Good morning and welcome to the Banc of California First Quarter 2016 Earnings Conference 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 this event is being recorded. I would now like to turn the conference over to Tim Sedabres. Please go ahead.

Thank you and good morning everyone. Thank you for joining us for today’s 2016 first quarter earnings conference call. Joining me on the call today to discuss first quarter results are Banc of California’s Chairman and Chief Executive Officer, Steven Sugarman; Chief Financial Officer, Jim McKinney; Chief Strategy Officer, Fran Turner; and Chief Risk Officer, Hugh Boyle. I’d like to remind everyone that today’s conference call is being recorded and a copy of the recording will be made available later on the Company’s Investor Relations website. We have furnished a presentation that management will reference on today’s call and that presentation is also available on our website under the Investor Relations section. Before I turn over to Steve, I want like to remind everyone that as always elements of this presentation are forward-looking and are based on our best view of the world and our businesses 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 1 of today’s presentation, which apply to our comments today. We will provide an opportunity for Q&A at the end of the presentation. And with that, I’ll turn it over to our Chairman and CEO, Steven Sugarman.

Thank you, Tim. And thanks for joining Banc of California’s first quarter earnings call. Let me begin on Slide 2 of the presentation. Banc of California continues to see accelerating success growing our franchise value. We are continuing to deliver industry-leading asset and earnings growth including first quarter growth of $1.4 billion and annualized pre-tax income of over $130 million. Since the end of 2014 we have grown the Company organically by $3.6 billion or 60% in just five quarters. This has resulted in another quarter of record earnings, improving operating efficiencies and dramatic success winning market share and attracting California's top banking talent. We’re finding that winning is resulting in more winning. Banc of California success is defined by our team's tireless focus on empowering California through its diverse businesses, entrepreneurs and communities. We have built a product suite that collectively meets the comprehensive needs of our clients. We offer multiple banking channels for California’s entrepreneurs and business owners to access our services. We have built the spoke lending businesses tailored to the needs of our marketplace and we have developed a powerful culture based on local decision making and an entrepreneurial spirit. We are California's Bank. The credit for the bank's success resides in the talent of our bankers who serve our clients so well and of our banking professionals who ensure our operations are sound, our risk is well-managed, our credit is strong and our capital is robust. For this reason approximately three years ago, the Board made the decision to ensure that all of our employees were aligned with our shareholders. And the Board approved our employee stock ownership program that enabled all employees to become shareholders and participate in the value they create for our franchise. Our employee shareholder culture distinguishes Banc of California as…

Thank you, Steve. Slide 5 highlights the earnings mix by business segment in growth and net interest income for the first quarter. We continue to be focused on building the contribution of earnings coming from the Commercial Banking segment with the target of over 80% of earnings coming from the Commercial Banking segment. This stable and predictable high quality earnings stream supports lower earnings volatility and stronger financial returns that creates superior returns for our shareholders, reduce our cost of capital and expand the base of California businesses, entrepreneurs' and communities we can reach and empower with our solutions. For the first quarter the Commercial Banking segment accounted for all of the Bank's profits it is responsible for driving net interest income $8 million higher compared to the prior quarter. Important to note, Commercial Banking period and balances were substantially higher than average balances for the quarter. This is expected to support accelerated net interest income growth in future quarters. Turning to the Mortgage Banking segment, the segment was negatively impacted during the quarter by $10 million of the $11.3 million negative fair value adjustments on the MSR portfolio and certain interest rate swaps. We expect mortgage banking profits to accelerate into the second and third quarters. As the first quarter is typically seasonally slow and we are seeing positive trends in the second quarter, which is generally a much stronger origination window. With the completion of the previous announced Palisades Group sale we expect going forward to eliminate the Financial Advisory segment. Importantly this sale will eliminate all subsidiaries of the holding company except for the bank. We view this as a positive impact on items relating to the holding company risk and regulatory cost. Lastly, this slide highlights the benefits of our diversified business platform. Our interest rate…

Thank you, Jim, and good morning everyone. Asset quality at Banc of California remains strong and stable. Slide 10 in our investor presentation deck addresses a few asset quality highlights and our allowance for loan and lease losses for ALLL. Overall for the quarter, the bank experienced improving asset quality metrics. On a percentage basis, non-performing assets to total assets declined to 46 basis points, the lowest level experienced in over two years. Year-over-year, our non-performing assets to total assets ratio has improved by 25 basis points or 35%. Non-performing loans to total gross loans also improved to 81 basis points in the quarter down from 87 basis points at Q4 2015 and down from 109 basis points for the prior year. OREO declined to just 325,000 at quarter end. Based on the continued stability of our asset quality and the relatively benign macroeconomic environments, the banks ALLL increased by $300,000 to $35.8 million. Net loan growth was the key driver of provisions and the increased level of reserves. Banc of California’s ALLL to non-performing loans ratio improved during the quarter to end at 81%. When both the ALLL and fair value discounts are combined relative to total HFI loans, the bank has a 2.47% reserve coverage ratio at quarter-end. With that, I’m now happy to pass it over to Fran Turner, our Chief Strategy Officer, who will discuss our $10 billion readiness plan.

