Banc of California Inc (BANC) 2023 Q4 法說會逐字稿

Hello and welcome to Banc of California's fourth quarter earnings Conference Call. (Operator Instructions) Today's call is being recorded and a copy of the recording will be available later today on the company's Investor Relations website.

Today's presentation will also include non-GAAP measures. The reconciliation for these and additional required information is available in the earnings press release, which is available on the company's Investor Relations website. The reference presentation is also available on the company's Investor Relations website.

Before we begin, we'd like to direct everyone to the company's safe harbor statement on forward-looking statements included in both the earnings release and the earnings presentation at this time, I'd like to turn the floor over to Mr. Jared Wolf, Banc of California's President and Chief Executive Officer.

Good morning. Welcome to Banc of California's fourth quarter earnings call Joining me on today's call are Joe Kauder, our CFO, and Bill Black, our Head of Strategy.

Our investor presentation, along with our earnings release, were designed to provide a great deal of information given the unusual nature of the fourth quarter, which was impacted by the closing of the merger and several one-time items related to our balance sheet repositioning actions, we aren't going to do a detailed walk-through of the changes in various line items from the prior quarter instead will utilize the time on our call today to introduce the new Banc of California provide an update on the progress we have made on the balance sheet repositioning and lay out the timing for our integration and provide insight into the key financial metrics for Q1 and beyond. We'll be happy to answer any specific questions to our fourth quarter results later in the call.

I'm truly thrilled that we delivered on so many of the key objectives that we outlined when we announced the deal, thanks to the hard work of our talented colleagues and advisers and the work of the regulators. We received approval for our transaction in record time and closed the transaction on the front end of our range. We delivered CET1 on top of our 10% target, notwithstanding a complicated rate environment and considerable moving items on the balance sheet, and we nearly hit $15 tangible book value after guiding to the mid to low $14 range when we announced Q3 earnings.

Many other key metrics were delivered in line as well.

Since closing the merger on November 30th, our team has been collaborating exceptionally well, and we've made excellent progress on the balance sheet repositioning actions that we indicated at the time of the merger announcement. As a result, we have created a well-capitalized, highly liquid financial institution with strong earnings power and a strong position in California as we envisioned today, we are the third largest bank headquartered in California based on assets with an enviable presence up and down the state clean credit and an exceptionally talented team of colleagues. We're focused on serving businesses with high touch service and tailored solutions that our target clients are getting from others. The closing of our merger reflected the relentless execution that Banc of California has become known for among the most notable items. We completed the planned sales of legacy Banc of California's 1.7 billion SFR portfolio, approximately 700 million of the multifamily portfolio and 1.2 billion of the investment portfolio as well as approximately 2 billion of Pac-West securities proceeds, along with the excess cash from Pac-West were utilized to reduce the higher cost wholesale funding.

On the balance sheet, we retired the 1.3 billion repurchase agreement with Atlas and have also continued to reduce the volume of higher-cost broker deposits, which are down nearly 4 billion from the time of the merger announcement through the end of 2023. We also repaid 2.3 billion of the bank term funding program balance choosing to retain a portion in order to maintain a higher level of liquidity and pare down and pay down higher-cost broker deposits. In total, we sold approximately 6 billion of assets with an average yield of 3.6% and paid down approximately 9 billion of wholesale funding with an average cost of 5.2%, contributing more than 90 million annually to the net interest margin disposal nearly all completed in the month of December.

As mentioned, we decided to retain a portion of our multifamily portfolio rather than selling the entire portfolio as originally planned. These are well-performing loans. And after the purchase accounting mark, they have attractive yields and an approximately four year effective duration that we determined were in our best interest to retain, given the outlook for potentially declining rates. As noted, we were able to execute on most of our planned balance sheet repositioning actions in a short period of time, strengthening our balance sheet and repositioning the Company for improved performance and enhanced flexibility. We will continue to evaluate all available options as we seek to optimize our balance sheet going forward. We have also started to see some of the potential benefits that we believed we would have following the merger with the strength of the restructured balance sheet and superior level of service that we can provide. We have started to bring back many of the operating deposit accounts of Pac-West clients that left the bank during the turmoil early last year, we also felt that there would be opportunities to further capitalize on our position as a talent magnet. We have already at already added a number of individuals and will look to continue adding exceptional banking talent that we believe can positively contribute to the profitable growth of our franchise in the coming years.

Now let me hand it over to Joe who will provide some additional financial information. And I'll have some closing remarks before opening the line for questions. Joe?

Thank you, Jared. I'm going to start by providing the spot rates for balance sheet items as of December 31, to provide some visibility to our net interest margin for the first quarter. As at December 31, 2023, our estimated spot rate for loan yields was 6.18%. Our estimated spot rate for the year of all interest earning assets was 5.63%. Our spot rate for the cost of deposits was 2.69%. Our spot rate for the cost of funds was 2.99%, and our estimated spot rate for our net interest margin was 2.75% compared to 1.69% for the fourth quarter and 2.15% for the month of December of 2023.

