Banc of California has sold $6 billion in lower-yielding loans and securities since its
Though Wolff stopped short of detailing the assets that might be in play or when a sale might take place, the Los Angeles-based Banc of California did identify nearly $4 billion of loans from business lines it plans to discontinue. The most notable set consists of $2.3 billion in loans originated by Civic Finance, the real estate investment lender PacWest sold in May.
"There are pieces of the discontinued loan portfolio that, capital permitting, we might look to sell," Wolff said. "If we think the yield is so low that it is somewhat of a negative carry relative to other funding that we can pay off, we're constantly looking at that. … I don't know that we're going to execute. It depends on the price, but I wouldn't be surprised if we did. We have opportunities."
According to Wolff, Banc of California is focused on profitability, not growth, with a goal of reaching a 1.1% return on average assets by the end of 2024. "We're focused on hitting our profitability targets, regardless of the size of the balance sheet. If it means we should get smaller, we'll be smaller…Profitability is the number-one goal."
In another indicator Banc of California's downsizing activity will likely continue, the company said Thursday it expects to eliminate $2.6 billion in funding received from the Bank Term Funding Program rather than pay the higher interest rates the Federal Reserve intends to implement as part of a
"The Fed made our decision really easy with the announcement [Wednesday] in terms of jacking the cost at the end of March," Wolff said. "I'm sure we'll probably get out of it then, if not before."
The Bank Term Funding Program, established during last year's liquidity crunch, will stop issuing new loans on March 11. Until then, banks can still borrow from the facility, though at less favorable terms.
The Fed created the Bank Term Funding Program in March to stem a looming liquidity crisis that sprang from last spring's
Banc of California forecast a $36 billion balance sheet when it announced the $1 billion, all-stock deal for PacWest in July. The merged company ended 2023 with assets of $38.5 billion, still significantly below the $46.1 billion in combined assets Banc of California and PacWest reported as of September 30. PacWest's decision to sell itself came after it weathered a
On Thursday, Wolff said many of the customers who removed cash in May from PacWest had redeposited it in Banc of California. "They had outflows based on fears that were unwarranted, but they had a very very loyal client base," Wolff said.
Banc of California reported a $492.9 million loss for the quarter ending December 31, but it was driven by several significant one-time expenses, including a $442.4 million loss on its securities sales — which totaled $3.7 billion — $111.8 million in related costs and a $32.7 million Federal Deposit Corp. special assessment. The company also paid down $8.6 billion in high-cost funding.
"We have made excellent progress on the integration and the balance sheet repositioning actions that we indicated at the time of the merger announcement," Wolff said Thursday in a press release Banc of California issued prior to the earnings conference call.
Wolff said Banc of California would wait until the end of the first quarter, its first full reporting period since closing the merger, before making any detailed projections. It did provide some limited guidance, though, calling for average earning assets, which totaled $35.4 billion on December 31, to be flat or down slightly for the year.
Banc of California expects to boost its ratio of noninterest deposits from 26% at December 31 as high as 40%, Wolff added. "We have a whole bunch of initiatives in place to grow [noninterest deposits] bringing over operating accounts from businesses," Wolff said. "We expect to grow from 26%. Eventually, over time, I'm not going to put a date on it, we'll get to 30% then to 35% and eventually 40%."
Analyst Timothy Coffey, who covers Banc of California for Janney Montgomery Scott, characterized the quarter as "noisy," pointing to the one-time charges, but added it contained plenty of evidence to support a thesis where the company hits its 1.1% return-on-average-asset target by year end 2024.
According to Coffey, Banc of California exited 2023 with loan yields on the upswing and should benefit from about $130 million of cost saves as merger integration continues. "We expect the ramp in earnings power to accelerate after [a planned] systems' conversion in May," Coffey wrote Friday in a research note.
Investors appeared comfortable with Banc of California's direction. Shares rose sharply Thursday, closing up nearly 8% at $14.23.
