BANC OF CALIFORNIA, INC. (BANC)·Q1 2024 Earnings Summary

Executive Summary

• Q1 2024 inflection: net interest income rose 58% to $239.1M as NIM expanded 109 bps to 2.78% (March monthly NIM 2.82%), driving diluted EPS of $0.17 ($0.19 adjusted) and a return to positive profitability post-merger .
• Funding mix improved: average total cost of deposits fell 28 bps to 2.66% while noninterest-bearing deposits grew $59M to 27% of total; deposits declined $1.5B as management intentionally ran off higher-cost funding and brokered balances; wholesale funding to assets dropped to ~16.9% .
• Operating discipline: noninterest expense fell $153.1M sequentially to $210.5M (including $4.8M FDIC special assessment); management reiterated cost-save cadence through systems conversion and facilities consolidation, noting expenses tracking ahead of plan .
• Credit normalization: provision of $10.0M; NPLs rose to $146.0M (0.57% of loans) led by three office and one retail CRE loans and legacy CIVIC portfolio; ACL/loans increased to 1.26%; net charge-offs 0.02% (annualized) .
• Guidance unchanged: management reaffirmed 4Q24 run-rate targets of ~1.1% ROA and ~13% ROTC, expects continued NIM improvement and lower deposit costs; remaining $1.5B BTFP likely repaid in Q2, with flexibility based on deposit/loan flows .

What Went Well and What Went Wrong

• What Went Well

  • NIM and NII expanded materially on balance sheet repositioning and lower-cost funding, with management stating: “we realized the benefits of the balance sheet repositioning… significantly higher levels of net interest income and an expansion in our net interest margin” .
  • Deposit mix improved, lowering funding costs: cost of deposits down 28 bps; NIB deposits up and now 27% of total, aided by new business relationships and targeted runoff of high-cost deposits .
  • Expenses tracking better than plan: “operating expenses are trending lower at a faster pace than we initially expected,” with noninterest expense at $210.5M in Q1 (down $153.1M q/q) .

• What Went Wrong

  • Credit metrics normalized higher: NPLs increased to $146.0M (0.57% of loans), driven by three office and one retail CRE credits and legacy CIVIC loans; provision $10.0M .
  • Deposits contracted $1.5B, primarily intentional runoff of money market and non-brokered time deposits to reduce funding costs, requiring continued execution on NIB growth to offset .
  • Accretion/spot rate disclosure curtailed: management ceased providing spot rates after elevated accretion distorted exit rates; will guide using monthly averages (e.g., March NIM 2.82%) .

Financial Results

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• Profitability-first execution: “Profitability is our primary focus this year rather than growth… benefits of balance sheet repositioning… cost of deposits declining 28 bps… expansion in our net interest margin” — Jared Wolff .
• Funding/deposits strategy: “Even in a static rate environment, we expect to continue to move our deposit costs down… growing our low-cost core deposits” — Joe Kauder .
• 4Q24 targets reaffirmed: “We continue to expect to generate ROA of approximately 1.1% and ROTC of approximately 13% in the fourth quarter of this year” — Jared Wolff .
• Credit stance: “We remain appropriately proactive… downgraded various CRE credits… recorded a $10 million overall provision… ACL to total loans 1.26%” — Jared Wolff .
• Capital policy: “We will get to our goals without redeeming the preferred… want to show stable and a buildup of capital before we start redeeming capital” — Jared Wolff .

Q&A Highlights

• Margin outlook and accretion: Management emphasized monthly NIM as the appropriate guide (March 2.82%), de-emphasized spot rates given accretion volatility; expects continued margin improvement via lower funding costs and higher new loan yields .
• Deposit cost path: Team is “focused on reducing interest expense materially” through NIB growth, repricing, and potential hedging to lock in the curve if cuts don’t materialize; deposit spot rate 2.54% by quarter-end .
• BTFP and liquidity: Paid down $1.1B BTFP; likely to repay remaining ~$1.5B in Q2 but will retain flexibility to maintain cash and liquidity targets; no expected step-down in cash upon further repayment .
• Credit migration details: NPL increase concentrated in California office/retail CRE; management views normalization to ~60 bps NPLs as healthy, with specific reserves on two office properties .
• CIVIC portfolio options: Considering sales of noncore CIVIC loans at or near carrying value; potential broader portfolio exit could accelerate profitability progress if pricing attractive .

Estimates Context

• Wall Street consensus estimates via S&P Global were unavailable at time of request (tool limit exceeded), so we cannot provide vs-estimates comparisons for EPS or revenue this quarter. Values would ordinarily be retrieved from S&P Global; estimates were not accessible at this time.

Key Takeaways for Investors

• NIM/earnings momentum: Broad-based NIM expansion (2.78% in Q1; March 2.82%) and 58% NII growth indicate the post-merger balance sheet repositioning is translating into higher core profitability .
• Funding mix upgrade: Cost of deposits fell to 2.66% with NIB % at 27%; management continues to run off higher-cost deposits and brokered CDs, supporting NIM trajectory .
• Costs tracking ahead: Noninterest expense down sharply to $210.5M; FDIC assessment expected to ease across 2024; systems conversion/facilities actions drive back-half savings .
• Credit normalized yet well-reserved: NPLs rose to 0.57% of loans largely on office/retail CRE and CIVIC; ACL/loans increased to 1.26% with additional credit protections (e.g., credit-linked notes on SFR) .
• Capital/liquidity solid: CET1 10.12%, total risk-based capital 16.43%, liquidity 2.4x uninsured deposits; book/tangible book per share increased sequentially .
• Execution levers intact: Multiple ways to reach 4Q24 ROA/ROTC targets (funding cost reductions, NIB growth, expense saves, potential CIVIC monetization); preferred redemption not needed to hit targets .
• Near-term catalysts: Continued NIM improvement, BTFP repayment in Q2, visible deposit mix gains, and back-half cost saves should be key stock narrative drivers as management reaffirms 4Q24 profitability targets .

Note: All document-derived figures are cited per cell or bullet. S&P Global consensus was unavailable at time of request; estimate comparisons are therefore omitted.