We are exiting the quarter with a much higher net interest margin due to the benefits of the merger and our balance sheet repositioning actions. And we expect our first quarter net interest margin to approach 3%. The expected increase in our net interest margin in the first quarter from December 31 spot rate will be driven by an approximate 15 basis point improvement in earning asset yields, driven mostly by loan repricing and new originations at higher rates currently between 7% and 8%, and an approximate 10 basis point improvement in cost of funds driven by the paydown of higher-cost wholesale funding and an increase in the relative percentage of lower cost core deposits.

Putting aside changes in interest rates, we expect to see a steady decline in our interest expense as we move through 2024, and continue to replace higher-cost wholesale funding sources with lower cost deposits acquired through our business development efforts. There are also some additional actions that we may take that could have a positive impact on our net interest margin, including additional asset sales and using off-balance sheet options for higher cost customer deposits.

At this point, we are moderately liability-sensitive and will benefit from a reduction in interest rates. Once we have completed our balance sheet repositioning, including reaching our internal targets for low cost deposits, we intend to manage the bank to a neutral or slightly asset-sensitive position.

Looking at non-interest expense, it will be reasonable to expect our first quarter 2020 for OpEx ratio to be in the range of 210% to 220%. As we have indicated previously, the expected cost savings from the merger will be phased in over the course of 2024. Major contributors to the cost savings include the completion of the systems conversion, which is scheduled to incur in May, a reduction in FDIC assessment expense, which we anticipate to start declining in the first quarter, and office consolidation with approximately 18% of the leases on PacWest offices expiring during 2024.

By the fourth quarter of 2024, we expect our OpEx ratio to be down around 2.0%, and we are targeting the `quarterly run rate for noninterest expense to be approximately or below 2% of total assets from that point forward.

With all of the integration and balance sheet repositioning actions proceeding on schedule, the guidance we provided for our level of returns that we announced at the time of the merger has not changed. Rather than focusing on the full year, our primary focuses is on ensuring our ending Q4 run rate is in line with our targets of approximately 1.10% ROAA and 13% ROTCE, given the timing of achieving cost savings throughout the year.

At this time, I'll turn the call back over to Jared.

Thanks, Joe. I'd like to wrap up with some comments around our vision we have for the Company and the broader outlook, we are organized around two primary areas. First, the bulk of our assets are centered in our community bank, which is comprised of our talented bankers who focus on in-market relationship lending across California, in Denver, Colorado, in Durham, North Carolina, and a few other locations. We provide full-service commercial banking across real estate and C&I, including asset-based lending, paired with our community bank, our specialty lines, which provide expertise in specific verticals, including homeowners and property management solutions, media and entertainment, warehouse lending, corporate asset finance, SBA fund finance and Venture Banking, whether in our community or specialty areas, we offer best-in-class depository and treasury management solutions, corporate asset management and the payments ecosystem. We are building, which includes merchant processing card solutions as an issuer and third party processing. We believe we have great market position in California, given the strength of our franchise and superior level of service and expertise that we can provide, particularly given the significant changes we have seen over the past few years in the California banking market with so many of our competitors exiting or significantly pulling back from the market. We believe this presents us with significant opportunities to consistently add attractive new client relationships that provide low-cost deposits, the high-quality loans and as we continue to build out our new payments ecosystem, which we believe will only further enhance our value proposition. It will differentiate us from competing banks and positively impact our business development efforts. As we've indicated, we expect to be a high-performing institution with strong earnings power. A portion of that will come from restoring the high level of profitability that Pac-West businesses have historically generated. In recent years. There were some lower-yielding assets added that were funded with higher cost funding sources that negatively impacted Pac-West historical profitability. With the balance sheet repositioning actions we have taken, we have significantly reduced these assets and funding sources, which creates a path to a higher level of returns for the combined institutions as we start 2024. While there remains some degree of economic uncertainty we are already seeing the positive impact of being a larger, stronger financial institution on our loan production with a greater volume of opportunities for us to consider reaching a reasonable level of loan demand, which is enabling us to generate meaningful level of new loan production while continuing to be conservative and highly selective in the loans we choose to make in most cases, loans coming on the books are being done at the same or higher rates and those paying off given the volume of runoff, we anticipate while there is some uncertainty regarding the pace and the timing at this point, we are expecting to end 2024 with total loan balances that are flat to slightly down from the year-end 2023 level and then growing during 2025 as economic conditions improve as we move through 2024, we will provide an update to our expectations based on any changes we see in economic conditions that have a material impact on loan demand and loan production.

