Timothy Coffey • Janney Montgomery Scott LLC

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SEVP & COO Peter Koh responded that the consumer base has remained resilient and the bank has not yet seen a significant negative impact on its customer base. EVP & CFO Julianna Balicka stated that the current deposit mix is well-balanced and that the reduction of brokered deposits to 5% of total deposits is a 'pretty good place' to be, with a medium-term target loan-to-deposit ratio of up to 95%.

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CEO James Reuter and Deputy CFO David Della Camera did not provide a specific percentage for construction loans moving to lease-up, but noted that the process is standard and they are proactively managing the portfolio with nothing unusual to report. Regarding branch size, Reuter stated that while their current average of $76 million is below peers, he does not have a single target number as it depends on the trade area. He emphasized that optimizing the branch network will be a focus, with the goal of increasing the average size over time, though it will likely remain below peers due to their rural footprint.

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CFO Marcy Mutch confirmed a modest decline in average earning assets is expected due to loan runoff late in Q3. Chief Credit Officer David Redmon directed him to the investor presentation, noting the remaining loans are largely leased up or recently completed. CEO Kevin Riley added one has an investment-grade lessor. Mutch affirmed that these issues would not prevent future business in those markets.

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Executive T. Sullivan and Executive Edward Nigro addressed the questions. They anticipate further SEC-related costs in Q2 but potentially less than the $1 million budgeted. Nigro projected that credit card transaction volumes would likely remain flat in Q2 due to a planned marketing pause for system enhancements. He also confirmed plans for a secured card and other product improvements targeting a Q3 launch. Nigro expects the slot program to launch in Q2, with deposit growth beginning in Q3. Sullivan confirmed the SBA and commercial loan pipeline exceeds $300 million and noted that while demand is strong, gain-on-sale premiums remain soft.

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Lynn Hopkins confirmed that a return to second-half 2024 expense levels was a reasonable expectation, targeting an OpEx ratio around 1.80% of average assets. She clarified that new hires would not be a direct addition to costs due to expense rationalization elsewhere, and guided to an operating expense run rate between $17.5 million and $18 million.

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EVP & CFO Lynn Hopkins attributed lower deposit costs to the bank's liability-sensitive CD portfolio repricing in a lower rate environment. President & CEO Johnny Lee expects loan growth to be slower in Q1 and ramp up in Q2 and Q3. He also noted that the bank proactively engages with borrowers to retain loans but some payoffs are due to borrowers using excess cash or strategic decisions by the bank.

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President and CEO David Brager responded that CRE demand is broad-based across all asset classes, with a continued focus on owner-occupied properties. He described general customer sentiment as 'relatively positive.' On construction lending, he acknowledged cost pressures but emphasized disciplined underwriting and sees opportunity. For multifamily, Mr. Brager confirmed the bank's appetite is unchanged and it remains 'open for business for the right borrowers.'

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President and CEO David Brager explained the direct impact is limited, with only $7.4 million in loans on destroyed properties, all of which were insured. He noted that insurance proceeds are held in bank-controlled accounts for rebuilding. Brager sees more potential upside than downside risk from rebuilding efforts. He confirmed the bank is willing and has ample capacity to increase construction lending, and is even considering slightly relaxing its typically stringent loan-to-cost requirements for wildfire relief projects.

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President & CEO Mark J. Grescovich expressed a pessimistic view on the economy due to tariff uncertainty but saw it as an opportunity to gain market share. Both he and EVP & Chief Credit Officer Jill Rice agreed that defense spending would bolster local economies like Puget Sound. EVP & CFO Robert Butterfield noted a special dividend is a tool they could use but is a lower priority currently. Jill Rice stated that she is not seeing broad, year-over-year changes in borrower financials that indicate a slowdown.

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EVP, Commercial Banking Jill Rice confirmed she believes there is pent-up loan demand that could be released post-election and with more rate certainty. President and CEO Mark J. Grescovich explained the new CBO role is part of a long-term succession and operational streamlining strategy. He affirmed that placing the role in Sacramento is strategic, calling California a 'fantastic market opportunity' for the bank.

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CFO Edward Czajka disclosed a recent strategic shift, noting the purchase of approximately $60 million in 10-year treasuries to capitalize on favorable rates, though he indicated this was not an ongoing program. Regarding the allowance, Executive Nick Pi projected the ratio could gradually decrease to a 1.15% to 1.25% range. Executive Li Yu added that the bank's philosophy is to reserve aggressively, which has historically kept their ratio above peer levels.

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Chairman and CEO Li Yu described a cautious positioning, emphasizing diligent monitoring of customers affected by tariffs and tightening underwriting on segments like industrial property. Executive Edward Czajka reported that $1.1 billion in time deposits with an average rate of 4.28% are set to mature in Q2, while current offering rates are in the mid- to high-3% range.

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CEO Mark K. Mason clarified that the sale involved portfolio loans, so it did not impact the servicing fee line item, and no mortgage servicing asset was recognized due to the temporary nature of the arrangement. He affirmed a large appetite for originate-to-sell business, though it is tempered by market conditions. On expenses, Mason noted they are near the limit for FTE reductions, while CFO John Michel added that minor savings could come from lower FDIC fees and managing occupancy costs.

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Executive Mark K. Mason confirmed the parties could agree to extend the merger agreement. He clarified that while an $800 million pool has not been marketed, they have substantially negotiated a sale for a different, ~$300 million pool, providing significant market insight. He explained the two potential sales have different goals and would involve different loan pools. Mason stated they are unlikely to sell other assets like the DUS license. CFO John Michel did not have CD maturity data available but offered to follow up.

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CEO Jared Wolff clarified that they are not looking to shrink the asset base. Instead, balance sheet optimization refers to managing the capital stack, such as evaluating preferreds and sub debt, once the bank achieves excess capital (CET1 near 11%) and stable earnings. Both Wolff and CFO Joe Kauder indicated that a securities portfolio of 12-15% of earning assets is an appropriate long-term mix.

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CEO Jared Wolff explained that they are developing a better understanding of the loan pipeline, noting it has been about four months of active building since the post-merger reorganization. He described the credit quality of the legacy PacWest portfolio as "terrific," stating that the primary area of focus, office loans, has performed as anticipated. Wolff emphasized the bank's strong economic reserve coverage of 1.8% and their proactive approach to managing potential credit risks.

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