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DATE

  • Thursday, July 24, 2025, at 1 p.m. EDT

CALL PARTICIPANTS

  • President and Chief Executive Officer — Jared Wolff
  • Chief Financial Officer — Joe Kauder
  • Chief Investor Relations Officer — Ann [last name not provided]

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TAKEAWAYS

  • Pretax, Pre-Provision Income: Pretax, pre-provision income grew 6% quarter over quarter, supported by revenue growth exceeding a slight rise in expenses.
  • Total Loan Growth: Achieved 9% annualized loan growth, with broad-based commercial loan production driving the increase.
  • Commercial Real Estate Loan Sale: Engaged in sales process for $507 million, with expected proceeds net of reserve release of 95%; $30.4 million sold, $476.2 million now held for sale.
  • Tangible Book Value Per Share: Grew for the fifth consecutive quarter, reaching tangible book value per share of $16.46.
  • Share Repurchase: Repurchased $150 million of common stock early in the quarter, equating to about 6.8% of outstanding shares; $150 million remains authorized.
  • Loan Production: Volume for the quarter, including unfunded commitments, was $2.2 billion; Originations totaled $1.2 billion.
  • Net Income: Reported net income of $18.4 million, or $0.12 per share; adjusted net income of $48.4 million, or $0.31 per share.
  • Loan Yield on New Production: Loan yield on new production averaged 7.29%, up from 7.2% in the prior quarter.
  • Reserve Levels: Allowance for credit losses (ACL) stands at 1.07% of total loans; total economic ACL coverage rises to 1.61% when including credit-linked notes and purchase marks.
  • Credit Quality Metrics: Nonperforming, classified, and special mention loans declined by 19, 46, and 115 basis points, respectively, from the prior quarter.
  • Net Charge-Offs: Excluding the loan sale impact, net charge-offs were 12 basis points of total loans.
  • Core Deposits: Average core deposits increased 5% annualized; spot cost of deposits at quarter end was 2.12%.
  • Net Interest Income: Rose 3.4% quarter over quarter to $240 million, primarily from loan growth and higher yields.
  • Net Interest Margin (NIM): Net interest margin expanded to 3.1%, with spot NIM at quarter end of approximately 3.11%.
  • Noninterest Income: Total noninterest income was $32.6 million, down 3% from the prior quarter, attributed to mark-to-market changes in certain investments.
  • Noninterest Expense: Noninterest expense was $185.9 million, an increase of $2.2 million quarter over quarter, below the $190 million to $195 million quarterly target range.
  • Provision for Credit Losses (Core, Ex-Loan Sale): Provision for credit losses (core, ex-loan sale) was $12.3 million, up $3 million from the prior quarter; adjustments made for updated forecasts and higher reserves on office loan portfolio.
  • Effective Tax Rate Outlook: Expected to be approximately 25% going forward after a one-time $9.8 million noncash tax expense due to state apportionment changes, with the new rate applicable beginning in 2025.
  • Loan Book Mix: Warehouse, fund finance, lender finance, and residential mortgages comprised 29% of total loans, up from 20% a year ago.
  • Loan Maturities/Repricing: $1.8 billion of loans maturing or resetting through the end of 2025 with a weighted average coupon rate of 5%.
  • Multifamily Portfolio: Represents 26% of loans, with approximately $3.2 billion set to reprice over the next two and a half years at a weighted average rate expected to provide a repricing benefit.
  • Management Outlook: Guiding to mid-single-digit asset and net interest income growth for the back half of 2025, and expects to achieve margin target range in Q4.

SUMMARY

Banc of California (BANC 3.67%) management executed a strategic sale of commercial real estate loans at an estimated 95% of book value, optimizing the balance sheet and supporting a material reduction in credit risk exposure. The bank’s origination activity was diversified, with growth in lender finance, fund finance, and single-family residential loans contributing to portfolio remixing and higher yields. Management signaled flexible deployment of the share repurchase program and indicated that capital and liquidity remained resilient after significant buybacks. Expense discipline was observed, with actual costs tracking below guidance despite increased infrastructure and staffing investments. Noninterest income variability was managed, and margin expansion was achieved through effective asset repricing and funding mix. The credit profile improved, as evidenced by declines in nonperforming, classified, and special mention loans. A measured approach to additional provisioning was noted. Company leadership characterized prospective credit costs as stable, projected further margin and earnings growth in the second half of the year, and highlighted continued loan and deposit momentum, underpinned by targeted market share gains and digital initiatives.

  • Wolff stated, Each 25 basis point cut provides $6 to $7 million in annual pretax income from a reduction in ECR.
  • Kauder said, “We expect our effective tax rate to be approximately 25% [going forward after the noncash charge this quarter].”
  • Credit improvement was attributed to the exit of large, low-leasing, well-collateralized construction loans, which had become classified due to slow lease-up.
  • Commercial deposit gathering remained competitive, with spot cost increases in select categories offset by declines in CDs and savings.
  • The digital account opening platform, launching this quarter, is positioned to drive nationwide deposit growth and complement branch-based expansion.
  • Management sees margin expansion driven mainly by loan repricing and strong new loan yields, rather than further cost of funds reductions, as recent funding competitiveness persists.
  • While M&A market interest was acknowledged, management underscored a strong preference for continued organic growth given the current franchise value and momentum.