Regardless of the rate curve and pace of changes in interest rates, we are well positioned to capitalize on such opportunity given the highly liquid balance sheet that we now have, I wanted to note that we feel very good about the credit quality of the loan portfolio. The merger process dictated that we take a close look at every loan in the portfolio of each legacy bank and make sure that they were appropriately rated as well as resolve some of the weaker credit. As a result, the bank has cleaner credit and a higher level of reserves following the provision that we recorded in the fourth quarter and from an asset quality standpoint, we are comfortable with where we stand. It's fair to say that based on our Q4 actions, the new Banc of California has cleaner credit today than either of its predecessors. I want to specifically thank the dedicated and talented colleagues at Banc of California for their amazing efforts, contributions and many sacrifices for helping to create this new and exciting franchise I have witnessed heroic undertakings and I feel very privileged to be leading such an incredible group of colleagues. Thanks to all of them. I'm confident in what we have set out to accomplish this year and beyond.

In closing, we believe we are well positioned to deliver strong financial performance for our shareholders in 24 as well as to capitalize on our great market position that we have built in California to consistently enhance the value of our franchise in the coming years.

With that, operator, let's go ahead and open up the line.

(Operator Instructions) Matthew Clark, Piper Sandler

Hey, guys. Good morning.

Great, good.

Just wanted to start on expenses for the upcoming quarter and the related run rate. I know you had a kind of partial quarter in 4Q and you get it kind of another month of legacy of B&C or two months of legacy BACB. and C. But can you can you speak to not only kind of where that run rate might shake out ex merger charges, but how much in the way of cost saves have you realized so far and how much are left?

We have a lot a lot left to do, which is why we think that in the first quarter, the OpEx ratio is going to be between 10 and 20. And the glide path will be getting down to two by the end of Q4 and the conversion isn't going to take place till May and there's a number of things that come out after that on across across the Company. As Joe mentioned, the facilities, we are going to get a lift from the FDIC assessment that we think will reduce beginning in the first quarter, but there's a lot to take out that it's going to come later in the year.

Joe, I don't know if you have more color there.

Yeah, no, I think you captured it correctly. I think there's a you know that we have a we manage a detailed list of savings initiatives. We have our plans in place and you know, the big initiatives that Jared spoke to are some of the larger ones. We do expect to get the FDIC assessment favorability in the first quarter, and we will you will see it start coming out from there?

Matthew, we literally have a list of like 30 things with a person assigned the deadline by which it's supposed to get done and the impact. And we're going through that list and check them off as we go. And we're not going to lose track of them and they're all within our control we believe in addition to that, we obviously have the expense savings we think we can realize on the interest side by being proactive about making sure deposit costs are appropriate. We don't need to pay necessarily the same levels we're paying in the past given the strength of the franchise, but we want to protect relationships. And a lot of that's going to be the based on the volume of new relationships that we bring in new deposits that come back to the bank. I solicited feedback after this call from I'm a number of our colleagues and I asked them to share client wins and stories of clients coming back beyond what I already knew about. And I got my inbox was full of stories of people talking about this client had had 2 million in the with tears in their eyes. They moved out during the the problems of early 2023, and they just brought it back in or they weren't they weren't happy at B of A. or wherever they went and they brought it all back. And so there's a lot of stories like that but that's going to take place over the course of the year, and that will impact our ability to improve our interest expense as well.

Got it. And then just on earning assets trying to get it better sense of where those balances might be coming into the year here from you spoke to the loan piece of it for the year, but just knowing that you still have BTFP. and some more brokered CDs and you probably would like to have how should we think about overall average earning assets for this year?

Well, the Fed made our decision really easy on PTFP. right with the announcement yesterday in terms of jacking the cost at the end of March. So I'm sure we'll probably get out of it by then, if not before, Joe, what's your sense for where our average earning assets will be, but where we are and I don't think they've been pretty flat.

I think they're going to be pretty flat for the year. And you may see the balance sheet just shrinking a little bit with the with the excess liquidity that we have coming into the new year are being deployed against the BTFP. or high cost deposits, depending on what the right decision is as we move forward, but on the earning assets should be pretty stable.

We are going to prioritize profitability, as Joe rightly pointed out in the call. And so while our earning assets, while our assets, they are total about 30.5. It wouldn't be surprising to get lower by the end of the year, but we're not really focused on that. We're focused on hitting our profitability targets regardless of the size of the balance sheet. And if it means we should be smaller than will be smaller. If it means we should we're comfortable being a little bit larger because we have the ability to earn at the profitability levels we said, and we'll then we will focus on it. But profitability is minimal and go.

Okay, great. And then last one for me on what's you've got CT. one now over 10% and 12 and tangible common rebuilding probably pretty quickly here. I guess what's the appetite for a buyback with the stock below tangible book?

