a lot of moving pieces in the professional fees line item, but do you have a good run rate for us to kind of use going forward, assuming that there aren’t insurance recoveries coming down the pipe?” data-reactid=”232″>Okay.

That’s helpful. And then just on expenses a little bit.

I know there’s a lot of moving pieces in the professional fees line item, but do you have a good run rate for us to kind of use going forward, assuming that there aren’t insurance recoveries coming down the pipe?

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”John A. Bogler, Banc of California, Inc.

– Executive VP amp; CFO [32]” data-reactid=”234″>John A. Bogler, Banc of California, Inc.

– Executive VP CFO [32]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”You’re saying if we take out the indemnification related to recovery?” data-reactid=”236″>You’re saying if we take out the indemnification related to recovery?

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Luke Simeon Wooten, Keefe, Bruyette, amp; Woods, Inc., Research Division – Associate [33]” data-reactid=”238″>Luke Simeon Wooten, Keefe, Bruyette, Woods, Inc.

, Research Division – Associate [33]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Yes.” data-reactid=”240″>Yes.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”John A. Bogler, Banc of California, Inc.

– Executive VP amp; CFO [34]” data-reactid=”242″>John A. Bogler, Banc of California, Inc.

– Executive VP CFO [34]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”I think we’re still going to have a little bit of an elevated level here in the third quarter and then as we get to the fourth quarter, moving down to a level that I think is a good run rate for us. I’m hesitant to give any sort of kind of guidance on that at this time just simply because we have a lot of things in motion internally.

And we’ll just have to let that play out through the third quarter.” data-reactid=”244″>I think we’re still going to have a little bit of an elevated level here in the third quarter and then as we get to the fourth quarter, moving down to a level that I think is a good run rate for us.

I’m hesitant to give any sort of kind of guidance on that at this time just simply because we have a lot of things in motion internally. And we’ll just have to let that play out through the third quarter.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Jared M. Wolff, Banc of California, Inc.

President, CEO amp; Director [35]” data-reactid=”246″>Jared M. Wolff, Banc of California, Inc.

President, CEO Director [35]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Yes. I mean I think we’ve got more movement faster than we expected.

So a whole bunch of things cooperated. But as we said, last quarter, we wanted to be in a position so by the end of the year we’ve been able to take the actions on expenses that we want to take so that we start 2020 with a right run rate.

There are so many things in flight and some of the things we just can’t pull the trigger on yet because there are technology initiatives or other things that are not yet complete. And we know what those numbers are and that’s why we are confident that we’re going to get there by the end of the fourth quarter.

But it’s going to be lumpy before then. Maybe we’ll have another good quarter, but we’re just not — it’s going to be very hard to predict.

” data-reactid=”248″>Yes. I mean I think we’ve got more movement faster than we expected.

So a whole bunch of things cooperated. But as we said, last quarter, we wanted to be in a position so by the end of the year we’ve been able to take the actions on expenses that we want to take so that we start 2020 with a right run rate.

There are so many things in flight and some of the things we just can’t pull the trigger on yet because there are technology initiatives or other things that are not yet complete. And we know what those numbers are and that’s why we are confident that we’re going to get there by the end of the fourth quarter.

But it’s going to be lumpy before then. Maybe we’ll have another good quarter, but we’re just not — it’s going to be very hard to predict.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Luke Simeon Wooten, Keefe, Bruyette, amp; Woods, Inc., Research Division – Associate [36]” data-reactid=”250″>Luke Simeon Wooten, Keefe, Bruyette, Woods, Inc.

, Research Division – Associate [36]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Okay. Yes.

No, understandable. And then just touching on a question that was briefly asked just on deposits, I know that the non-interest-bearing deposits, the average balances were up while the EOP was a little bit skewed.

Just on total deposit growth, should that kind of follow the asset growth coming down as you kind of get out of those wholesale deposits? And just kind of how should we look at that number towards the end of the year just on a total deposit basis? Because I know you said the assets will be below $9 billion, and we can kind of get somewhere closer to that with the loans running off, but just wanted to see how we should look at deposits.” data-reactid=”252″>Okay.

Yes. No, understandable.

And then just touching on a question that was briefly asked just on deposits, I know that the non-interest-bearing deposits, the average balances were up while the EOP was a little bit skewed. Just on total deposit growth, should that kind of follow the asset growth coming down as you kind of get out of those wholesale deposits? And just kind of how should we look at that number towards the end of the year just on a total deposit basis? Because I know you said the assets will be below $9 billion, and we can kind of get somewhere closer to that with the loans running off, but just wanted to see how we should look at deposits.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Jared M. Wolff, Banc of California, Inc.

