Investor Presentation
First Quarter 2024 Results
Forward Looking Statements
This press release includes forward-looking statements within the meaning of the "Safe-Harbor" provisions of the Private Securities Litigation Reform Act of 1995. Words or phrases such as "believe," "will," "should," "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "plans," "strategy," or similar expressions are intended to identify these forward-looking statements. You are cautioned not to place undue reliance on any forward-looking statements. These statements are necessarily subject to risk and uncertainty and actual results could differ materially from those anticipated due to various factors, including those set forth from time to time in the documents filed or furnished by Banc of California, Inc. (the "Company") with the Securities and Exchange Commission ("SEC"). The Company undertakes no obligation to revise or publicly release any revision or update to these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made, except as required by law.
Factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to: (i) changes in general economic conditions, either nationally or in our market areas, including the impact of supply chain disruptions, and the risk of recession or an economic downturn; (ii) changes in the interest rate environment, including the recent and potential future changes in the FRB benchmark rate, which could adversely affect our revenue and expenses, the value of assets and obligations, the realization of deferred tax assets, the availability and cost of capital and liquidity, and the impacts of continuing inflation; (iii) the credit risks of lending activities, which may be affected by deterioration in real estate markets and the financial condition of borrowers, and the operational risk of lending activities, including the effectiveness of our underwriting practices and the risk of fraud, any of which may lead to increased loan delinquencies, losses, and non-performing assets, and may result in our allowance for credit losses not being adequate; (iv) fluctuations in the demand for loans, and fluctuations in commercial and residential real estate values in our market area;
- the quality and composition of our securities portfolio; (vi) our ability to develop and maintain a strong core deposit base, including among our venture banking clients, or other low cost funding sources necessary to fund our activities particularly in a rising or high interest rate environment; (vii) the rapid withdrawal of a significant amount of demand deposits over a short period of time; (viii) the costs and effects of litigation; (ix) risks related to the Company's acquisitions, including disruption to current plans and operations; difficulties in customer and employee retention; fees, expenses and charges related to these transactions being significantly higher than anticipated; and our inability to achieve expected revenues, cost savings, synergies, and other benefits; and in the case of our recent acquisition of PacWest Bancorp ("PacWest"), reputational risk, regulatory risk and potential adverse reactions of the Company's or PacWest's customers, suppliers, vendors, employees or other business partners; (x) results of examinations by regulatory authorities of the Company and the possibility that any such regulatory authority may, among other things, limit our business activities, restrict our ability to invest in certain assets, refrain from issuing an approval or non-objection to certain capital or other actions, increase our allowance for credit losses, result in write-downs of asset values, restrict our ability or that of our bank subsidiary to pay dividends, or impose fines, penalties or sanctions; (xi) legislative or regulatory changes that adversely affect our business, including changes in tax laws and policies, accounting policies and practices, privacy laws, and regulatory capital or other rules; (xii) the risk that our enterprise risk management framework may not be effective in mitigating risk and reducing the potential for losses; (xiii) errors in estimates of the fair values of certain of our assets and liabilities, which may result in significant changes in valuation; (xiv) failures or security breaches with respect to the network, applications, vendors and computer systems on which we depend, including due to cybersecurity threats; (xv) our ability to attract and retain key members of our senior management team; (xvi) the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, and other external events on our business; (xvii) the impact of bank failures or other adverse developments at other banks on general depositor and investor sentiment regarding the stability and liquidity of banks; (xviii) the possibility that our recorded goodwill could become impaired, which may have an adverse impact on our earnings and capital; (xix) our existing indebtedness, together with any future incurrence of additional indebtedness, could adversely affect our ability to raise additional capital and to meet our debt obligations; (xx) the risk that we may incur significant losses on future asset sales; and (xxi) other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and the other risks described in this press release and from time to time in other documents that we file with or furnish to the SEC.
