Good morning and welcome to the Banc of California Third Quarter Investors Call. All participants will be in listen-only mode [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Tim Sedabres, Director of Investor Relations. Please go ahead.

Thank you, Ed. Good morning everyone and thank you for joining us today for today's third quarter 2015 investor conference call. With me on the call today to discuss third quarter results are Banc of California's President and Chief Executive Officer, Steven Sugarman; Chief Banking Officer, Jeffrey Seabold; and Chief Risk Officer, Hugh Boyle. I'd like to remind you that today's conference call is being recorded and a copy of the recording will be made available later on our Investor Relations' website. We've also furnished a presentation that management will reference on today's call and that presentation as well is also available on our website under the Investor Relations' section. Before I turn it over to Steve, I'd like to remind everyone that as always certain elements of this presentation are forward-looking and are based on our best view of the world and our business as we see them today. Those elements can change as the world changes. Please interpret them in that light. The forward-looking statements are outlined on slide one of today's presentation which apply to our comments today. We also provide an opportunity for Q&A at the end of the presentation. And with that, I'll turn it over to our President and CEO, Steven Sugarman.

Thank you, Tim, and welcome to everyone joining our third quarter conference call. Let me begin on slide two of today's presentation materials. Our mission is to be California's bank, the top bank serving and empowering California's private businesses, entrepreneurs and homeowners. We initiated this mission five years ago by recapitalizing a California-based lending institution in the midst of the financial crisis. Our corporate board, investment group and executive team saw the impact on California's economy of banks pulling out of the state and reducing lending and other critical banking services. This exacerbated the economic challenges faced by Californians during that period. Even today, several of our larger California-based peers have recently been acquired by out-of-state institutions or have moved their headquarters out of state leaving a significant and important opportunity in the market that Banc of California is well positioned to capture. We at Banc of California are proud to have partnered with California, its diverse businesses, entrepreneurs and homeowners to support and benefit the state's bright economic future. Our goal is to serve California, its thriving communities and great customers effectively and consistently throughout the spectrum of market and business cycles. We seek to empower our client streams. We're excited by our prospects and our 1,600 employees work hard every day to exceed our customer and ultimately our investor expectations. Now, let me highlight how we're tangibly demonstrating this commitment. Over the past three years, we have grown the company from less than $1.7 billion of assets to approximately $7.3 billion of assets as of the end of the third quarter. We stand today as the eighth largest public independent bank in California. Since 2012, we have grown the company by over 330% in terms of assets while at the same time; we've grown net income by over…

Thank you, Steve. Beginning at slide eight, this slide outlines our continued strength in growing deposit balances. We believe we are winning market share throughout California by driving higher per account core deposit balances. This is a result of our focus on deepening client relationships. We believe that the average core deposit per account, the cost of those deposits and the number of cross-sells to that account holder are the best ways to measure our success at expanding our deposit relationships. Our business units brought in a record $511 million of net new deposits during the quarter. The company was able to reduce treasury and broker deposits by over $200 million during that same period, resulting in net deposits increasing by $317 million with an average cost of 49 basis points compared to 50 basis points in the prior quarter. Our focus on attracting and deepening client relationships has been a core strategy for us since Steve and I joined the bank. Our many great associates across the company have performed exceptionally well in bringing on new clients and developing those relationships. Our diverse deposit growth strategies continue to pay real dividends as non-interest bearing deposits grew by over $140 million during the third quarter alone and pierced the $1 billion threshold overall. This represents an annual growth rate of 121% for non-interest bearing deposits over the last year. Similarly, our private banking business saw its deposits grow by over 8% during the quarter to over $900 million. Our deposit costs have fallen from 77 basis points at their peak just two years ago under the bank's prior management to 49 basis points during the third quarter. Importantly, our growth was driven by winning more of the wallet share of our existing customers as the average account size increased by…

Thanks Jeff. I must commend Jeff and his team for their strong performance, achieving record deposit and loan originations during the quarter. Our strong core deposit growth is enabling us to bring our loan to deposit ratio lower and better in line with our most highly valued peers. We expect to lower our loan to deposit ratio to below 90% over the near-term and for this decrease to be driven by accelerating growth in our low cost core deposit businesses. This will result in continued growth of our securities and liquidity portfolio, leading to a reduction in our efficiency ratio and increase in our liquidity and an increase in our profitability from recurring net interest income. Ultimately, this will cause our balance sheet to better reflect those of our highly valued regional banking peers. Now, let me turn it over to Hugh Boyle, our Chief Risk Officer, to discuss our credit and asset quality.