President, CEO amp; Director [37]” data-reactid=”254″>Jared M. Wolff, Banc of California, Inc.

President, CEO Director [37]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Well, in terms of the mix, we’re looking at, obviously, increasing our non-interest-bearing and low-cost DDA as a higher percentage of our overall deposits. And so that’s the thing that I’m looking at mostly is what the mix is.

We started a whole bunch of initiatives. I mentioned last quarter that there are a whole bunch of components to growing a good core deposit base.

You need the training, you need the right people, you need the right products and you need the right incentives. And we have all those things in place.

We spent a good part of — since I’ve been here, training people and putting in place the right products and making sure people understand and partnering in teams. And in about 2.

5 months, we added close to 800 accounts and almost $50 million in low-cost deposits, new money from new clients. That’s excluding the money that is with existing clients that we don’t have that we should have.

” data-reactid=”256″>Well, in terms of the mix, we’re looking at, obviously, increasing our non-interest-bearing and low-cost DDA as a higher percentage of our overall deposits. And so that’s the thing that I’m looking at mostly is what the mix is.

We started a whole bunch of initiatives. I mentioned last quarter that there are a whole bunch of components to growing a good core deposit base.

You need the training, you need the right people, you need the right products and you need the right incentives. And we have all those things in place.

We spent a good part of — since I’ve been here, training people and putting in place the right products and making sure people understand and partnering in teams. And in about 2.

5 months, we added close to 800 accounts and almost $50 million in low-cost deposits, new money from new clients. That’s excluding the money that is with existing clients that we don’t have that we should have.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”And so we’re making good progress. As I said before, it’s a process, not an event.

And so very hard to predict kind of what those volumes are going to be, although I know from my own experience that momentum really does pick up after a couple of quarters because people have laid all the groundwork necessary to start bringing stuff in and it becomes more systemized and the culture has changed to kind of everybody gets it. Somebody has got to only the make the mistake once to bring the loan to loan committee without deposits to — and that story spreads pretty fast.

And so that’s not happening anymore. And culturally, things are changing here pretty quickly in terms of understanding what we’re about, serving the businesses and our footprint in a very relationship-oriented way and making sure we have a complete relationship with all of our clients.

That process is very important. I think it’s going to pay dividends in quarters to come, and it will build, but it’s going to be hard to predict what those volumes will be.

But that’s why I’m looking at the mix because I know the volumes would be there, but from a mix perspective, we need to get higher than we are today in terms of our non-interest-bearing balances and then obviously our low-cost balances as well.” data-reactid=”257″>And so we’re making good progress.

As I said before, it’s a process, not an event. And so very hard to predict kind of what those volumes are going to be, although I know from my own experience that momentum really does pick up after a couple of quarters because people have laid all the groundwork necessary to start bringing stuff in and it becomes more systemized and the culture has changed to kind of everybody gets it.

Somebody has got to only the make the mistake once to bring the loan to loan committee without deposits to — and that story spreads pretty fast. And so that’s not happening anymore.

And culturally, things are changing here pretty quickly in terms of understanding what we’re about, serving the businesses and our footprint in a very relationship-oriented way and making sure we have a complete relationship with all of our clients. That process is very important.

I think it’s going to pay dividends in quarters to come, and it will build, but it’s going to be hard to predict what those volumes will be. But that’s why I’m looking at the mix because I know the volumes would be there, but from a mix perspective, we need to get higher than we are today in terms of our non-interest-bearing balances and then obviously our low-cost balances as well.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”John A. Bogler, Banc of California, Inc.

– Executive VP amp; CFO [38]” data-reactid=”259″>John A. Bogler, Banc of California, Inc.

– Executive VP CFO [38]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”And I’d say the other thing that as we shrink down the balance sheet, the first movement is going to be the securitization. So all those proce will go to reduce overnight advances.

So that will be the first movement on the liabilities side is to reduce the overnight. And then it will be a continuation of what we’ve described previously is what we’re looking at those term deposits, whether they’re brokered or retail.

And as they mature, we’ll reset or run out and then it’s more of a balance of lower-cost deposits coming in and being able to continue to reduce the higher-cost deposits.” data-reactid=”261″>And I’d say the other thing that as we shrink down the balance sheet, the first movement is going to be the securitization.

So all those proce will go to reduce overnight advances. So that will be the first movement on the liabilities side is to reduce the overnight.

