Banc of California(BANC) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Banc of California reported record net income of $21.5 million for Q4 2022, or $0.36 per diluted share, with adjusted net income of $26.88 million, or $0.45 per diluted share, compared to $26.7 million, or $0.44 per diluted share in the prior quarter [10][11] - The net interest margin increased by 11 basis points to 3.69%, driven by a 46 basis point increase in overall earning asset yield [12] - The average cost of funds rose to 117 basis points, up 38 basis points from the prior quarter, while the average cost of deposits increased to 79 basis points [14] Business Line Data and Key Metrics Changes - Loan fundings were lower due to reduced demand from higher interest rates, but commercial loan balances slightly increased, keeping overall loan balances flat [7][8] - Non-interest income decreased by $7.1 million from the prior quarter, primarily due to the loss on sale of investment securities [16] - The company completed a $75 million stock repurchase program, repurchasing 7% of its outstanding shares during 2022 [17] Market Data and Key Metrics Changes - Total assets were $9.2 billion at the end of Q4, slightly down from the previous quarter [17] - Non-interest bearing deposits averaged 41% for the quarter, ending at 40% [18] - The effective tax rate for Q4 was 29.6%, up from 29.1% in the prior quarter [17] Company Strategy and Development Direction - The company aims to build a robust core deposit gathering engine and is focused on enhancing technology to improve efficiencies and client experience [22][23] - Banc of California is on track to launch its payments business, integrating DeepStack Technology into its platform [9][26] - The company is cautious about loan growth due to economic uncertainty but expects to profitably invest inflows into securities if lending opportunities are limited [24][75] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate the current economic environment, with expectations for slightly higher earnings in 2023 compared to 2022 [24][25] - The company remains focused on credit quality and growing a high-quality deposit base [24][70] - Management noted that while there are challenges in the market, they see opportunities in specific sectors like healthcare and education [66][70] Other Important Information - The company did not record a provision for credit losses in Q4 due to lower loan balances, with an allowance for credit losses totaling $91.3 million [20] - The company is strategically managing liquidity and funding costs, including adding $100 million in FHLB term advances [18] Q&A Session All Questions and Answers Question: Thoughts on managing overall earning assets - Management aims to keep assets relatively flat but is open to leveraging for incremental growth if opportunities arise [30][31] Question: Expectations for non-interest expense core run rate - The expected range for non-interest expenses is $48 million to $50 million, with the first quarter likely at the higher end due to seasonal factors [32][33] Question: Update on interest-bearing deposit beta - Management does not track deposit beta closely but aims to grow non-interest bearing deposits while managing costs effectively [34][35] Question: Thoughts on capital and potential buyback programs - Management is evaluating the best use of capital, including potential buybacks, based on stock performance and investment plans [39][40] Question: Clarification on earnings expectations for 2023 - Management expects earnings to be slightly higher in 2023 on a core operating basis, excluding one-time recoveries from the previous year [41][42] Question: Concerns about liquidity and deposit outflows - Management is confident in their liquidity sources and is actively managing deposit pricing to mitigate outflows [46][47] Question: Investment in DeepStack and its impact on expenses - The investment in DeepStack is included in the expense range, with expectations for higher fee income as the business scales [49][50] Question: Timing and terms of broker deposits added in the quarter - Brokered CDs have a tenure of about nine months with a weighted average rate of 3.85% [54][55] Question: Future innovative aspects in banking - Management believes they have the necessary pieces in place for growth and are focused on executing their vision for a complete payments ecosystem [61][62]