INDUSTRY GLOSSARY

  • ACL (Allowance for Credit Losses): A reserve set aside on the balance sheet to absorb potential future loan losses, inclusive of management’s forecasted losses under current expected credit loss (CECL) accounting.
  • ECR (Earnings Credit Rate): A non-cash rate applied to business deposit balances that offsets certain bank service charges, directly affecting noninterest expense on rate-sensitive deposits.
  • HFS (Held for Sale): Classification for loans or securities the bank intends to sell rather than hold, with valuation adjustments made to reflect estimated net realizable value.
  • Net Interest Margin (NIM): The ratio of net interest income to average earning assets, indicating the bank’s core profitability from lending and deposit-taking activities.
  • NIB (Non-Interest-Bearing): Deposit accounts that do not pay interest, generally checking accounts, valuable for institutions due to their low funding cost.
  • CECL (Current Expected Credit Loss): A provisioning standard requiring banks to estimate expected credit losses over the life of a loan at origination or acquisition.
  • Mini perm: A type of short- to medium-term commercial real estate loan used to bridge operations until long-term refinancing is available.
  • Warehouse lending: Short-term funding provided to mortgage originators to finance residential mortgages prior to their sale or securitization.
  • Non-QM (Non-Qualified Mortgage): A home loan that does not meet the Consumer Financial Protection Bureau’s standards for a qualified mortgage, often held for investment and not sold to government-sponsored agencies.

Full Conference Call Transcript

Jared Wolff: Thanks, Ann. Good morning, everyone, and welcome to our second quarter call. We delivered a strong second quarter with meaningful growth in core profitability. Pretax, pre-provision income grew 6% quarter over quarter as solid revenue growth outpaced a slight increase in expenses. Our core earnings drivers, including loan growth, net interest margin expansion, and disciplined expense management, all remain firmly on track with our strategy. We achieved our third consecutive quarter of robust broad-based commercial loan production, which helped drive total annualized loan growth of 9%. Our team also continued to make steady progress in attracting new business deposit relationships.

During the quarter, we opportunistically engaged in the sales process for approximately $507 million of commercial real estate loans, which we have transferred to held for sale with expected proceeds net of reserve release of 95%. We expect the strategic sales of these loans will further optimize our balance sheet and contribute to delivering high-quality, consistent, sustainable earnings growth for our shareholders. This move also helped to drive improvement across our credit quality metrics for the quarter. We will touch on more about the loan sales later in the call. Our strong second quarter earnings helped us achieve our fifth consecutive quarter growing tangible book value per share to $16.46.

Our balance sheet remains strong with capital and liquidity at healthy levels. As mentioned on our first quarter call, we opportunistically repurchased $150 million of common stock or about 6.8% of our shares early in the second quarter. We have $150 million remaining in our buyback program, which can be used toward both common and preferred stock. We will continue to be prudent with the remainder of this program and use it opportunistically. And while our outlook may change, we do not expect to deploy all this remaining capacity in the near future. Second quarter loan production, including unfunded commitments, was $2.2 billion and included our highest level of originations of $1.2 billion since the closing of our merger.

Strong production levels drove 9% annualized growth in our total loan portfolio, while core held-for-sale loans were up 12% annualized. Growth was broad-based, led by continued momentum in lender finance and fund finance originations, and complemented by expansion in our purchased single-family residential portfolio. Our loan origination volumes reflect strong execution by our team and our ability to capitalize on our attractive market position. Partially offsetting this growth was a decline in construction loans due to payoffs and completed projects, some of which moved to permanent financing in our CRE portfolio, and some of which were included in the loan sale. We have remained disciplined in our pricing and underwriting standards.

The rate on new production averaged 7.29%, which was up from 7.2% in Q1, and that helped drive expansion in our average loan yields and our margin. You have heard us emphasize many times now that proactively managing credit risk and quickly identifying any credit concerns is a key priority for us. In accordance with that philosophy, we took decisive action during the quarter to opportunistically sell the commercial real estate loans that I mentioned earlier. While many of these loans are money good and well collateralized, they exhibited characteristics that contributed to credit migration that were not guaranteed to resolve in the near term.

Rather than have the potential overhang while we continue to work through the credits, we took the opportunity to reset and align our balance sheet with our focus on growing high-quality, consistent, and sustainable earnings. Mainly driven by the loan sale process, our second quarter credit quality metrics improved meaningfully from Q1, but otherwise, our credit was stable. Nonperforming loans, classified loans, and special mention loans as a percentage of total loans declined by 19, 46, and 115 basis points, respectively, from Q1. Second quarter net charge-offs, excluding the impact from the loan sale actions, were just 12 basis points of loans. Proactive credit risk management will remain a top priority as we strive to maintain strong credit quality metrics.

Our headline reserve level is at 1.07% of total loans, and our economic coverage ratio is substantially higher at 1.61% of loans. This incorporates the unearned credit mark on the Banc of California loan portfolio acquired in the merger as well as coverage from our CreditLink notes. Our investor deck does a good job of laying out how our loan portfolio has changed over the last 12 to 18 months and how our coverage ratios reflect that migration to a much higher percentage of loans with short duration and no historical losses in warehouse lender finance and fund finance. Along with SFR, these loans now account for almost 30% of our loan book.

While some uncertainties remain in the broader macroeconomic environment, we have been encouraged by the resiliency of the market and continued strong demand from our clients for our products and services. We remain confident that the great work of our team members, our continued execution, strong balance sheet, and differentiated market position will drive growth and profitability, tangible book value per share, and long-term value for our shareholders. Now I will hand it over to Joe who will provide some additional information, then I will have some closing remarks before opening up the line for questions. Joe?

Joe Kauder: Thank you, Jared. For the second quarter, we reported net income of $18.4 million or $0.12 per share, and adjusted net income of $48.4 million or $0.31 per share. Adjustments this quarter included $20.2 million after-tax provision expense related to the sales process of $507 million of commercial real estate loans with expected proceeds net of reserve release of 95%. During the quarter, we completed sales totaling $30.4 million with the remaining $476.2 million transferred to held for sale.

The loss we took during the quarter through the provision line item is the net mark on the loans that were either sold or transferred to held for sale and reflects our estimate of market value based on either active bids or other market inputs. We anticipate $243 million of loan sales to close in 3Q and expect the remaining $233 million of loans to be sold over the next several quarters. We also recorded a one-time noncash income tax expense of $9.8 million primarily related to the revaluation of deferred tax assets following changes to California state tax apportionment methodology. This change in methodology positively impacts our tax rate going forward and retrospective to the beginning of 2025.