And then it will be a continuation of what we’ve described previously is what we’re looking at those term deposits, whether they’re brokered or retail. And as they mature, we’ll reset or run out and then it’s more of a balance of lower-cost deposits coming in and being able to continue to reduce the higher-cost deposits.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Operator [39]” data-reactid=”263″>Operator [39]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”And the next question comes from Tim Coffey with Janney.” data-reactid=”265″>And the next question comes from Tim Coffey with Janney.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Timothy Norton Coffey, Janney Montgomery Scott LLC, Research Division – Director of Banks and Thrifts [40]” data-reactid=”267″>Timothy Norton Coffey, Janney Montgomery Scott LLC, Research Division – Director of Banks and Thrifts [40]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”You’ve taken a good whack at those CLOs in the last 2 quarters, and I’m wondering if that’s kind of the run rate that you would like to see those balances reduce.” data-reactid=”269″>You’ve taken a good whack at those CLOs in the last 2 quarters, and I’m wondering if that’s kind of the run rate that you would like to see those balances reduce.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”John A. Bogler, Banc of California, Inc.

– Executive VP amp; CFO [41]” data-reactid=”271″>John A. Bogler, Banc of California, Inc.

– Executive VP CFO [41]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”No, it’s not. Our ability to reduce the CLOs is much more dependent upon what the market is going to give us.

Late last year, we saw a significant spread widening, and there was not an opportunity to get out of any of those securities because they were all under water. So as the spreads tightened, it gave us opportunity to exit them without taking any losses.

So it’s our intent to continue to look for opportunities to exit where we don’t have to take losses. And so right now, we’re probably 10 to 15 basis points wide in terms of the spread before we’d have another chunk that would come — get back to kind of our cost basis and give us an opportunity to exit.

” data-reactid=”273″>No, it’s not. Our ability to reduce the CLOs is much more dependent upon what the market is going to give us.

Late last year, we saw a significant spread widening, and there was not an opportunity to get out of any of those securities because they were all under water. So as the spreads tightened, it gave us opportunity to exit them without taking any losses.

So it’s our intent to continue to look for opportunities to exit where we don’t have to take losses. And so right now, we’re probably 10 to 15 basis points wide in terms of the spread before we’d have another chunk that would come — get back to kind of our cost basis and give us an opportunity to exit.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Jared M. Wolff, Banc of California, Inc.

President, CEO amp; Director [42]” data-reactid=”275″>Jared M. Wolff, Banc of California, Inc.

President, CEO Director [42]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”We think there is a place for the CLOs on our balance sheet. We were just trying to deconcentrate.

But as is an issue with — as you’re running off assets, you’ve got to have something to replace them with, and we’re not looking to decimate our earnings power completely. We’ve got to find the right replacement for them.

And we do feel that they’re safe, but we want to deconcentrate circumstances permitting, and we’ve got to have an alternative security to put them into to keep an appropriate mix of — make sure our securities portfolio is an appropriate mix of our total overall assets.” data-reactid=”277″>We think there is a place for the CLOs on our balance sheet.

We were just trying to deconcentrate. But as is an issue with — as you’re running off assets, you’ve got to have something to replace them with, and we’re not looking to decimate our earnings power completely.

We’ve got to find the right replacement for them. And we do feel that they’re safe, but we want to deconcentrate circumstances permitting, and we’ve got to have an alternative security to put them into to keep an appropriate mix of — make sure our securities portfolio is an appropriate mix of our total overall assets.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Timothy Norton Coffey, Janney Montgomery Scott LLC, Research Division – Director of Banks and Thrifts [43]” data-reactid=”279″>Timothy Norton Coffey, Janney Montgomery Scott LLC, Research Division – Director of Banks and Thrifts [43]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Okay. And I feel I might have missed this in your prepared comments, but I’m wondering where you think the overnights might be at the end of next quarter if you have a target.

” data-reactid=”281″>Okay. And I feel I might have missed this in your prepared comments, but I’m wondering where you think the overnights might be at the end of next quarter if you have a target.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”John A. Bogler, Banc of California, Inc.

– Executive VP amp; CFO [44]” data-reactid=”283″>John A. Bogler, Banc of California, Inc.

– Executive VP CFO [44]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Not so much a target, but I would say that we’ll take roughly $600 million out of the overnights. As we said in the past, we will use the overnights as a bit of a buffer to the extent that we have CDs that mature and we don’t have any asset proce in order to utilize against those maturing CDs.

We will use FHLB advances and then subsequently as we have asset proce or incremental low-cost deposit growth, then we’ll reduce the overnight advances. So the overnight is a bit of a buffer.