Well, we obviously believe that we're going to be building up capital at a very healthy pace. And once we get to a level where we believe we have sufficient excess capital and that it's sustainable at that level. We will certainly have a variety of options and they're not mutually exclusive. We're going to obviously continue to reinvest in our company while also looking at ways to reduce share count, whether it's preferred or common. But I think it's important that we demonstrate the sustainability of our of our capital and earnings and that we build it up to levels that we consider excess and from there will plenty of options.

Great. Thanks, again.

thank you.

Brandon King, Truist.

Hey, good afternoon, Fabian.

Hey, Brandon.

If so, could you just give us that give us some thoughts of how you're thinking about the level of deposits you mentioned no legacy Pac-West customers are bringing operating deposits back, but then you also have customers with no excess liquidity. And I know you're trying to manage deposit costs pretty prudently. So you can kind of give us a sense of how you think the level of deposits should trend as we go throughout the year.

Yes, it's a good question. And what I focus on and historically have at Banc of California was on our level of noninterest-bearing deposits along with our loan-to-deposit ratio. And so we'd like to maintain our loan-to-deposit ratio below 90%, preferably in the mid 80s. And we'll see how that goes as we watch our noninterest-bearing percentage rise. It gives us flexibility for other deposits that are of different different types. So we have a whole bunch of initiatives in place here at Banc of California to grow our NIB., which is bringing over operating accounts from businesses, and we expect to grow from 26%. And eventually over time, I'm not going to put a date on it, but we'll get to 30 and we'll get to 35 and eventually we'll get to 40 that Banc of California legacy, we went from 12% to approximately 40%. And IB., we have a road map to do this and how we do it and the pace at which we do. It will dictate what happens with all these other deposits. And we're not going to we're not going to ask customers to leave. We value our customers and the relationships we have.

The one thing I will focus on though early, and we've already started focusing on is concentration risk. And I think we've all learned that we have to live within our means and not become too reliant on any one customer on the loan or the deposit side. And so that's something that we're going to manage very carefully. We have tools to help our clients, keep the relationship at the bank, but bring it off balance sheet. So we're not relying on it for lending. We have asset management, a great team of people here that can help with corporate asset management. It should we need it for some clients that's the right solution. And So Brendan, there's kind of a delicate balance of how we move all these things together. We did it at Banc of California historically. And so I would say that the things that we look at are the loan-to-deposit ratio and our percent of NIB. and that provides the flexibility for everything.

Got it.

That makes sense is it in your prepared remarks, you mentioned how you're adding individuals in tally.

Could you elaborate on that?

What type of what types of talent or you're adding and how should we think about that as far as how it could impact expenses?

I know you have a pretty tight range you're expecting this year, but just going forward.

Yes, there were some positions in some areas that we want to grow. We just added a talented leader to head a venture in California and lead our team here. We have before we announced the acquisition. We brought in a new Head of Corporate Communications for City National. That Bronto is doing a great job for us. We have a head of underwriting on the community bank side that we brought in recently. And there is a whole host of talented leaders and players at all levels that we're bringing in. We obviously are going to have to manage it within our expense targets and getting down to that 2% OpEx ratio is going to require us to exercise some discipline, but we're confident that we can do it got it.

And then just lastly on the Gables despite yields, this is very helpful. Could you give us the spike yield on the securities portfolio?

Joe, do you have that you know.

I do. Just give me one second.

Okay, Brandon. We'll take a look for that, Brandon.

No. I got it here, Jared. It's 2.25% -- I'm sorry. I read that wrong. 2.75%. I apologize, 2.75%.

Thanks very much, thanks for taking my questions.

I couldn't (multiple speakers)

Gary Tenner, DA Davidson & Co.

Thanks for that. Good morning.

Morning.

A couple of questions on one of the NIM. guide or approaching 3%. I'm just confirming that's inclusive of the expected loan discount accretion that you kind of lay out on an annualized basis.

And now Fundtech?

Yes, yes.

Okay. For that number, I'm okay. And Jared, you kind of answered part of this with your comment around the BTFP. and repaying that probably for an end of the quarter. But in the deck, you kind of one of your checklist items was to complete the restructuring but balance sheet now, I know there's going to be kind of ongoing, obviously for some period of time, kind of optimizing the balance sheet, but just wanted to get a sense of any kind of clear discrete items outside the BJP. repayment that are still planned for the first quarter?

Well, I think it's expense reductions. You know, there are there are there are pieces of the discontinued loan portfolios that are capital permitting, we might look to sell what we think the yield is is so low that we can it's somewhat of a negative carry relative to other funding that we could pay off. We're constantly looking at that and looking at what the pricing is and pricing is kind of moving around in the market as people settle in on where they think rates are going to be. So we're not we're not ignoring that. There are other things that we could sell. We just haven't made the decision to definitely sell those things absent one or two things. So I think that's something that you could expect.