However, the day one impact of the lower tax rate on our deferred tax asset position resulted in the negative charge. Going forward, we expect our effective tax rate to be approximately 25%. Moving to our core results, net interest income of $240 million was up 3.4% from the prior quarter, driven by strong growth on loan balances and higher loan yields. Net interest margin expanded in the quarter to 3.1%, driven by a three basis point increase in average loan yields to 5.93%. The increase in loan yields was due to the full quarter impact of strong growth in higher-yielding loans.

The rates on new loan production averaged 7.29%, and total loans grew by 9% annualized, led by growth in lender finance, fund finance, and purchasing of family residential loans. As of quarter-end, our spot loan yield was 5.94%. Total cost of funds of 2.42% remained flat quarter over quarter as a 41 basis point decline in average cost of borrowings to 4.93% was offset by a one basis point increase in cost of deposits to 2.13%. The decline in borrowing cost was driven by the redemption of $174 million of 5.25% senior notes, which we replaced with lower-cost long-term FHLB borrowings.

Average core deposits were up 5% annualized, and the average cost of deposits increased slightly as the need to fund strong loan growth drove a mix shift towards interest-bearing deposits. While we continue to steadily grow the number of new NIB business relationships, the average balance per account has been under pressure, which we believe is attributable to both seasonal and macroeconomic factors. As of June 30, our spot cost of deposits was 2.12%, and our spot net interest margin was approximately 3.11%. The interest rate sensitivity of our balance sheet net interest income remains largely neutral as the current repricing gap is balanced when adjusted for repricing betas.

From a total earnings perspective, however, we remain liability sensitive due to the impact of rate-sensitive ECR costs on HOA deposits, which are reflected in noninterest expense. We expect fixed-rate asset repricing to continue to benefit NIM as we remix the balance sheet with high-quality and higher-yielding loans. We have $1.8 billion of total loans maturing or resetting through the end of 2025 with a weighted average coupon rate of 5%, offering good repricing upside. Our multifamily portfolio, which represents 26% of our loan portfolio, has approximately $3.2 billion repricing over the next two and a half years at a weighted average rate that will offer significant repricing upside.

Total noninterest income was $32.6 million, down 3% from the prior quarter, primarily due to mark-to-market fluctuations on CRA-related equity investments and credit-linked notes. Noninterest income remained in line with our normalized run rate of $10 million to $12 million per month. Noninterest expense of $185.9 million increased $2.2 million from Q1, remaining below our target range of $190 million to $195 million per quarter. The quarter-over-quarter increase was primarily driven by a $2.1 million increase in insurance and assessments, and a $1.19 million increase in compensation expense, which were lower in Q1 due to a one-time FDIC expense reversal related to prior periods.

In January 2025, we settled into the low end of the aforementioned range of $190 to $195 million as we increased comp expense and invested in our infrastructure to support growth. However, we do expect positive operating leverage to continue as higher expenses are expected to be more than offset by continued revenue growth. Excluding the impact of loan sales actions, our core provision for credit losses totaled $12.3 million, an increase of $3 million quarter over quarter. We added to the quantitative reserve to reflect updates to our economic forecast and also increased the qualitative reserve related to our office loan portfolio.

Our loan portfolio continues to expand, and our credit reserves remain well aligned with the risk profile of that growth. As Jared mentioned, we have seen meaningful shifts towards loan categories with historically lower losses, including warehouse, fund finance, lender finance, and residential mortgages. These lower-loss loan portfolios as a percentage of our total loans increased to 29% of total loans, up from 26% in Q1 and 20% a year ago. Under CECL, these portfolios require lower reserves due to the historically low loss content and shorter duration, and their growing share will continue to influence overall reserve levels.

Excluding these lower-risk categories, the remaining portfolio would carry an ACL coverage ratio of 1.44% compared to 1.07% for the total portfolio. Including the impact of credit-linked notes and purchase accounting marks, our total economic ACL coverage ratio stands at 1.61%, and we believe the assumptions and economic scenarios embedded in our ACL models remain appropriately conservative. Our 2Q results reflect the substantial progress we have made in successfully growing core profitability through our consistent and strong execution. We have continued to strengthen core earnings drivers, including high-quality loan growth, stable funding and deposit cost, net interest margin expansion, and prudent expense and risk management.

We remain on track with our 2025 guidance with tweaks to our outlook for margin and NIB percentage. We see good balance sheet and earnings growth continuing, with mid-single-digit growth in average earning assets for the back half of the year. We also expect mid-single-digit increases in quarterly net interest income in the back half of 2025 and achieving our margin target range in Q4. As we look forward to the second half of 2025, we expect to continue to drive consistent and meaningful growth in our core profitability. And at this time, I will turn the call back over to Jared.

Jared Wolff: Thanks, Joe. Our second quarter results clearly demonstrate our success in pivoting our business toward profitable growth following our substantial transformation last year. We are growing adjusted EPS at a double-digit rate quarter over quarter. Our loan engine is working, and we are moving out credits to try to eliminate noise for the benefit of future earnings. We are expanding our lending relationships in areas that have historically lower areas of loss where we have some great niches. We are bringing new relationships to the bank. Our loan-to-deposit ratio has remained very comfortable. We have been opportunistically growing all types of deposits to fund our loan growth.

NIB did not expand this past quarter, as I have shared in the past, it is not necessarily a straight line. We are doing the right things the right way for the long term, and we have confidence that our results will pay off over time. To that end, we have continued to expand market share in key attractive markets. Particularly, California is now the fourth largest economy in the world. We are continuing to capitalize on the dislocation in California's banking landscape and are the go-to business bank for people, including clients who want to bank with us and talented individuals who want to join our team.

Our teams execute with consistency and discipline, bringing new deposit relationships and originating high-quality loans while maintaining prudent operating and risk management practices. We continue to move the ball down the field every day, growing our profitability, scaling our business, and providing high-quality, reliable earnings growth. We are optimistic about our growth trajectory for the remainder of 2025, and indeed, our estimates for 2026 are only growing higher. I want to take a moment to thank our exceptional team at Banc of California. Their unwavering commitment to our clients, communities, and our shareholders is remarkable. I am very proud to work alongside such a dedicated and talented team. Thank you. And with that, let's open up the line for questions.