First Quarter 2024 Earnings | 2
1Q24 Highlights
First full quarter results post merger reflect benefits of balance sheet restructuring and initial progress
- Increased profitability largely driven by expanding NIM and lower operating expenses
- NIM improvement reflects ongoing actions to lower total cost of funds
- Right-sizedcash levels
- Growing NIB and core deposit ratios
- Lower reliance on wholesale funding
- Growing capital and tangible book levels
- Continued to strengthen reserve levels and experienced lower charge-offs
- On track to achieve 4Q24 profitability targets of ~1.1% ROAA and ~13%
ROTCE
Operating
Results
Balance
Sheet Results
Robust
Capital
Strong Credit
Reserves
1Q24 | 4Q23 | |||
PTPP / Adjusted PTPP(1,2) | $62.4 / $67.3mm | ($613.0) / ($26.0)mm | ||
EPS / Adjusted EPS(1) | $0.17 / $0.19 | ($4.55) / ($0.59) | ||
ROAA / Adjusted ROAA(1) | 0.41% / 0.45% | (5.09%) / (0.56%) | ||
ROATCE / Adjusted ROATCE(1) | 5.5% / 6.0% | (88.0%) / (10.8%) | ||
NIE Ratio / Adjusted NIE Ratio(1) | 2.26% / 2.20% | 3.83% / 2.31% | ||
NIM | 2.78% | 2.15%(3) | ||
Cash / assets | 8.6% | 14.0% | ||
Wholesale funding / assets(4) | 15.4% | 16.6% | ||
Deposits / total funding | 93.1% | 91.3% | ||
NIB ratio | 27.1% | 25.6% | ||
CET 1 | 10.1% | 10.1% | ||
Total Capital | 16.4% | 16.4% | ||
BVPS | $17.18 | $17.12 | ||
TBVPS(1) | $15.07 | $14.96 | ||
ACL ratio | 1.26% | 1.22% | ||
NCOs | 0.02% | 0.22% | ||
- Denotes a non-GAAP financial measure; see "Non-GAAP Reconciliation" slides at end of presentation.
- Pre-taxPre-provision income. Please see reconciliation tables in appendix for additionall detail.
3. | Average NIM for the month of December 2023. | First Quarter 2024 Earnings | 3 |
4. | Wholesale funding defined as borrowings plus brokered time deposits. |
First Quarter 2024 Earnings Results
❖Net interest income increased $88 |
million, or 58%: |
▪ Interest income increase due to the |
full-quarter impact of the combined |
loan portfolio |
▪ Interest expense reduction driven by |
4Q23 and 1Q24 balance sheet |
restructuring activities and lower |
deposit costs |
❖Noninterest income stable when |
Increased earnings driven by NIM expansion and lower operating expenses
($ in millions) | 1Q24 | 4Q23 | 3Q23 | |||
Total interest income | $ | 489 | $ | 467 | $ | 446 |
Total interest expense | 250 | 316 | 315 | |||
Net interest income | 239 | 151 | 131 | |||
Noninterest income | 34 | 46 | 46 | |||
Loss on sale of securitiies and loans | 0 | (446) | (2) | |||
Total noninterest (loss) income | 34 | (400) | 44 | |||
Total revenue | 273 | (249) | 175 | |||
Noninterest expense | 211 | 252 | 191 | |||
Acquisition, integration and reorganization costs | 0 | 112 | 10 | |||
Total noninterest expense | 211 | 364 | 201 | |||
Pre-taxpre-provision income | 62 | (613) | (27) | |||
Provision for credit losses | 10 | 47 | 0 | |||
(Loss) earnings before income taxes | 52 | (660) | (27) | |||
Income tax (benefit) expense | 14 | (177) | (3) | |||
Net (loss) earnings | $ | 38 | $ | (483) | $ | (23) |
Preferred stock dividends | 10 | 10 | 10 | |||
Net (loss) earnings available to common stockholders | $ | 28 | $ | (493) | $ | (33) |
Cost of funds
-0.66%
3.68%
3.02%
4Q23 1Q24
Cost of deposits
-0.28%
2.94% 2.66%
adjusted for 4Q23 nonrecurring items, |
including impact of legal recoveries |
❖Operating expense reduction reflects |
the early impact of the company's |
integration and cost reduction |
initiatives |
Key Income Statement Metrics EPS Adjusted EPS Return on average assets (ROAA) Adjusted ROAA Net interest margin NIE / Average assets Adjusted NIE / Average assets
$ | 0.17 | $ | (4.55) | $ | (0.42) |
0.19 | (0.59) | (0.32) | |||
0.41% | -5.09% | -0.24% | |||
0.45% | -0.56% | -0.15% | |||
2.78% | 1.69% | 1.45% | |||
2.26% | 3.83% | 2.11% | |||
2.20% | 2.31% | 2.01% |
4Q23 1Q24
Cost of interest-bearing deposits
-0.20%
3.80% 3.60%
4Q23 1Q24
Note: Periods prior to 4Q23 represent PACW standalone.