” data-reactid=”285″>Not so much a target, but I would say that we’ll take roughly $600 million out of the overnights. As we said in the past, we will use the overnights as a bit of a buffer to the extent that we have CDs that mature and we don’t have any asset proce in order to utilize against those maturing CDs.

We will use FHLB advances and then subsequently as we have asset proce or incremental low-cost deposit growth, then we’ll reduce the overnight advances. So the overnight is a bit of a buffer.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Operator [45]” data-reactid=”287″>Operator [45]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”And the next question is a follow-up from Gary Tanner with D.A.

Davidson.” data-reactid=”289″>And the next question is a follow-up from Gary Tanner with D.

A. Davidson.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Gary Peter Tenner, D.A.

Davidson amp; Co., Research Division – Senior VP amp; Senior Research Analyst [46]” data-reactid=”291″>Gary Peter Tenner, D.

A. Davidson Co.

, Research Division – Senior VP Senior Research Analyst [46]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Just quickly on the multi-family securitization. When in the quarter is that expected to actually close?” data-reactid=”293″>Just quickly on the multi-family securitization.

When in the quarter is that expected to actually close?

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Jared M. Wolff, Banc of California, Inc.

President, CEO amp; Director [47]” data-reactid=”295″>Jared M. Wolff, Banc of California, Inc.

President, CEO Director [47]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Gary, say that again.” data-reactid=”297″>Gary, say that again.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Gary Peter Tenner, D.A.

Davidson amp; Co., Research Division – Senior VP amp; Senior Research Analyst [48]” data-reactid=”299″>Gary Peter Tenner, D.

A. Davidson Co.

, Research Division – Senior VP Senior Research Analyst [48]

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”I was just wondering on the securitization, the timing within the quarter of when that’s expected to close.” data-reactid=”301″>I was just wondering on the securitization, the timing within the quarter of when that’s expected to close.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”John A. Bogler, Banc of California, Inc.

– Executive VP amp; CFO [49]” data-reactid=”303″>John A. Bogler, Banc of California, Inc.

– Executive VP CFO [49]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”At the very beginning of August. We went out this past Monday with the (inaudible), so all of the bonds have been circled in and taken down as of yesterday and so now they’re working through the IO piece and then there will be a final settlement that takes place in the beginning of August.

” data-reactid=”305″>At the very beginning of August. We went out this past Monday with the (inaudible), so all of the bonds have been circled in and taken down as of yesterday and so now they’re working through the IO piece and then there will be a final settlement that takes place in the beginning of August.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Gary Peter Tenner, D.A.

Davidson amp; Co., Research Division – Senior VP amp; Senior Research Analyst [50]” data-reactid=”307″>Gary Peter Tenner, D.

A. Davidson Co.

, Research Division – Senior VP Senior Research Analyst [50]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Okay. Great.

And then just the loss on the alternative energy partnership investments, what’s the kind of normalized run rate you expect there? Or is that now behind us?” data-reactid=”309″>Okay. Great.

And then just the loss on the alternative energy partnership investments, what’s the kind of normalized run rate you expect there? Or is that now behind us?

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”John A. Bogler, Banc of California, Inc.

– Executive VP amp; CFO [51]” data-reactid=”311″>John A. Bogler, Banc of California, Inc.

– Executive VP CFO [51]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”No. We’ve previously entered into 2 large transactions, and our commitment on those has been completed.

As we said, we wanted to manage our effective tax rate down to something closer to 20%. And during the second quarter, we had an opportunity to take down a small solar tax equity investment, and so that will create some expense as we go forward and then it will be some additional expense from the prior program.

But I would expect it to be relatively small quarter-to-quarter.” data-reactid=”313″>No.

We’ve previously entered into 2 large transactions, and our commitment on those has been completed. As we said, we wanted to manage our effective tax rate down to something closer to 20%.

And during the second quarter, we had an opportunity to take down a small solar tax equity investment, and so that will create some expense as we go forward and then it will be some additional expense from the prior program. But I would expect it to be relatively small quarter-to-quarter.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Operator [52]” data-reactid=”315″>Operator [52]

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”And it does conclude the question-and-answer session as well as today‘s conference call. Thank you so much for today‘s presentation — for listening to today‘s presentation.

You now disconnect your lines.” data-reactid=”317″>And it does conclude the question-and-answer session as well as today‘s conference call.

Thank you so much for today‘s presentation — for listening to today‘s presentation. You now disconnect your lines.

.