Operator: We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. At any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. And your first question comes from Matthew Clark with Piper Sandler. Please go ahead.

Matthew Clark: Hey, good morning, everyone. Thank you. Morning. Just on the loan sales, you know, the loans sitting in held for sale, looks like they are kind of ranging in that 5.3% to 6% yield range. I guess, what is the plan on the other side of the balance sheet? What do you plan to unwind and at what rate?

Jared Wolff: Matthew, I am not sure I fully understand what you are asking. When you say on the other side of the balance sheet, are you talking about the deposits that we plan to maybe just clarify a little bit?

Matthew Clark: No. With the loan sales, I assume you are going to unwind some wholesale funding as well.

Jared Wolff: Well, we have been growing. Right? We have been growing pretty fast. And so I do not know that we have kind of match-funded it that way. We also are providing some leverage on those loans that we are selling. And so we do not need there is not a really a one-to-one relationship. I will let Joe comment on that as well to see if there is anything specific that I missed.

But let me just say as well, you know, I got a couple of questions offline about what we sold and whether it was a rate mark or a credit mark, and I would say that I think we were pretty pleased with a 95 price for the loans. I think that reflects probably, you know, it is truly in the hands of the buyer to decide whether, you know, what the purpose of their price was. But from our perspective, it was really more rate than credit. As I mentioned in my comments, we just did not want to hold the loans on our balance sheet for as long as we would have to.

Many of them were, close to $300 million were kind of construction projects that were completed. We had appraisals as is that were above the value of our loan substantially. But they were taking much longer to lease up. And so there are private credit out there who have much longer duration and willing to work with it, and we provided them some leverage and, you know, the rates on the notes themselves, the underlying notes allow them to get a good return. And so we feel good about the 95% that we got. Specifically to your question about funding that $500 million, Joe, is there anything specific that we are letting go related to that $500?

Joe Kauder: No. I think you hit the nail on the head. We are providing, you know, we are providing we intend to provide leverage on these transactions, which will, you know, kind of offset some of the balance sheet impact. For example, the one deal that we closed in by June 30, it was a $30 million tranche. Provided leverage in the 80% to 85% range. Just to give you an example.

Matthew Clark: Got it. Okay. That is helpful. And so your loan growth guide, is that kind of all in, or is that just HFI?

Jared Wolff: That is held for investment.

Matthew Clark: Okay. And then on the expense run rate, guide, the kind of low end of the range of $190 to $195, came in well below that this quarter. Sounds like you, you know, you continue to make investments. But on the ECR side, I know you are not assuming any rate cuts in your outlook, which obviously would help. But it did look like the rate on those ECRs did come down. Just can you speak to what you did there and you know, what your plan is going forward?

Jared Wolff: I mean, we are just we work it hard. I mean, we are trying to manage those costs as much as we can. On the ECR, you are right. We do not have any cuts in our forecast. Each 25 basis point cut provides $6 to $7 million in annual pretax income from a reduction in ECR.

Joe Kauder: And, you know, the ECR shows up really the quarter after the cut is announced since, you know, you are not going to get the full benefit in the quarter. So the impact of two cuts fully baked in a quarter would be reducing ECR costs by about $3 million per quarter.

Jared Wolff: So it is there is a lot of benefit there for us should rates get cut, although we do not have it in our forecast.

Joe Kauder: And, Matthew, the decrease, we do work it hard. Jared is exactly right. Some of that decrease was just the timing of the way the rate cuts that happened at the '24 flowed through the way some of the contracts work, there is a little bit of a delay. Do we get the benefit? So that was, you know, full quarter benefit of some of those rate cuts in 2Q.

Matthew Clark: Understood. Thank you.

Operator: And your next question comes from Ben Gerlinger with Citi.

Ben Gerlinger: Hi. I would like to beat a dead horse queen. For the loan sale, I know you guys gave quite a bit of commentary, and there is it is kind of broken up. The remaining $233 over the next several quarters, is the is the like, do you have a buyer? Do and this is the timing, or is it just held for sale hoping to find a buyer?

Jared Wolff: We do not we have not identified buyers for every we had bids on all of it. Some of the stuff we decided to put out for sale rather than sell it to an individual buyer. And some, we actually have contracted or is we are drafting the contract now. We have determined who the buyer is or we have drafted the contract, and, you know, we will sell it. But we wanted to provide ourselves more time to sell some of the other ones. But we think our we think our mark is you know, look. We marked it at 95. We think that is conservative. We might end up at 96.

We could end up at 94, but I think it is the range is right. It is going to be around there.

Ben Gerlinger: Gotcha. Okay. And then it looks like a majority was construction. Were these bank loans or potentially Pac West loans? I am just kind of curious who underwrote them originally.

Jared Wolff: Yeah. So they were I do not the reason I do not want to differentiate is because as a company, we have worked really hard to make sure that we all own everything today. And so, let me just say that these were larger loans, I am not sure we would do these size loans again. You know, two of the loans were industrial construction. Out of out of California. They are projects that have really big sponsors behind them. They have we have as is appraisals that are well above our loan value. There is tons of equity in the projects. But they are competing for lease up, and it was going to take a while.

And so we while we were not going to lose any money, they were going to sit there as kind of, you know, classified loans. And we just took the opportunity to move them off our balance sheet. We did not think we were going to lose money, but why not why not free up the capital and use them for something else? So that is kind of a common theme with a lot of the loans that we let go.

Ben Gerlinger: Gotcha. That is helpful. And then if I could sneak one more in, expenses came in under guide again.

Jared Wolff: Yeah. You guys kind of reiterated the range. Is it should we expect to tick up or is it conservatism? I am just kind of curious. Like, you are beating your own guide, but are you are you previewing expenses going up? Yeah. Joe, you want to address that? Yeah.

