ACROFAN

Banc of California Reports Second Quarter 2019 Earnings

Published : Thursday, July 25, 2019, 3:00 am
ACROFAN=Business Wire | info@businesswire.com | SNS

SANTA ANA, Calif.--(BUSINESS WIRE)--Banc of California, Inc. (NYSE: BANC) today reported net income available to common stockholders of $11.9 million, for the second quarter of 2019, resulting in diluted earnings per common share of $0.23.


Highlights for the second quarter included:

  • Net interest margin increased by 5 basis points from the prior quarter to 2.86% for the second quarter, resulting from a 5 basis point decline in our cost of deposits
  • Loan production was $599 million for the quarter, including $186 million of commercial and industrial loan commitments
  • Loan delinquencies decreased by 12.2% from the prior quarter to $52.2 million
  • Held-for-investment loan balances for the second quarter decreased to $6.7 billion as we sold lower coupon single family and multifamily loans and transferred $574 million of multifamily loans to held-for-sale, pending a planned Freddie Mac securitization
  • Collateralized loan obligations declined to $737 million following $298 million of sales and calls
  • Noninterest expense was $43.6 million for the quarter, including non-core expenses of $6.2 million of litigation, indemnification, investigation and other legal fees, $12.6 million of insurance recoveries, and net project charge-offs of $869 thousand
  • Efficiency ratio for the second quarter decreased to 69.75%
  • Return on average assets increased to 0.69%, while return on average tangible common equity was 7.43%

Jared Wolff, President and Chief Executive Officer of Banc of California, commented, “The second quarter results reflect our accelerated efforts to focus on our three initiatives designed to improve our franchise and profitability on an ongoing basis: reducing our cost of deposits, optimizing the balance sheet to focus on higher-margin products and appropriately managing down expenses to the size and complexity of the business. Through these efforts, we continue to transform our franchise into a relationship-focused community bank, maintaining our high credit quality and serving businesses, entrepreneurs and individuals within our footprint. Further, as part of our efforts to improve our balance sheet, we commenced today a tender offer for our preferred equity for up to $75 million aggregate purchase price.”

Speaking specifically about operational results for the quarter, John Bogler, Chief Financial Officer of Banc of California said “The sales of non-core and low-margin assets allowed us to reduce high costing deposits, resulting in a 5 basis point decline in the cost of total deposits. Efforts to simplify our operating model allowed noninterest expense and operating expenses each to come in below $50 million for the quarter, which is ahead of our schedule for reducing expenses.”

Business Results - Income Statement Highlights

 

Three Months Ended

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

September 30,
2018

 

June 30,
2018

Total interest and dividend income

$

104,040

 

 

$

110,712

 

 

$

111,130

 

 

$

107,774

 

 

$

105,185

 

Total interest expense

 

39,260

 

 

 

42,904

 

 

 

40,448

 

 

 

36,582

 

 

 

32,421

 

(Reversal of) provision for loan and lease losses

 

(1,987

)

 

 

2,512

 

 

 

6,653

 

 

 

1,410

 

 

 

2,653

 

Net interest income after provision for loan and lease losses

 

66,767

 

 

 

65,296

 

 

 

64,029

 

 

 

69,782

 

 

 

70,111

 

Total noninterest (loss) income

 

(2,290

)

 

 

6,295

 

 

 

2,448

 

 

 

4,824

 

 

 

8,061

 

Total noninterest expense

 

43,587

 

 

 

61,835

 

 

 

49,569

 

 

 

60,877

 

 

 

62,539

 

Income tax expense

 

4,308

 

 

 

2,719

 

 

 

6,117

 

 

 

3,301

 

 

 

1,779

 

Income from continuing operations

 

16,582

 

 

 

7,037

 

 

 

10,791

 

 

 

10,428

 

 

 

13,854

 

Income from discontinued operations

 

 

 

 

 

247

 

 

 

668

 

 

 

926

 

Net income

$

16,582

 

 

$

7,037

 

 

$

11,038

 

 

$

11,096

 

 

$

14,780

 

Net interest income

Net interest income for the second quarter decreased to $64.8 million as we sold non-core assets and repaid high cost funding during the quarter. For the second quarter, average interest-earning assets declined from the prior quarter by $695 million to $9.1 billion, while the net interest margin improved by 5 basis points versus the prior quarter.

Our average yield on interest-earning assets remained flat at 4.59% for the second quarter as compared to the first quarter of 2019, primarily attributable to an increase in our average yield on loans partially offset by a decrease in our average yield on securities. Our average yield on loans came in at 4.80% for the second quarter which increased by 4 basis points from the prior quarter, primarily attributable to a reduction in lower-yielding single family residential mortgage and multifamily loans. Our average yield on securities decreased primarily as a result of an interest rate reset on our collateralized loan obligations and a decrease in our average balance attributable to the sale and calls of $298 million of our higher yielding collateralized loan obligations during the second quarter. The decline in the average balance of collateralized loan obligations was also due to sales that occurred late in the first quarter of 2019. We sold a significant amount of these securities at the end of the first quarter, with the full impact of the first quarter sales reflected in the second quarter.

Our average cost of interest-bearing liabilities decreased to 2.09% for the second quarter from 2.12% for the first quarter, primarily resulting from a 5 basis point decrease in our average cost of total deposits from the prior quarter to 1.62% for the second quarter. The decrease in our cost of deposits from the prior quarter primarily resulted from the shift in our deposit strategy to focus on relationship-based customers and de-emphasize high-rate transactional customers.