Gary, look, there's a lot of these are somewhat unclear times from an economic standpoint. And I think a lot of banks are looking at the road ahead, and that's kind of filled with debris and they're trying to figure out how they're going to drive down the road and kind of get to the end zone. I'm mixing metaphors here, but we are we're fortunate that we have a very clear path and I guess a very clear road ahead and we can see very clearly what we need to do and we have it all laid out.

And if we execute on the things that we set out to do, we believe it's largely within our control to achieve the earnings targets and profitability that we set in. And that includes on potentially having some loan sales. And we have a lot of levers to pull. So if we don't sell those loans, we got something else that we want to do. But I think loan sales is a possibility on along with all of those expense savings that I mentioned that we have listed out.

Joe, I don't I don't know if you or Bill have anything else to add here.

Yes, I would just say on the balance sheet, you know, as at the liabilities is in addition to PTFP., whether broker deposits as they come due, we'll look at the market and we'll look at all the various options we have do we let the wholesale funding ratio drift up or down? Do we loan-deposit ratio, et cetera. So there's lots of options we have and we're going to make those this as Gerd articulate, we're going to make those decisions as they come to us. And based on the economic environment and the best what's best for shareholders at that time.

Great. Appreciate it. And if I can ask one more. Gerry, you mentioned that you're you've got certain stories about former Pac-West depositors coming back into the fold as it were post deal, you talked about an experience as to how those are coming back. Are they kind of utilizing a suite or a kind of shared deposit product? What kind of format, are those balances coming back?

It's all different formats. I mean, I got a story right here from someone in one of our offices during the liquidity crisis, a long-time small business client with 1.3 million out of his account, he was incredibly apologetic. You took the 1.3 million cashiers check to B of A. and open the account client quickly realize that he did not receive the same service that I always enjoyed as we continue to bank with us with much smaller balances. We continue to encourage them to bring the money back after the renewed strength of the bank and the merger and how dissatisfied he was with the personalized service at this other bank, the client brought back to 1.1 million and attributed to our service and our particular banker that took care of them every week.

I mean, I have pages of stories like this and it obviously is very gratifying and it's not surprising to me at all. We did this at Banc of California. When I joined, we really focused on service and solutions. Pac-west is really good at it. They had outflows based on fear that were unfounded, but they had a very, very loyal client base. And I know that if we do what we say we're going to do and we do it on time and we continue to execute the way we always have. We will be very successful in that effort.

Great. Thanks.

Yeah

Andrew Terrell, Stephens.

And good morning.

Morning.

Just a couple of quick ones for me. One, just to confirm on the on the kind of balance sheet size expectations, it sounds like from an average earning asset and then total asset standpoint, relatively kind of stable expectations throughout the year. Is that fair again?

Yes.

what's a comfortable level of cash you'd be willing to run up think about 8% there?

Yes, I think 8%. Is that right, Jared?

Yeah, 8% to 10%. I mean, we're higher than we want to be right now, but I think 10% would be the high watermark. And as we bring it down and historically, we ran with, you know, 2% or 3%. And I think banks today are running with a little bit more, especially because you can get such a good yield on liquidity. And so it's a function of what we can get right now. So I think I think Joe's targets.

Right.

Okay, perfect. And if I could ask that all the commentary is super helpful. In terms of I know there's a lot of moving pieces here. So I want to appreciate all the color. I just wanted to ask on kind of the exit ROA for one 10 in four Q. 24. I'm trying to get a better sense of what type of exit margin you would expect from the expense part is helpful, but it seems like the one kind of and detail that I'm trying to get to here is the NIM. So any kind of color you could provide on exit 4Q, then that would underpin the one 10 ROA would be helpful.

Yes, the nemesis we haven't we haven't defined that yet.

I don't think to have we are we haven't defined when we did our exit. We did say our estimated spot rate for net interest margin was 2.75 at 1231. Andrew, is that what you're looking for?

And I know he's asking for category 2024 where we're going to be. And so Andrew, Andrew, the reason why we're not there is because the name is pretty much of an output for us. And so if for a for a little bit larger, a little bit smaller. It obviously will affect the name and kind of the mix of our portfolio. And so we just haven't guided to it yet. We know we have all these levers. We have all these models. We've looked at three different ways to get there. And the name is different in these different models. But we still achieve the same R-LA. And so we haven't provided guidance there yet.

Okay. Yes.

Over the easy way to Andrew, the easy way to back into that, though, is that it is if you think about it of the three main income statement, components fees, net interest income and expenses, if you're comfortable with your estimate for fees and expenses, you can essentially in some cases, go through that and back into it. So just you have to have your own I mean, meaning pressure-tested on your own?