Joe Kauder: Yeah. I think we have yeah. As I said in my remarks, we do expect to settle in the lower end of the range $190 to $195 range. And, really, it is just, you know, making investments both comp and infrastructure really to support our growth going forward. And we were, you know, we were pretty disciplined in the in the first half of the year. In terms of the timing of some of that. But, you know, it is with the plans that was always a little back end loaded. So we will I think we shall we will see a little bit of increase here in the back half.

David, I will give you the positive operating I will give you a little more color there. I mean, so through last year, I was approving every single hire in the company. Just I wanted to see it. I want to make sure it was necessary. I wanted to challenge people. This year, we gave all of our business unit leaders and all of our function leaders, we gave them their own budget. And said, go hire whoever you want. Just stay within your budget. And if you are growing faster, you, you know, you can have more expenses. If you are growing slower, then we expect your expenses to be down.

Teams are just doing a really good job of managing their budgets. Our revenues are higher but their expenses are coming in, and it is some of it is timing. And some of it is just discipline. And so the reason we are coming in lower is not because we intended to, really. It is because our teams are doing a really good job. So some of it is timing.

Ben Gerlinger: Got it. That is helpful. Thank you.

Operator: And your next question comes from Jared Shaw with Barclays. Please go ahead.

Jared Shaw: Hey, guys. Good morning. So should we should we assume that there is no more sort of loan restructurings coming out of the portfolio and that you are you are focused on growth opportunities from here almost exclusively?

Jared Wolff: I think that is right, Jared. We certainly tried to take as much as possible in the quarter. What I do not want to say is kind of we have cleared the decks because stuff always comes up. Right? You are know, that is just going to bite you. So we have to leave space for the idea that something else could pop up somewhere. But we certainly tried to take the opportunity to make this a one-time event. And, hopefully, it is.

Jared Shaw: Okay. Alright. And then on the on the growth, I mean, you know, you guys are now the hometown bank or one of the hometown banks of a really strong large economy. Are you is your growth optimism, is that coming from taking market share? Are you just seeing your customers be a little more optimistic and starting to do more work? What is what is sort of driving that? That growth optimism? Yeah. It feels like the split is 50% existing customers you know, and 50% new relationships to the bank. Our teams are working really hard to bring in new relationships. Then our existing customers are out there just doing more stuff.

In the in the lender finance area, that is all new customers to the bank today, but they are old relationships that our lender finance team had. You know, fund finance and warehouse are growing. They are bringing in new logos, and new clients and there is some expansion from existing clients too. In our commercial and community bank, which is kind of our platform in California, our 80 branches plus Colorado and North Carolina. We are just things are going really well, and our teams are working really hard. We so far this quarter, deposits are way up. I just do not know if that is going to hold.

So when I when I talk to my comments about it being timing, that is kind of why. You know? You are you are you are seeing the loan growth. Okay. Maybe deposits are not there. You are funding it with, you know, a different mix that you got. You are pulling in wholesale, but that is temporary. When good deposits come in, you will let it go, and you will reduce your costs. We want to certainly be there to fund the loan growth and keep our loan-to-deposit ratios in check. And, we have a lower wholesale funding level than historically the bank had, so we have the flexibility to do that.

I would say just in California, we seem to be growing our market share pretty meaningfully, though. It is it is pretty exciting to see what is going on here. Our team is really jazzed. Then if I could just sneak one more in, you know, I mean, with that backup, so you so you have improved the credit profile with you know, with this loan sale. You feel good about growth. Yeah. With your with your stock, at these valuations and, you know, below tangible book, would not you just be buying more stock here?

You know, it is something you know, you got a good price earlier on, but, I mean, you know, why not be a little more aggressive with the buyback? In the near term? We might. We might we might do that. There you know, I certainly do not expect stock to be a at these levels. I mean, we are growing pre pretax, pre-provision at a really good annualized clip. Core EPS is growing double digits quarter over quarter, and we see our earnings expanding going forward. You know, our NIM guide came down a little bit, but we are only doing that because we are we are growing, and we are acknowledging the mix shift.

And we do not have any rate cuts built in. So we are we are our internal numbers keep getting guided higher for earnings, which we feel really good about, and 2026 is going to be going to be a great year. And, obviously, we are ending we are know, our momentum in 2025 is really strong. Our loan volumes are really strong. So I do not expect our stock to be at these levels. But if it is, you know, we would not hesitate to do what is necessary while keeping an eye on our capital levels. We got to make sure our capital is within the right range.

And assuming it is, would not hesitate to be an active buyer. Great. Thanks.

Operator: And your next question comes from Andrew Terrell with Stephens. Please go ahead.

Andrew Terrell: Good morning. Morning. I wanted to ask a question around the single-family resi growth this quarter. I think in the prepared remarks, you mentioned some was purchased single-family. Do you have the dollar amount of what was purchased? And you just describe kind of the I mean, it sounds like and clearly growth is strong in other verticals. Just curious like what would drive the strategy of purchasing single-family here?

Jared Wolff: Well, we first of all, as I think I have mentioned in the past, Andrew, we only purchase single-family. We do not have a single-family origination platform. We have access to single-family through you know, we are we are a good-sized mortgage warehouse lender. We lend to nonbank lenders. Nonbank, you know, mortgage lenders. We are secured by the individual mortgages on all of those lines. So you know, we might have a $150 million line or a $75 million line that they are making $800,000 or $3 million mortgages. We are secured by each of those individual mortgages we are taken out by usually, it gets securitized or there is a forward purchase contract. But they are all hedged.

Or have a forward contract. So we see all those mortgages. We already like the credit, and we have the opportunity from time to time to buy those off the lines. We can give our warehouse borrower more capacity when we buy those credits. What we will do when we come into an agreement with them to buy those credits, we will give them more capacity on their line. We will not count that purchase against them so they have more freedom, which they appreciate. And then we get a good deal on the loans. The coupons right now on the single-family that we are buying is pretty good.