First Quarter 2024 Earnings | 4
Management
Outlook Q424
Assumptions
- Profitability expectations currently assume two 25 bps Fed funds rate reductions in 2024 (one in 3Q24 and one in 4Q24), subject to market volatility
- Execution of management strategy to reduce both interest expense and operating expense
- Assumes generally flat loan levels at growing average yield
- Does not assume a significant recession or credit event
4Q24 run-rate target guidance remains unchanged from 2023 year end
ROAA: ~1.1% | • Continue to improve overall profitability through execution of |
strategy and further optimization of the balance sheet. | |
ROTCE: ~13% | • Grow NIM through lowering the avg cost of funds, increasing yields |
on avg earning assets, and lowering operating expenses. | |
NIE / Assets: 2.0%-2.1% | • Execute on savings initiatives including systems conversions, |
facility exits, process improvements, contract renegotiations and | |
cost eliminations. | |
Total Assets: $34B-$36B | • Balance sheet size expected to remain stable; however, will |
opportunistically look to strengthen our balance sheet and | |
maximize profitability depending on economic developments. |
First Quarter 2024 Earnings | 5
Integration roadmap update
Strong execution and achievement of deal closing timeline creates opportunity to complete integration and realize full cost savings in 2024
Accomplished since announcement of deal
- Closed merger with PacWest
- Closed on $400mm common equity with merger
- Retained key employees and clients
- Sold $6 billion assets (3.6% yield)
- Paid down $10 billion wholesale funding (~5% cost)
- Completed announced balance sheet restructuring and finalized plan for integration
- Partial cost savings realized
Items to be completed in 2Q24 - 4Q24
Target | |||
Core systems conversions | 3Q | ||
Execution on consolidation of facilities | 4Q | ||
Realize full operational expense savings | 4Q+ | ||
Continued reduction of interest expense | 4Q+ | ||
and improvement of deposit mix |
First Quarter 2024 Earnings | 6
Balance Sheet
Repositioning
Continues
- Excess 4Q23 liquidity used to pay down high cost wholesale funding sources, including brokered deposits and a portion of BTFP borrowings
- Right-sizedcash levels continue to provide sufficient liquidity
- Deposit mix shift as company focuses on growing noninterest-bearing deposit
- Core loan portfolio growth offset by run-off of discontinued portfolios resulting in stable total loans
Increased balance sheet efficiency with improved deposit mix and lower wholesale funding
($ in millions) | 1Q24 | 4Q23 | 3Q23 | |||
Cash and cash equivalents | $ | 3,085 | $ | 5,378 | $ | 6,070 |
Investment securities | 4,708 | 4,761 | 6,787 | |||
Loans held for sale | 81 | 123 | 189 | |||
Loans and leases HFI, net of deferred fees | 25,483 | 25,490 | 21,921 | |||
Allowance for loan and lease losses | (292) | (282) | (222) | |||
Goodwill and intangibles | 356 | 364 | 24 | |||
Deferred tax asset, net | 738 | 739 | 506 | |||
Other assets | 1,921 | 1,962 | 1,603 | |||
Total assets | $ | 36,081 | $ | 38,534 | $ | 36,878 |
Noninterest-bearing deposits | $ | 7,834 | $ | 7,774 | $ | 5,579 |
Interest-bearing deposits | 21,059 | 22,628 | 21,020 | |||
Total deposits | 28,892 | 30,402 | 26,599 | |||
Borrowings | 2,139 | 2,911 | 6,295 | |||
Subordinated debt | 938 | 937 | 871 | |||
Accrued interest payable and other liabilities | 710 | 894 | 714 | |||
Total liabilities | 32,679 | 35,143 | 34,479 | |||
Total stockholders' equity | 3,401 | 3,391 | 2,399 | |||
Total liabilities and stockholders' equity | $ | 36,081 | $ | 38,534 | $ | 36,878 |
Key Balance Sheet Metrics | ||||||
TCE ratio(1) | 7.1% | 6.6% | 5.1% | |||
CET 1 ratio | 10.1% | 10.1% | 11.2% | |||
Cash / assets | 8.6% | 14.0% | 16.5% | |||
Securities / assets | 13.0% | 12.4% | 18.4% | |||
Cash + securities / assets | 21.6% | 26.3% | 34.9% | |||
Loans / deposits | 88.2% | 83.8% | 82.4% | |||
Noninterest-bearing deposits / deposits | 27.1% | 25.6% | 21.0% | |||
Deposits / total funding | 93.1% | 91.3% | 80.9% | |||
Wholesale funding / assets(2) | 15.4% | 16.6% | 28.1% | |||
ACL ratio | 1.26% | 1.22% | 1.15% |
1. Denotes a non-GAAP financial measure; see "Non-GAAP Reconciliation" slides at end of presentation. | Note: Periods prior to 4Q23 represent PACW standalone. |