Provision for loan losses

During the second quarter, we released $2.0 million of our allowance for loan losses primarily attributable to a decrease in the held-for-investment loan portfolio, partially offset by an increase in net charge-offs and other qualitative provisions during the quarter. The decrease in the loan portfolio primarily resulted from the sale of $178 million of multifamily loans and the transfer of $574 million of multifamily loans to held-for-sale. During the quarter, we had $2.4 million in net charge-off activity and a $900 thousand increase in our specific reserves. The net charge-offs were driven primarily by a charge-off of $2.0 million on one commercial and industrial loan relationship.

Noninterest (loss) income

Noninterest (loss) income for the second quarter was $(2.3) million, which represented a decrease of $8.6 million, or 136.38% from the prior quarter. The decrease is primarily attributable to a $9.6 million loss on our hedge of the pending Freddie Mac multifamily securitization in which we also plan to sell the associated mortgage servicing rights. The $9.6 million hedging loss is due to a decline in interest rates since the hedge was executed and is expected to be mostly offset by the gain in fair value of the loans sold into the securitization in the third quarter. This was partially offset by an increase of $1.3 million in our gain on sale of loans during the second quarter, resulting from the sale of $178 million and $344 million of multifamily and single family residential mortgage loans, respectively.

Noninterest expense

Noninterest expense for the second quarter was $43.6 million, which represented a decrease of $18.2 million, or 29.5%, from the prior quarter. The decrease primarily relates to: (1) a $13.9 million decline in our professional fees, primarily attributable to $6.2 million of insurance recoveries net of expenses related to securities litigation, indemnification, investigation and other legal expenses in the second quarter as compared to $3.0 million of net expense in the prior quarter, (2) $158 thousand reversal true-up related to restructuring expense in the second quarter as compared to $2.8 million of restructuring expense in the prior quarter, and (3) a 933 thousand decrease in our compensation expense resulting from lower headcount. The net recovery of $6.2 million in insurance proceeds from the securities litigation, indemnification, investigation and other legal expenses reduced our efficiency ratio by 10%.

Income taxes

Taxes totaled $4.3 million for the quarter, representing an increase of 58% from the prior quarter, and an effective tax rate of 20.62%. During the second quarter of 2019, we closed on a tax planning strategy investment that is expected to produce $3.4 million of investment tax credits in 2019, resulting in a 5% reduction in the projected annual effective tax rate. For the full year, we expect our tax rate to normalize closer to 20%.

Balance Sheet

The following table shows selected balance sheet line items as of June 30, 2019 and for the previous four quarters. As indicated in the table below, at June 30, 2019, total assets were approximately $9.4 billion, which represented a decrease of $527 million million consistent with our strategic shift towards reducing our balance sheet and focusing on relationship lending.

 

As of and for the Three Months Ended

Amount Change

 

June 30,
2019

March 31,
2019

December 31,
2018

September 30,
2018

June 30,
2018

Q2-19 vs. Q1
19

Q2-19 vs. Q2
18

 

 

 

 

 

 

 

 

Total assets

$

9,359,931

 

$

9,886,525

 

$

10,630,067

 

$

10,260,822

 

$

10,319,280

 

$

(526,594

)

$

(959,349

)

Securities available-for-sale

$

1,167,687

 

$

1,471,303

 

$

1,992,500

 

$

2,059,832

 

$

2,297,124

 

$

(303,616

)

$

(1,129,437

)

Loans held-for-investment

$

6,719,570

 

$

7,557,200

 

$

7,700,873

 

$

7,253,293

 

$

7,036,004

 

$

(837,630

)

$

(316,434

)

Loans held-for-sale

$

597,720

 

$

25,191

 

$

8,116

 

$

9,382

 

$

13,753

 

$

572,529

 

$

583,967

 

 

 

 

 

 

 

 

 

Demand deposits

$

2,571,646

 

$

2,694,199

 

$

2,579,770

 

$

2,775,347

 

$

2,783,432

 

$

(122,553

)

$

(211,786

)

Other core deposits

 

3,239,667

 

 

3,735,667

 

 

3,793,605

 

 

3,638,624

 

 

3,666,159

 

 

(496,000

)

 

(426,492

)

Brokered deposits

 

480,977

 

 

1,295,066

 

 

1,543,269

 

 

987,771

 

 

686,203

 

 

(814,089

)

 

(205,226

)

Total Deposits

$

6,292,290

 

$

7,724,932

 

$

7,916,644

 

$

7,401,742

 

$

7,135,794

 

$

(1,432,642

)

$

(843,504

)

As percentage of total deposits

 

 

 

 

 

 

 

Demand deposits

 

40.87

%

 

34.88

%

 

32.59

%

 

37.50

%

 

39.01

%

 

5.99

%

 

1.86

%

Other core deposits

 

51.49

%

 

48.36

%

 

47.92

%

 

49.16

%

 

51.38

%

 

3.13

%

 

0.11

%

Brokered deposits

 

7.64

%

 

16.76

%

 

19.49

%

 

13.35

%

 

9.62

%

 

(9.12

)%

 

(1.98

)%

 

 

 

 

 

 

 

 

Average Loan Yield

 

4.80

%

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