Thanks, Steve. Asset quality at Banc of California remains strong and steady. Slide 10 in our investor presentation deck addresses some of our asset quality metrics and highlights our allowance for loan and lease losses. As of September 30th, 2015, total delinquent loans were $96 million and remained flat from the prior quarter. On a percentage of total loans basis, delinquent loans represented 2.03% of total loans, the lowest percentage of delinquencies experienced in the last five quarters. On a percentage basis, non-performing assets to total assets declined to 62 basis points, the lowest level experienced in the last five quarters. Year-over-year, our NPA to total asset ratio has improved by 28%. NPAs to total equity ratio has also remained at the low end of our five quarter actual experience at 7% this quarter and has improved 20% year-over-year. Based on the continued stability of our asset quality and the relatively benign macroeconomic environment, the bank's allowance for loan and lease losses or ALLL remained flat quarter-over-quarter at $34.8 million. The ratio of the ALLL to total non-performing loans is 77%, an increase of 17% year-over-year. I direct your attention to the bottom half of slide 10 for a deeper dive. Banc of California's held for investment loan portfolio is comprised of originated loans, loans acquired through acquisition, and purchase loan pools. Let's take each of these three loan types and drill down a little deeper. The originated loans represent loans originated in our normal course of business. Once these loans are funded and booked, they become ALLL attributable on day one, meaning that we are required to book the appropriate ALLL reserve as we book the loan. The ALLL is based on both quantitative and qualitative factors and follows all regulatory and accounting guidance. These originated loans do not…

Thank you. Finally on slide 11, we outline our outlook for the end of the year and provide preliminary guidance towards 2016. We at the management team are focused on delivering against our commitments to shareholders, including all operating and financial guidance we have provided to investors. We're proud to continue to meet our public guidance and deliver against these promises. We believe it is important to track our guidance and provide updates related to our success, delivering results to meet or exceed the guidance. In April of last year, management announced the acquisition of the California banking franchise of Banco Popular and indicated the transaction would be accretive in its first year, inclusive of related capital issuances, would generated over $30 million of net interest income and would generate an IRR over 20%. Today, one year after the close of the transaction, we can confirm that the BPOP acquisition has exceeded each of these targets. We've retained all of the top lending relationships, approximately 90% of the deposit balances and have completed a payback period of less than one year with profitability exceeding expectations. In May of last year, management set financial targets for year end 2015 run rate with respect to return on average assets, return on average tangible common equity, and consolidated efficiency ratio. We also set run rate targets for the overall business mix in terms of pretax profits generated by our three business segments; commercial banking, mortgage banking, and wealth management. We remain firmly on target to meet or exceed each of these targets, notwithstanding the drag from one-time items. Meanwhile, we have successfully transformed our business mix such that the commercial banking segment was responsible for 75% of our business segment pretax profits during the third quarter. This was up from 25% as of…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Gary Tenner of D.A. Davidson. Please go ahead.

Hey guys, good morning.

Good morning Gary.

Sure -- good morning. I just had a couple of questions. I guess, first, I wonder if you could break out on the gain on sale line. How much of that was mortgage versus what looks maybe like some sales in commercial real estate et cetera?

Sure. Our gain on sale from loan sales is characterized in two different places on our income statement. One is mortgage banking activities and the other is loan sales. So, I presume the line that you're looking at includes our loan sales that come from sale of the single family loans, SPA loans, the loans from our sale of our two branches this last quarter and represented approximately $9.7 million of loan sale. This is part of our ongoing business of managing our portfolio and recognizing gain on sale gains within the commercial banking segment. The mortgage banking gain on sale from bank home loans is reflected in a different line.

Okay, so the $9.7 million gain on sale of loans, how much of that was from the loans sold with the branches?

The branch sale, gain on sale was just $1 million.

So was most of that SBA or what was the driver of the increase in that line?

Yes, sure. The branch sale was $600,000 and the rest was a mix of our single family loan sale business that's been kind of ongoing for each of the last several quarters over the last couple of years and SBA loan sales. Additionally, and importantly, during the quarter, we also had our first Freddie Mac portfolio loan sale of multi-family loans, which is a business we're very excited about. We became a Freddie Mac approved seller during the third quarter and it's something that we anticipate will have positive benefits for shareholders on a go-forward basis.

And do you expect that to be a quarterly, current, semiannual, any sense of how often you would do something like that?

The program under Freddie Mac is for low balance multi-family lending, which is generally the business we're in. It becomes a function of our origination capacity to build the adequate size and then market pricing versus holding the loans for investment. Generally, we will sell loans only as we reach close to or above $100 million in size and so the accelerating commercial bank origination number becomes important to the velocity at which loan sales will occur.