2. Wholesale funding defined as borrowings plus brokered time deposits. | First Quarter 2024 Earnings | 7 |
Net Interest Income
and Net Interest
Margin Expansion
1Q 2024 Highlights
- NIM expanded 109 bps to 2.78%
- NII increased $88 million driven by:
- Borrowings costs decreased 126 bps: +$54mm
- Loan yields increased 41 bps: +$49mm
- Interest bearing deposits costs decreased 20 bps: +$13mm
- Securities balances decreased, partly offset by a 20 bps increase in yields: ($7mm)
- Lower cash balances: ($21mm)
Lower funding costs and improved asset yields and mix drive NII and NIM expansion
Net Interest Income (NII) ($M) and Net Interest Margin (NIM)
Quarter | Month | ||||||||||||||||||||||
NIM | NII | ||||||||||||||||||||||
2.78% | 2.82% | ||||||||||||||||||||||
2.15% | |||||||||||||||||||||||
1.69% | |||||||||||||||||||||||
1.45% | 1.43% | ||||||||||||||||||||||
$239.1 | $69.4 | $80.9 | |||||||||||||||||||||
$130.7 | $151.0 | $41.5 | |||||||||||||||||||||
3Q23 | 4Q23 | 1Q24 | Sep '23 | Dec '23 | Mar '24 | ||||||||||||||||||
Impact to NII ($M) from cumulative change in yields, rates and mix | |||||||||||||||||||||||
+$49.2 | +$13.0 | -$7.0 | -$21.4 | $239.1 | |||||||||||||||||||
$151.0 | +$54.4 | ||||||||||||||||||||||
4Q23 NII | Borrowings | Loans | Deposits | Securities | Cash / Other EA | 1Q24 NII |
Note: Periods prior to 4Q23 represent PACW standalone.
First Quarter 2024 Earnings | 8
Funding Cost Reduction Actions
1Q24 Highlights
- NIB and IB deposit composition trends reflects results of balance sheet restructuring and post-merger community bank-focused strategy
- Lower deposit costs reflects the paydowns of higher cost brokered deposits, increased NIB % and actions taken to reduce IB deposit costs
- Strategy to pay down higher cost wholesale funding as it matures and replace it with lower-cost funding sources beginning to gain momentum
Ongoing interest expense reduction results from focused strategy to improve deposit mix and reprice CDs lower
Improving Funding Mix(1)
% of Total Funding(1)
3Q23 | 4Q23 | 1Q24 | ||||||
17.0% | 23.3% | 25.2% | ||||||
51.5% | ||||||||
57.4% | 56.8% | |||||||
12.4% | ||||||||
19.1% | 10.5% | 11.0% | ||||||
8.7% | 6.9% | |||||||
NIB Deposits | Interest-bearing deposits | Brokered CDs | Borrowings | |||||
Reduced Cost of Liabilities
Total interest-bearing liabilities Total borrowings Total deposits
7.02% | ||
5.91% | 5.30% | |
4.51% | ||
4.34% | 3.92% | |
2.98% | 2.94% | 2.66% |
3Q23 | 4Q23 | 1Q24 |
1. Excludes subordinated debt and accrued interest payable and other liabilities.
Note: Periods prior to 4Q23 represent PACW standalone.
First Quarter 2024 Earnings | 9
Noninterest Income Composition
1Q 2024 Highlights
- Consistent noninterest income, adjusted for nonrecurring items including legal recoveries
- Lower lease equipment income reflects lower early lease buyouts and is offset by across the board growth in most other categories
- Other income growth in 1Q24 was driven mainly by the net impact of fair value marks relative to 4Q23
- Other includes revenue from BOLI, warrants, fair value mark adjustments and other miscellaneous gains or losses
Noninterest income(1) (excl. nonrecurring items in 4Q23) remains consistent and reflects diversified fee sources
($ in millions) | $45.7 | $45.5 | ||||
$14.5 | $11.5 | |||||
$34.0mm(3) | $34.3 | |||||
(2) | $4.6 | $4.7 | ||||
$31.2mm | ||||||
$4.0 | ||||||
$7.6 | $8.9 | $8.1 | ||||
$12.4 | $11.7 | |||||
$14.6 | ||||||
$3.1 | ||||||
$4.2 | ||||||
$3.8 | $4.0 | $6.6 | ||||
$1.2 | ||||||
3Q23 | 4Q23 | 1Q24 | ||||
Other Income | Loan and Card Fees | |||||
Dividends and Gains on Equity Investments | Deposit Fees | |||||
Leased Equipment Income | Nonrecurring Legal Recoveries and Gains | |||||
1. Excludes gain (loss) on sale of securities and loans. | Note: Periods prior to 4Q23 represent PACW standalone. |
2. Excludes nonrecurring legal recovery of $14.5mm. | First Quarter 2024 Earnings | 10 |
3. Excludes nonrecurring legal recovery of $7.6mm and elevated CRA-related fair value gain of $3.9mm.
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Banc of California Inc. published this content on 22 April 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 23 April 2024 10:10:32 UTC.