It is you know, we are getting stuff in, let me just say, around seven. And these are non-QM mortgages. They are often thirty-year fixed. Really high credit quality, really, you know, mid-700 FICOs, a lot of California, low debt to income, and importantly, these are owner-occupied loans, owner-occupied homes. They are not very low percentage of second homes or investor homes, which I think carry a lot more risk, you usually do not get paid from a coupon standpoint. So, we like that profile. We do not really have a lot of exposure to consumers being a business bank.

And therefore, we thought that it would be healthy to have some exposure to consumer and this is the way that we chose to do it. We have had a very strong history with the mortgages, so we know how they perform. And, they have held up really well, and we like the risk-adjusted return. We also buy them from partners that we have. It could be, you know, a large national bank that originates mortgages and things like that. And every now and then, we will look at pools. But that is why we do it is because we think that is a good way to balance out our portfolio.

Also, warehouse has the ability to, you know, balloon up and down less so now with the size that we are, but it has in the past. And so having single-family that has got a little more duration on it is a hedge against kind of the warehouse portfolio, which could go up and down. So that is why we do it. In terms of the volume of single-family, in the quarter, and by the way, the resi production portfolio yield excuse me. Production yield in the quarter was 7.59. So I said seven. It is much higher than that. I was trying to be conservative. And, Ann, I think the number was around $450 in the quarter. Around $400.

Okay. Thanks, Joe.

Joe Kauder: Yeah. It is a little bit north of Warren. It was right around $400 in the quarter. Okay. And then and, Andrew, we are at 13 you know, the resident more is about 13% of our portfolio. You know, we could see that increasing a little bit, 14, 15%. I do not think we would be upset if it went up to 15%. And excluding the purchases, which were higher this quarter than prior quarters, we were still north of $700 million of production. I mean, we had a very, very strong production quarter. Our teams just did a great job.

Andrew Terrell: Understood. Okay. Thank you for all the color. I appreciate it. And then on the on the loans that were transferred or, yeah, transferred to HFS, $507 million, do you have how much of that was previously sitting in criticized? I am looking at the decline in criticized sequentially. It was a little bit less than that $507 figure. So just wondering if you had the criticized amount HFS.

Jared Wolff: We can get you that. I do not have it off the top of my head. Ann or Joe, would you just look that up?

Andrew Terrell: Okay. Thanks for taking the questions.

Jared Wolff: Yep. Thanks, Andrew.

Operator: And your next question comes from Gary Tenner with D. A. Davidson. Please go ahead.

Gary Tenner: Thanks. Good morning. Good morning. I wanted to go back to some of the commentary around deposits and the kind of cost this quarter versus last quarter. And I appreciate, Jared, the commentary around kind of the need to fund growth and kind of the timing of deposits versus loan growth. But on an absolute basis, the rate paid on interest checking and on money market moved up quarter over quarter. So just as we are thinking about the back half of the year, and certainly, you could pay that and still, you know, put loans on that or you know, accretive to the overall margin. I get that.

But just thinking about those kind of rates paid, do you think those still trend higher over the back half of the year? Is there a competitive dynamic that has made that has kind of stabilized? No. It is a it is a good question. So interest-bearing checking went up almost nine basis points in the quarter, and money markets went up about two basis points. CDs surprisingly went down by 13 basis points and savings went down by about seven basis points. So overall, we saw, you know, a little bit of an uptick in the cost of deposits. And it is very, very competitive right now.

I approve because I want to see we have a committee that approves pricing exceptions on deposits for relationships, and I get involved if there is a lending relationship and stuff like that. And so I am seeing the requests that are coming in. And our teams are doing a great job. It is more competitive than we have ever seen. And or I should say in a long time. We just have not seen this kind of, and so there is obviously a demand for liquidity out there. I think part of it is that there is less liquidity and a lot of demand for loans. And so all banks are kind of looking for the same stuff.

We are getting our share of loans better than others, I think, because we have a solution that really works and that is bearing itself out. And you are not going to grow deposits as fast as loans. You are just not going to do it. Unless it is a slow growth environment, and then you are going to outpace with deposits, which is what we did last year in anticipation of this year. So we saw that coming a little bit and prepared ourselves for it. Obviously, we think the kind of heat around deposits is going to slow down when rates come down.

If they come down, although we do not have it in our forecast, for some reason right now, the dynamics are really competitive. And we generally get some rate benefit. We you know, our teams do a good job of trying to hold deposits. We are seeing some you know, uptick in deposits. People are have money markets and they are waking up, believe it or not, that they were at 2%. They are like, hey. Why are not they at three and a half? We are trying to hold the line. And say, look. You know, we are not going to pay you four. Which some banks are absolutely doing.

We are going to try to keep it in the threes and, hopefully, the mid-threes. For those clients who have more rate-sensitive relationships. Not every deposit in the bank is, you know, is operating accounts. We want to have that, and we focus on that. And our teams are doing a great job. But as Joe also mentioned in his comments, we are tracking average balances. And average balances are actually down in accounts themselves. So if we are staying flat, we are kind of winning. Or if we are able to grow, great. But average account balances are down. People are not closing their accounts. Just liquidity is falling out of the system.

For some reason, and, hopefully, it comes back.

Gary Tenner: Appreciate that. And then as it relates to the loan sale and your comment about offering or providing back leverage, you know, for private credit buyers, etcetera, how much of the amount that you have scheduled to sell in the third quarter, how much of that do you think comes back to HFI just in a different part of the loan portfolio? I think you could assume, you know, 50% to 60% is probably fair. Could be could be 70%, but I do not know that it is going to be much about that. Hard to tell because some of the stuff is just going to go without leverage.

But, you know, we have relationships with private credit with nonbank lenders through our lender finance group, and our team, our chief credit officer, and our head of lender finance, and people on the lender finance team have great relationships, and they were able to suggest and bring in this stuff. Which I thought was good. We have it modeled that we are going to have more leverage than that, but I do not know that we are going to get there. So to be conservative, I would say it is Yeah. It is less. Okay. And then last question.