Okay. Thanks for that. And then just a question in terms of kind of the balance sheet management, obviously, pretty sizable increase in securities in the quarter on an average basis, and then period end as well. So, would you talk about how you're going to kind of manage that portfolio relative to the size of the overall balance sheet on a go-forward basis?

Sure. It's important to know that we entered the quarter well below our highly valued industry peers with regard to the size of our securities and liquidity portfolio and in some cases, by almost 50% to 100% margin. As we move forward, we would expect our loan-to-deposit ratio to come down. We've provided guidance today that we would target it coming down to 90% or less, to bring us more into line with our highly valued peers. This process will result in a larger relative size of our securities portfolio and also it will be managed to prudently evaluate and protect against interest rate risk and duration risk and also with an eye towards classifying securities acquired and available for sale versus held to maturity. During the quarter, we saw over a 50 basis point decrease in the portfolio duration and we also remixed to our securities to reduce the potential for extension risk in a rising rate environment. So, we believe that as we grow our securities portfolio, in the third quarter, we also reduced duration and reduced extension risk issues.

Okay. Thanks for the color.

Our next question comes from Andrew Liesch of Sandler O'Neill. Please go ahead.

Hey guys. I guess just following up on the balance sheet here, the big increase in the FHLB advances, was that to support the liquidity of the new securities added and will those eventually be paid down once deposits come in even stronger?

Yeah, I appreciate the question. Now, what you saw on FHLB was primarily just a spot mark period end which was driven by some remixing of deposit balances across the period end. To update kind of guidance to today, we currently stand at approximately $590 million of FHLB borrowings. So, over the last couple of weeks, it's come down about $240 million. And FHLB is primarily used as an interest rate management tool which results for us in approximately $400 million of that $590 million being termed out in the lattered structure to help manage our interest rate risk and EVA [ph].

Okay. So, that's very helpful. And then just maybe if you can provide an update on the mortgage business so far this quarter, what trends are you seeing there as far as gain on sales revenue tenure?

Sure. Gain on sale revenue in the mortgage business as a percent of loans was with actually a bright spot during the third quarter as we saw increases which were really result of the positive management capabilities of remixing the origination channels to the higher value mortgage origination channels. So, gain on sale and even as we track forward to this quarter, we're seeing similar trends as the third quarter on the gain on sale margin. The key thing for us on this because we're having very good results in protecting our gain on sale margins by origination channel and loan type, the key thing that we track is the mix of the loan types and origination channels within our mortgage banking activities. And what we're seeing is an improved mix of more originations coming from our retail channels over our third-party channels. And so our volume reductions have really been in our lower margin businesses, which is a positive.

Got you. That's helpful. And then, just along those lines as well--

And Andy, I'll just add that one of the things that we like about our retail distribution channel is exactly that where we're able to manage our business, we believe a little bit better given that it's a retail channel than certain businesses that focus primarily on third-party originators.

Right. And then just as far as purchase versus refi, I would imagine that refi is falling off a little bit this quarter. Just curious what you've been seeing there?

I think over time, we track the longer term expectation around 60% purchase and we're seeing that as the level of the originations are coming out to over the last couple of months. So historically, we've seen some bundles in refis and we've seen some volatility in that number, but the 60% purchase number is what we're seeing in current market environment.

Okay, very helpful. Thanks.

Our next question comes from Don Worthington of Raymond James. Please go ahead.

Good morning everyone.

Good morning Don.

One question on just the contribution from Palisades in the quarter, was that primarily advisory fees or where there some liquidity event profits in the quarter?

No, it was primarily advisory fees and recurring income streams. The segment financials for Palisades Group will show that their pretax profits were off quarter-over-quarter and that's mostly because the third quarter reflected primarily just advisory fee economics.

Okay. And then probably about a year away from this, but in terms of the $10 billion asset threshold, is the bank kind of prepping for that and incurring any cost related to crossing that threshold? It looks like 2017 event at this point.

Yeah, the implications from crossing the $10 billion threshold is something that's on our minds. However, we'd point out that, at this point, it's almost impossible for the impact to be prior to 2017 and more likely to be 2018 or beyond. So, the things we're doing investing in our platform are being done to build a prudent and scalable platform. The investments we're making in our stress testing is being done to help us to ensure that we have a prudent and analytically driven capital model. And so these are the things that we're doing because we believe that they are the right way to manage the business. That being said, there is a high degree of overlap between those things that we do for our own management purposes and those things that would become more of a regulatory requirement, should we go over $10 billion. So, I wouldn't characterize costs as any cost that we're incurring exclusively to go over $10 billion. We're trying to run our business prudently and safely for the pace of growth that we have, for the diversity of our business function and to ensure that our capital plan and stress testing adequately protects the bank and our shareholders through various market cycles.