Yes, I was I was running that analysis, Bill, and it just seemed like the margin I have to plug in was pretty high. So I just was trying to spot check.

Okay. And I can move on the the one other I wanted to ask about was the 16.8 million of additional expense you guys called out is related to the HOA business this quarter. Can you talk about specifically what drove that? And was that more transitory in nature? So should we have viewed as one-time was onetime?

It was onetime. It was it was a catch-up expense for a specific client, and we took care of it in the in the fourth.

Got it. Okay. And then actually last one, the borrowing facility termination for $19.5 million, did that come through operating expense or was it in your home Interest expense?

Operating expense.

Okay, perfect. I appreciate it.

Thank you, Andrew, Appreciate it.

Timur Braziler, Wells Fargo.

Hi, good morning.

Morning.

Jered, you had made a comment regarding loans that balances between more or less flat as demand is.

Okay, but you're continuing to see some runoff maybe expecting some runoff. I'm just wondering, as we're looking at the categories today, where could we see some additional trimming of loan balances?

So in the discontinued portfolio, premium finance loans like we laid this out in a table in the deck of what the discontinued portfolios are versus kind of the what we consider core portfolios going forward and you have, you know, Premium Finance, lender finance, all those things and the lender finance is coming off it about 100 million quarter over quarter is what it was last quarter and I don't know if it's going to continue at that pace, but that seven 32 is run down and it's a lower yield.

That's a little below 3.5%. We have some good yields on some of the other stuff civics coming down for sure, half of that. A portion of that is bridging that a portion is kind of for rent single-family homes. So those are those are two of the categories that I think student loans, there's barely national lending left, but the stuff running down I think the loan portfolio overall will be flat to slightly down. And this is obviously an environment where you can get reasonable yields with your liquidity relative to the stuff that's paying off. But obviously, we want to deploy the funds in good loans because the rates right now are very good for lending. As Joe said, 78% is what we're getting and in many cases, higher than that. And so we wanted to put in good loans, but we're being conservative and we're making sure that it's the right relationships.

We really want to use our really our balance sheet for our clients and for full relationships. And so we're ensuring that when we are lending today, it comes with a real relationship with the reduction in banks. Overall, it's easier for us to require larger components of the overall relationship to bank with us into into land. And in the past, it was much, much more complicated given the position of our bank and the options available to the clients that are speaking to us, we're in a much better position to demand more, and it's not to say that every client is going to have a single banker relationship. I talk to somebody yesterday I ran into a restaurant and a well-known real estate guy. You said can I call you after lunch, I sort of course, and he called me, he said he would and he said, look, we've been with we've been with First Republic, which is now Chase. We've been with City National and they're pulling back and are you open to talking to us?

We have about 40 to 50 million of balances. We're not going to put it all at one bank, but we do need to put our operating account somewhere. And I said we'd love to talk to you. I said we want to make sure that we can serve you with what you need and how you need it. And so let us look at all of that and then come back to you to make sure that we can meet you where you're going, but there's a lot of opportunities like that.

Okay, great. And then maybe I guess just circling back to your comments about bringing back legacy Pac-West deposits that left last year. I'm just wondering what industries those are in and to what extent you're getting some of the venture tech related deposits and reengaging with the bank.

I would say, deposit outflows that Pac-West had and the Banc of California had as well, but they were obviously more dramatic at Pac-West were in all areas. And so there isn't an area where we're not looking to bring deposits back. But the headline, of course, was the deposits that went out on the venture side and how Pac-West classified that's I would say that my observation and the data that we have is that those relationships are very, very strong. We've been able to positively promote the strength of our bank and this combination really really gave people a lot of comfort. Our credit ratings came out, obviously very strong. And so we have been successful at bringing back relationships and deposits out left in those areas, and we're going to continue to do that.

The area where I want to be careful is we all agree that we're going to manage concentration better so that we don't end up with depositors that are too large for our balance sheet and we have corporate asset management. We have a great tool that we can use to have that have balances in the family, but not on the balance sheet. So we might be successful tomorrow by bringing back relationships even if they don't show up in our deposit numbers because they're there in asset management off balance sheet. And so we're doing both. We want them back. We want them in the family. We want them here. We think we can serve them better than others, but we're going to be careful. We keep on balance sheet and that what we to get.

Okay. And then I guess just last for me on you again, you touched on this a little bit, but looking at the payment rollout and where deep stacks fits into all of this originally when when that was introduced, the update was kind of revenue contribution back end of 23. I'm wondering if a the Pac West deal delayed that a little bit. And then B, if you can provide some update on the magnitude of what the payment vertical might look like and what Pac-West does to that run rate?