In terms of that loan transfer, you have talked about Just to Gary, just on that point, like, we do not need it because we are growing loans fast otherwise, and so it does not really matter to me either way. It is only a couple $100 million, but to be conservative, that is why we are saying it is less. But we certainly would be willing to offer it to the right to the right buyer. To interrupt you. Yeah. No. No problem at all. I just wanted to clarify one thing. You have talked about, you know, marking these at 95%.

But if you consider the charge-offs of $37 million specific to these loans, that is about that is almost 7.5%. So are you only thinking of the kind of incremental provision that went through the P&L this quarter? Related to the loan charge or transfer? We released the reserve as well. So the net amount is the 5% is the charge-off but then you have to add back the reserve that we held against loans that we released. Joe, am I do I have that math right?

Joe Kauder: Yeah. You have it right. There is also some small amount of past 91 fees and, you know, deferred fees on it as well, but I think Jared has it right.

Gary Tenner: Okay. Thank you.

Jared Wolff: Yeah. 2,091 never factors into my math. I need to brush up on that. Thank you.

Operator: Thanks, Gary. And your next question comes from Timur Braziler with Wells Fargo. Please go ahead.

Timur Braziler: Hi. Good morning. Morning. Looking at the margin outlook, in that kind of 3.20 to 3.30 4Q, that assumes some level of acceleration here in the back end of the year just talk me through what the driver is? Is that mostly on the fixed asset repricing side? Are you assuming some mix shift benefit with just the deposit growth earlier in the quarter? And I am just wondering if we do get some rate cuts, is that going to be beneficial at this point? Or is that be maybe a little detrimental towards that guide?

Jared Wolff: So rate cuts would be beneficial. Because we would immediately move down deposit costs and I think that is going to move a little bit faster. That it would because we are originating loans so fast. I think we are going to get, you know, loans do not move down as fast in from my perspective. And so think we will be okay there. In terms of I will let Joe comment on the components of our margin expansion. But before I do, one thing that we have not seen this year, which we expected to see, was accelerated accretion.

And that can have, you know, a meaningful impact on our margin, and we have not seen any really at all even though we saw a good amount last year. So, if we get rate cuts, we are going to see accelerated accretion well, which is going to help our margin. But that is not what we have planned here. So, Joe, what is the how would you describe kind of where we see margin expansion coming?

Joe Kauder: Yeah. The margin expansion is primarily coming on the loan side. So, you know, we are as you as we showed in our remarks, we are in the deck, you know, we are putting large amounts of loans on at very good rates. We also have a fair amount a you know, on our low we have the page where we talk about how much loans are rolling off. While those loans are rolling off at lower rates, that loan roll on, roll off is going to be have a significant benefit to us.

Then on the on the cost of deposits, our like, you know, we do not we are we are pretty conservative on that in our forecasting estimate. We are assuming it is going to be pretty flat. I would agree with Jared that we did not we you know, we have basically taken out any the accelerated depreciation or accelerated accretion in our forecast. So and we have no rate cut. So you know, we stand to benefit on if either of those two things would happen.

Timur Braziler: Okay. Thanks for that. And just looking again at the loan transfer, I am just wondering how much this accelerates the asset quality trends at the bank. As you are looking ahead, can you just give us a level of internal expectation for provisioning and charge-offs? Going forward? Yeah. Yeah.

Jared Wolff: I well, so this quarter, on a normalized basis, we provisioned, you know, a little over $12 million. And I think at the level of loan growth that we had, that is probably a fair estimate. Going forward. But the difficulty is that it really matters what type of loans that we are growing. I do not think fund finance is going to keep growing at the same pace. I think we are going to get more of traditional commercial loans out of the commercial community bank. And so those are going to carry a waiting that is a little bit higher.

And, therefore, I think that $12 million is probably Joe, is that kind of where we are we are guiding to, $10 to $12 million a quarter? On the provision?

Joe Kauder: Yeah. A little bit at the low end of that. I think we are you know, right in the middle right in middle of that.

Jared Wolff: 10 to $12 million is kind of the fair estimate there. Yeah. We certainly feel good about the opportunity that we have ahead of us. On the loan side. It seems to be working right now, and our teams are doing a great job.

Timur Braziler: Okay. And then just last for me, we have seen a frenzy of kind of M&A conversation reenter the regional bank here in recent weeks. I am just wondering, you guys are not really the only game left in town in Southern California. I am just wondering how you guys are thinking about maintaining independence here and maybe what considerations would be needed in order for you guys to consider partnering with a larger institution?

Jared Wolff: Well, what I am really proud of is how hard our teams are working at growing the bank organically. And we are doing that. And we have a huge opportunity in front of us to grow this bank organically. I mean, we are showing it. Right? And so I think the bar is very high for us. But we are a public company. We are out there every day. And, I think it will be interesting to watch how these dynamics change. Over the next several quarters and over the next twelve months. I mean, there is a lot of noise out there, I think the environment is very frothy right now. The regulatory environment is turning favorable.

From an M&A standpoint, and I think that, you know, people are excited about that. You know, I would expect us to have the opportunity to go buy somebody when we have a normal normalized, multiple on our stock, which I expect to get there soon as a reflection of our consistent growth in earnings. And, you know, we are building up tangible book value pretty fast. And as you point out, we have kind of we have got a very valuable franchise here in California. We are sitting here at $35 billion in assets, the largest independent bank. Really, in California. That is not you know, that is not focused on a niche.

I think East West might be considered a little bit more niche y. They are a tremendous bank. But not for not for all types of, partners. And so we are really pleased with what we got here, and we are just going to keep our head down and keep working. And I think things will take care of themselves.

Timur Braziler: Great. For the questions. Thank you.

Operator: And your next question comes from Christopher McGratty with KBW. Please go ahead.