Okay, great. Thank you.

Our next question comes from Tim Coffey of FIG Partners. Please go ahead.

Great. Thank you. Question, what was the volume of loans sold out of mortgage unit this quarter?

Within BHL, we sold, I believe, just over $1 billion of mortgages. Just give me one second, and I'll give you an exact number, but we anticipate trying to sell -- we anticipate trying to sell generally an amount equal to our production. Our sales in the quarter is $1.17 billion, so for this quarter, we actually outsold our production marginally.

And you said that 60% of that of the production was purchase?

Yes, 59% to be exact was purchase. It's not always a 100% tied for the same quarter purchases and sales because there is some overlap for about a quarter, I mean, for about a month or so of the quarter, but yes, about 59% was purchases. Also importantly, our retail channel originated between 70% and 75% of our overall originations during the quarter which we view as a very strong metric.

And then in the loan portfolio, the held for investment portfolio, commercial loans, commercial real estate has come down in the last quarter. Is that a function of pay off?

This is a function of a few different factors, but yes, there were payoffs and pay-downs. Additionally, as part of the Popular Community Bank acquisition, there is a one-year post-flows period by which we evaluate the loans that come on in the books before we close off the day one accounting from that acquisition. We have undertaken a pretty material and focused loan level review of our loans and for those loans that are owner-occupied commercial real estate, but underwritten primarily on the financials of the business as opposed to commercial real estate that is non-owner occupied or investor type properties, we -- our analysis sought to standardize the categorization into our policies and our OCC guidance and that resulted in a shift which is part of the day one accounting for Popular where C&I lending primarily increased and it came from, in large part, CRE owner occupied categories.

Okay. Do you anticipate that trend continuing -- that review continuing into the fourth quarter?

No, that review is largely complete. I would be surprised if -- I think it would be appropriate to assume that the categorization today reflects the result of our work as part of this integration process. It's also meaningful to know that our C&I lending is now a bigger portion of our loan balance sheet than either traditional CRE lending or multi-family lending, based on kind of the completed loan level review across our organization.

Okay. And then the single-family residential mortgages on the loan held for investment portfolio, the increase there, was that any kind of inter-balance sheet transfer like last quarter?

No. Given our capital and financial position, we evaluate from time-to-time our originations and determine whether such originations will be made for investment or with intent to sell. It's something that we believe allows us to attract the top quality producers because they know that they will always be able to produce high-quality and financially attractive loans on our platform because they will not be shut off due to balance sheet-type constraints. Given where we are on capital and on our business and on really accelerating deposit growth, our management determined that the originations within that channel, at least the highest quality originations within that channel would deliver our shareholders the highest return if they were placed into our HFI. So, there is no material intercompany transfers. This is all just from new originations during the quarter that went straight to HFI.

Okay, that's helpful. And then my last question is, given your growth, you kind of discuss your view of your capital levels currently and in relation to your expected balance sheet growth going into next year?

Sure. Capital and growth are thing that we give a significant amount of thought and analysis towards. The way that we manage our balance sheet and think about our capital levels is based on a very rigorous capital planning and stress testing regime. We've adopted the principles of DFAST and take our portfolio through stress testing of adverse, severely adverse and some idiosyncratic stresses to ensure that like larger banks, we have a way to analytically test the capital impact from severe or adverse market conditions. What we do is we look to ensure we have adequate capital to withstand any scenario and then we add a buffer to that to ensure that we have adequate capital to have a prudent buffer so that we're not operating too lower levels. A lot of the benefits we're seeing from the diversification of our business mix and also from the expansion of our securities portfolio is to ensure that we have an appropriate level of capital and the benefit of a diverse portfolio and diverse business mix is less significant deterioration in capital on stressed market environment. So, we put our capital structure and our capital levels through this DFAST consistent approach and ensure that we are well-positioned. We've previously given guidance that for our business plan we did not see a common equity raise in the near future. We believe that with our guidance today, we're well-positioned with regard to capital and then we're able to execute against our plan as laid out in the preliminary guidance.

Great. Well, Steve thank you very much. Those are my questions.

[Operator Instructions] Our next question comes from Jacque Chimera of KBW. Please go ahead.

Steve, I wonder if you could provide some color on the increase in the balances per customer, is that from just existing customers continuing to deposit more money, or are you seeing your new customers having a larger balance account like you've got on the portfolio already.