Absolutely. So we said that pack, we said that deep stack on a standalone basis at Banc of California, we said that deep STACK would cart would start contributing meaningfully to fee income in 2020 for Pac-West has fee income historically at 10 to 12 million per month, and that is that is continuing. So the ability of deep stack to make an impact on a fee basis on a revenue basis to the combined company is no longer there in 2020 for it to the way to the same magnitude it would have done on a standalone basis, California. So just to put it in context that on a stand-alone basis, it would have contributed meaningfully, but it's obviously diluted.

Now the payments business that we're building is three things. It's merchant processing, which is our ability to go direct to merchants to process credit cards without any third party intermediaries. It's issuing issuing credit cards directly on our balance sheet to clients to whom we have credit. This isn't this isn't selling consumer credit cards broadly, this is giving card solutions to our existing clients to whom we already provide credit and benefiting from the interchange as the issue of those cards.

And third is using our rails, our infrastructure that we've built and the bins, the identification numbers that we have with MasterCard and Visa to process third party transactions for trusted partners like Worldpay like others who are well known in the business. Those are the three layers layers of our ecosystem. And those are all rolling out now. And so I think I'm hoping that later in this year or by the end of the year. It's making enough that we want to call it out specifically and making enough.

So I call out specifically means meaningful enough on this combined balance sheet. That doesn't mean it's not contributing anything, but I we're not going to call it out to we think we have something to talk about that's a good enough number. It's obviously going to have to be a bigger number now, but there are many ways in which we think this is going to accelerate the merger for example, the HOA business is going to be using digital is going to be using deep stack as a digital payment acceptance tool for their clients. It's got 4 billion in deposits it's got hundreds of clients.

And the deep stack is a is a great feature to allow them to accept payments and to provide a tool that their clients really would like to make their payments acceptance easier. Deventure business has embedded clients' interest in our payment tools. Pwb was actually further along than we were at Banc of California and digital account opening which is a huge part of rolling out our payments business.

So there's lots of positive synergies that we're going to realize through the year that I think will benefit us hopefully this year, but certainly in 2025, we're also focused on optimizing the FIS. integration and setting up payments in a truly optimal way meeting with the FISEO., and we'll pay executives at their headquarters in Jacksonville in February to discuss this, they've been very focused on what we're doing in payments were very unique. Worldpay's, obviously, the hundred pound gorilla out there, and we're excited to partner with them and see if we can find some ways to accelerate our progress.

Great. Thank you for that color. Appreciate it.

Yeah

Kelly Motta, KWB

Hi. Thanks for the question.

Hey, Kelly.

I thought maybe we could talk a bit about fees and not deep Stag, but just these more broadly in general, you know, on a combined basis, I know you're bringing together two banks with different capabilities. I'm just wondering where you see like complementary opportunities to maybe know so one product or another two on either Pac-West or Bank of what you may have not had before. And it's kind of how what your run rate see income looks like as we start next year and kind of how that could be additive to things?

Yes.

So I'll start with cards. I mean, Pac-West was much further along than we were and kind of their card partnerships. They weren't an issuer of cards. They were basically a reseller of others' cards, but they had they were doing it in a good way with a virtual card program. And I was just looking at materials this morning that I had that I think were great. And Susan Tang leads that group and they did a great job with it. And we were looking at how we can accelerate that and build off the momentum that they had previously, the 10 to $12 million per month of fee income wasn't wasn't solely from that. Pac-west did a good job of collecting fees in a variety of ways. But for now, we think that that fee income per month is the right the right level that people should expect. And then hopefully we can build on it from there. We have some we have a little bit of retooling to do as an issuer the way we're going to build this out and roll it up as we have to close down the partner programs and then start with our new programs. And so it's not going to slow down the fee income, but I don't think we're going to see any acceleration in it till later in the year.

Got it.

That's helpful.

I was also it was really good to see the tangible book value number come in higher than what you had expected last quarter. I was hoping and maybe this is a question for Joe. But if you could and help us kind of bridge the gap on how we should be thinking about AOCI. with the what that's against in the securities book duration and how we should be thinking about the math of that over time. Just trying to get a sense cadence of tangible book value.

So on the AOCI., we've come down significantly to 434 million compared to where the Pac West was on a stand-alone basis, which was the new 800 and some change in the third quarter. You know, our our duration of that portfolio is north of five years of the secured period. We'd like to over time bring that duration down and add higher yielding securities to that portfolio, we feel pretty good about where we are in the on the unrealized loss. These are high-quality securities and as interest rates. If interest do continue to come down as the forward curve suggest, then the unrealized loss in AOCI will continue to come down as well.

Okay.

I just mentioned.