Christopher McGratty: Oh, great. Thanks. Jared, just more of a big picture question for you. The 13 ROE that has been out there and the timing you know, still you know, in the future. Interested in your just giving you the mic for a minute and just, you know, the takes and how you get there, what kind of environment does that look like? You know, obviously, there is a numerator and denominator impact. But any update, that would be great. Thanks.

Jared Wolff: Yeah. So I do not have a date to put out there as you can imagine. But I think what we are doing right now growing core earnings at a pretty fast clip is going to result in that happening, sooner rather than later. We keep growing tangible book value. But we are growing earnings faster. And, we are going to be efficient with our capital. To make sure we are carrying the right amount want to make sure that we have a good return on our capital for our shareholders.

So I do not know if there is anything specific that you would want me to answer regarding that, Chris, other than when I look at our earnings profile, you know, we keep pushing up what we have internally as our forecast quarter over quarter and year over year because it is just it seems to be working right now. I feel like our pace of growth is going to expand quite a bit given, how quickly you know, now our earnings are probably going to expand. You know, we are getting some real operating leverage. Our earnings are growing faster than our revenues. Because our expenses are in check. And so I expect that to continue.

Operator: And your next question comes from David Feaster with Raymond James. Please go ahead.

David Feaster: Hey. Good morning, everybody.

Jared Wolff: Morning.

David Feaster: I just wanted to follow-up maybe on the growth side and some of your comments there. I mean, obviously, the increase in your production. Could the David, can I pause you just for one second? I apologize. Yep. Chris, if you are still on, I do not know if you got cut off too early and if you had another question. So please just jump back in the queue. If you are still on, and we will come back to you after David but maybe you are done. Sorry to interrupt you, David.

David Feaster: Oh, it is okay. Yeah. So shifting gears back to kind of the growth side. I mean, the increase in production is extremely encouraging, and especially with the rates that you guys are getting. You know? And just first of all, I am kind of curious how the pipeline shaping up heading into the third quarter and how the complexion of the pipeline is. You touched on maybe seeing a lit a bit less opportunity in the fund finance side. Just kind of curious how the complexion of the pipeline is shifting as well.

Jared Wolff: Yeah. We are seeing so in the quarter, kind of the breakdown, we had, about half as much multifamily in the second quarter as we did in the first quarter. But CRE kind of bridge lending was up. Construction was kind of flat. This is production. Obviously, we had a big uptick in resi. You know, venture was up quarter over quarter. Warehouse was flattish. Equipment lending was kind of doubled quarter over quarter. Fund finance was just another strong production, and lender finance was just another strong production. I would expect lender finance to continue. Fund finance, I think they had. They are maybe hitting the high watermark here, so that might come down a little bit.

Warehouse, I think, has room to expand. And then just general commercial, you know, and good lending from our commercial community bank, I expect to pick up here. We are seeing some traditional mini perms and things like that seem to be taking hold now. If rates come down at all, I think you are going to see even more lending. I think people are holding out a little bit. But it is pretty broad-based, David. I have been very happy with what our teams have been doing. I really, really have.

David Feaster: That is great. And maybe shifting gears back to deposits. I mean, you have alluded to the competitive landscape for deposits. I am curious where do you see the most opportunity to drive core deposit growth? Are there is there any segments that you see more opportunity? I know you guys are always working to drive NIB and core deposits. You know, we have talked in the past even about growing ECR deposits potentially. I am just kind of curious where you are focused on today and where you see the most opportunity.

Jared Wolff: So our teams across the bank are focused on bringing in business relationships where we can serve them better than where they are being served now. And there is still the opportunity to bring in, and we are being successful here. Clients that ended up at US Bank or ended up at, well, at JPMorgan from banks that have been acquired or kind of went under. And those are big targets for us, and we are, you know, we are not hearing a lot of people who are a midsized client who are really happy with the transition to JPMorgan. They are a great competitor for and great bank for many clients, but they cannot be everything to everybody.

And so, you know, we still see a lot of opportunity there. And then from a niche perspective, you know, every single one of our business units is focused on bringing in deposits. Even if they have not in the past. We are about to launch this quarter. We have a new digital platform for onboarding deposits digitally. And, through Salesforce. And that digital account opening goes live, it is going to give us even more capacity to bring in deposits, nationwide for clients that want our services. So, you know, traditionally, when you are doing an SBA client, we have a nationwide platform for SBA. We ask for the deposits.

We get deposits, but it is not as easy if, you know, there is not branches nearby and things like that. And but this digital account opening is going to really accelerate some stuff for us, so we are excited about that. And I think, that is going to go really, really well.

David Feaster: Okay. That is great. And then maybe just last one. You know, touching on the credit side, exclusive of loan transfer. Look. The past couple quarters have been a bit noisy. You guys have been very proactive. You know, managing and addressing potential issues. I am just curious, you know, exclusive of the transfer like, is there anything on the credit side that you are seeing that you are cautious on, or do you think the kind of the active management in the is like, the worst is behind us, and we should see pretty solid credit leverage going forward.

Jared Wolff: I really believe that, David. I think that we got ahead of it. As I as I suggested we would, and we proactively moved this stuff out. I do not see any big warning signs for me. These are some pretty large credits that we were sitting on our balance sheet that we were able to move away. And I give our team all the credit for proactively, you know, coming up with this solution, working through it, was a lot of work. The quarter, and they did a phenomenal job with a phenomenal result. And so I feel really good about where we are. Stuff pops up, though. You know? It does.

And, you know but I feel like the things that we were most concerned about we have had now the opportunity to move. And that feels really good. You know, our charge-off rate was 12 basis points, I think, excluding all this stuff, which was low. And I think our ratios now are pretty healthy, and I certainly feel good about our coverage. From a from a from a reserve standpoint. So feel really good about where we are.

David Feaster: Terrific. Alright. Thanks, everybody.

Jared Wolff: Thank you very much. Appreciate it.

Operator: This concludes our question and answer session and today's conference call. Thank you for attending today's presentation. You may now disconnect.