I think that there is a mix. We are actively making -- improving the alignment between our value proposition and our customer base through honing our pricing and deepening our relationships. Some of our new businesses that we have launched have higher average account size metrics than some of the existing businesses. That results in greater operating efficiencies and also a more targeted and aligned customer base. Also some of our activities that you've seen over the last quarter have the positive result of increasing average account size, including the branch sales that we completed and also certain other activities. I think you'll see the benefit from an increased average deposit account size come through in future quarters through better operating leverage that isn't fully realized in the first quarter. But when you think about business and mix, just as an example, our private banking segment has seen really positive growth. Their deposit mix was up, I think close to 8%. And I believe their overall balances are up from a deposit side over 50% since we acquired the franchise. Actions like that, where you have real success and momentum coming from a segment like private banking, which tends to be a higher quality earnings stream and a higher multiple earnings stream, but also tends to remix your portfolio towards an higher average account size.

So, is private banking then a main contributor to the success you've had in growing your non-interest bearing deposits or are there other sort of incentives that you might have like reduced fees for borrowers as they meet certain threshold things like that?

No, it's not a -- we're not selling on the financial. We're looking to lower our cost-to-deposits and improve the earnings. So, during the third quarter, we actually saw very strong deposit growth numbers from every segment within commercial banking. It was a positive quarter within each segment or within each unit. When you think about some of the initiatives we've put in place over the last couple of years, one of them was our C&I bank where we've hired and recast the organization to really have a deposit focus first. They are starting to gain traction and in that process, they built out the platform, reorganized their efforts and they had a very positive third quarter. I mentioned the private bank; our community banking segment also had a positive quarter and continues to see real momentum towards deposit growth within our retail branch network. Also the same for some of our specialty lines of deposits that also saw meaning deposit growth. So, it's not a story of a single person, team or unit. It was strength across the platform.

That's very helpful. Thank you. And the new office space announcements that you recently made, what do you expect that to contribute to your efficiency goal once the move is complete and everything in the phase?

Yeah. I appreciate the question. I'm not -- it will contribute once the move is complete to our efficiency, but I won't expect it to be a material lever in that regard, we have more material ways to contribute to efficiency. The thing that we're most excited about is the operating leverage we can get from consolidating our operations and staffing into a single location, the more effective communication, the more and what we believe will be a better kind of credit and risk culture, but also a better way to serve our customers with greater speed and agility through more streamlined communication and location, so we believe that having a space like that is a strategic benefit to us, but while it may have an impact on efficiency at the margin, that's not the driver of that. It's important to note that this building is near our current location. It also happens to be near the prior building that we considered for our headquarters and it is a more economically efficient use of capital we believe, given the repricing and revaluation we saw with the prior building, the decision just is appropriate to sell that prior building and acquire this one because it is a much more efficient use of our capital and economically makes a lot of sense.

The owner-occupied CREs that you re-evaluated during the quarter, did that have an impact on the change in goodwill or was it something else that drove that?

The changes in goodwill is part of the exact same process. So, looking through the Popular Community Bank acquisition and making sure we're appropriately reserved against loan portfolios, the loan portfolio and then we also think through our credit loss protection from Banco Popular, after kind of conducting very rigorous and deep analysis, we feel comfortable with where we are now as far as our day one accounting. That being said, as Hugh Boyle mentioned, I believe, in his comments, we continue to see very strong credit results from the Popular portfolio. This portfolio continues to have the credit risk that is similar to what it was on day one and as we say here today, we are not a level where we will currently be triggering the loss share provision because the performance of our portfolio has been strong, but this was kind of an accounting day one analysis that resulted in the mark and when you look at the Popular day one accounting with regard to the loan book and consider the mark in terms of both rate and credit, it's coming in at just under 2%. So, we think that's a prudent number, all things considered.

And then just one last one if I could, if you could just provide whatever update you can on how the CFO search is going?

Sure. I think that we have a very thoughtful and positive process. We've seen very strong candidates both externally and internally and have been very happy with our progress. What I think I'm most pleased about is in going through the process, you get to really look at the talent and strength of your team and think through needs and opportunities and what's really kind of emerged is clarity on the real talented, experienced and strong financial team we have that focuses on our capital markets activities, our treasury activities, our accounting and our strategic planning and with that, as I mentioned in my comment, we believe our transition is going to be seamless. We don't see risks and we're proceeding apace and expect to have an announcement for you in the near-term.

Okay, great. Thanks for all the color and answering all my questions. I appreciate it.

Thank you, Jacque.

And thank you, this concludes our question-and-session. I would now like to turn the conference back over to Mr. Steve Sugarman, President and CEO for any closing remarks.

Thank you everyone for joining us today. We look forward to speaking with you again for the year end recap. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.