Yes, I should have mentioned, we've got a whole team working on this payments ecosystem. And I've mentioned before, it's led by Jagdeep Singh, who's our Chief Payments Officer. And what I've been so impressed with is how as we brought the banks together and we found the best pieces of each to kind of move this forward. There's a development team that that Pac-West has that we didn't have at Banc of California. That's really jumped in and done a great job of helping to build the user interfaces and the things that we want to move forward on payments. And so there's a lot of good things going on and I wish I could mention them all, but we'll be excited to see how this rolls out later in the year.

Thanks.

(Operator Instructions) Tim Coffey, Janney.

Good morning, more blood flow.

Morning.

I appreciate all the details in the press release today. Especially the spot rates on. If I were to look at the spot rates and apply them to period-end balances, I started doing a net interest income number closer to 300 million. Is that a reasonable estimate for the profitability of that company today?

I don't know that we're ready to say that yet. If I were to confirm that number is being high or low. The reason being is there's a lot of moving pieces and I think we understand why it's difficult because we only had one month of combined balance sheet with a whole bunch of stuff moving around. What we'd like to do is deliver a Q1 balance sheet and income statement, and I think it's going to be much easier for us to guidance off of that. But to to forecast today, what Q1 kind of run rate, PPNR, other things are going to be. We're not we don't want to do that yet. We want to make a little bit more progress. Hopefully, people took away a lot of confidence from what we've done. I mean, I think what we accomplished in Q1 was a Q4 was tremendous. We did this at Banc of California. We always did it faster than we said. We were going to do it and I can't promise that that's going to happen here, but I have every level of confidence in our ability to execute and be successful. And so I'd like to get through Q1, Tim, to be able to guide from there.

Okay. Appreciate that. And then I also appreciate the cadence on the cost saves throughout the year.

I'm wondering as it comes to recession about share redoing the balance sheet is there anything coming up in 1Q of significant.

what the FDIC, I think that's pretty big, Joe. Yes, yes.

So on on the on the cost, the FDIC assessment, if you're assuming we get that's a very big from a run rate item. And then there's there are some other initiatives we have which they come in throughout the year. And other things are happening in the first quarter, but I think were you asking about the balance sheet restructuring in the first quarter because of that, I think you could see us deploying some of our excess liquidity against, for example, the BTRP which can come due in March, right?

Yes, that's actually what I was asking about on the balance sheet side, just the BTSP. them that you're that's fronts that have weathered other high.

There's other higher cost brokered deposits which are coming due in the first quarter. And that's why I made a comment earlier about how we evaluate them as they come due. We look at the the the situation, the economic environment at the time and we make decisions that what's best to manage the portfolio optimally on a day-by-day basis.

Okay. I appreciate that. Thank you, Tom.

And then there's Tim with him.

One other thing. We did mention that we are constantly looking at loan sales. And so I don't know that we're going to execute. It depends on the price, but I wouldn't be surprised if we did it because we have opportunities to do that. But if we don't get the right price, we obviously won't do it.

Okay.

Then this we feel that that multi that piece that multifamily is off the market now right here.

Hold on or that you actually.

Yes, we're going to hold on to that.

There might I would say there might be a very small subset of the multi-family that was that very small subset that there seems to be a lot of interest in that, that piece of it we may, but it would be it would not be a large portion.

Okay. Okay, Andrea, thank you. And then my final question, as I shared on the size of the balance sheet, I'm not being critical because I think you have reduced your progress. Your unprecedented and baking this merger, but I thought it had announcements of announcement. The balance sheet is going to be smaller than it is today.

And I'm just kind of wondering, did you just did you kind of just run out of time the deals that you want to do are was this more or was there a strategic reason for keeping it bigger well, the first piece of it was keeping the extra piece of multifamily and we have more cash I think, than we planned. But I do think I do see it coming down. But like I said, it, we're not we're not we're really managing to profitability. And to that one 10 ROA and obviously, one, 10 ROA and a bigger balance sheet means more earnings. So if we might need to bring down the balance sheet based on where we see earnings, and that's a delicate balance, obviously because you get rid of assets and the earnings up and where the expenses that go along with it. But we're managing all of that to make sure we get to that one 10 ROA route out of out of the gate at Q4 to start 2020. So I don't know where we're going to land, but I'm confident we're going to get to our profitability targets.

Those are my questions.

Thank you very much.

Thanks, Tim.

Timur Braziler, Wells Fargo.

Hi. Thanks for the follow-up of just one quick one. What are the assumptions for purchase accounting that are embedded in your estimates for 24?

I know that question wasn't directed to me, so I'll let Joe answer that.

So in the deck, we included a page, we showed the how the accretion we estimate the accretion will roll off and so on. I think some page 29 of the deck. But I think our current assumption is that we will have a we estimate that will be about $0.15 EPS impact for the year, which includes loan marks consistent with in an aggregate way, consistent with the yields that we're seeing on our new originations.

Great. Thank you for that.

Ladies and gentlemen, and ladies and gentlemen, with that, we'll be concluding today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.