Thank you, Hugh. On Slide 11, we summarized key components of the impact of crossing the $10 billion assets threshold. There are five main categories of regulatory changes that come into play related to the $10 billion mark. They include stress testing, FDIC surcharge, Durbin, CFPBand Board Governance Enhancements. I'd like to share how Banc of California has assessed each item and why we are well prepared to tackle the additional requirements of a greater than $10 billion institution. To begin, as related to DFAST stress testing this requires institutions to annually prepare and submit a comprehensive stress test of its balance sheet and income statement. We expect to become subject to DFAST compliance in 2018. The Company has implemented an enterprise wide comprehensive stress testing program and has conducted stress testing for more than two years. We already have in place a robust credit risk analytics team with access to granular loan level data and a data warehouse and business intelligence platform to support the data and infrastructure needs to support the teams and their analysis. Additionally, we also have in place a strong ALM platform for asset liability management and interest rate risk management and have enhanced our treasury and ALM teams over the past year. We expect to fully integrate the credit stress testing to the same platform over the course of 2016. As a result of these teams and systems in place today, we expect limited additional expenses related to DFAST compliance. Importantly the implementation of our DFAST consistent methodology is already positively impacting the management of our business. The recent example of this as this past week's payoff of senior debt, which will positively affect earnings during the second half of 2016. DFAST relate to analytics have supported our decisions to take these positive steps…

As always, we continue to ensure that our governance, corporate structure, policies and strategic planning best positions us for success. This process has been a heightened focus given our approaching $10 billion in assets. To that end during 2016 we liquidated PTB Property Holdings LLC and announced the sale of the Palisades Group. This leaves our bank is the only subsidiary of our holding company and simplifies our organizational structure and therefore simplifies regulatory considerations at the holding company level. Also we have simplified our capital structure and de-levered our balance sheet by paying off $42 million of SBLF and $85 million of senior debt. We have also restructured and expanded our revolving line of credit with Wells Fargo, enhanced and tested our repo relationships, expanded our contingent sources for liquidity, and introduced other risk and balance sheet management strategies including updated concentration limits and capital policies. This improves our overall DFAST results, and further enhances the banks liquidity and capital quality. Management and the Board are also conducting a robust assessment of our business policies to ensure we continue to have robust liquidity and capital in diverse market conditions. We feel very good about the strength and soundness of our balance sheet and intend to protect the value of the franchise we have built. We are well prepared to meet the obligations that come with $10 billion of assets. Now turning to Slide 12. We continue to deliver market leading compound annual growth rates for asset growth, loan growth, and deposit growth, all of which are in excess of 60%. More importantly, earnings per share has grown from $0.39 in 2012 to $1.34 in 2015, and it’s expected to grow to a $1.60 or more in 2016. We continue to remain confident in the team's ability to drive accelerating earnings and EPS growth throughout the year as core earnings increasingly are being driven by net interest income. Slide 13 reiterates our guidance for 2016. We are focused on continuing to win market share and to grow the franchise and attractive returns for shareholders. This includes our target returns of 15% on tangible common equity and 1% on average assets. Achieving both of these return metrics while growing the Company at the pace we are experiencing, we will continue to drive the accelerated earnings and profitability of Banc of California. It will also enable us to create even more value for our shareholders. We are proud of our first quarter results, and we look forward to sharing our continued successes with you over the remainder of the year. That concludes our formal comments today. Operator?

Yes. Thank you. We’ll now begin the question-and-answer session. [Operator Instructions] And the first question comes from Andrew Liesch with Sandler O'Neill.

Hi guys.

Hi Andrew. Good morning.

Good morning. So, a question on the build in the securities portfolio this quarter. You had mentioned growing that, I think to around 25% of assets but now it looks like it's closer to 27%. Just kind of curious your thoughts on that. Are you going to deploy that into loans, move that back down to 25%? Where do you think that's a good level for that to be?

Yes, thanks Andrew. During the first quarter, we raised just north of $200 million of additional capital which enabled us to accelerate and execute against our plans to grow the securities portfolio and deploy the capital especially with robust deposits coming in. So, we were successful in increasing the securities portfolio to a level that we feel comfortable. We would expect that it would continue to grow more or less in line with asset growth over the course of the rest of the year.

Okay. That's very helpful. And then just on the yield side here, on the margin, it looked like both loan and securities yields were up. I was curious, were there any benefits from the rate hike in December? What was causing that those increases?

Yes. So you know we were very proud of the execution of our business units we took a pretty focused view of pricing during the quarter on our loan portfolio and that enabled us to hold the yields tight. There was some benefit intra-quarter and the fourth quarter from the increase in rates, so I think that affected just north of $0.5 billion of our loans immediately and others over time. But generally speaking we took the interest rate environment and the opportunities of the last quarter and several quarters to use our capital market functions to sell some of our lower-yielding loans to originate at - what we believe are attractive and consistent prices. And I think it's reflected in both the securities portfolio and the loan portfolio.

Got you. And then just a quick question on deposit costs. It looks like maybe they increased a basis point. I would have expected maybe some improvement just with the great no cost deposits that came in this quarter. Just kind of curious on what's happening on costs there.

Sure. The funding costs were actually very positive story for us this quarter. If you look at it by the deposit segments we saw great progress across the Board including especially in our non-interest bearing deposits. However, we brought down materially any broker deposits that we had and oftentimes some of the brokered or wholesale brokered deposits had low, but variable cost structures. And so we remixed our deposit franchise in a way where we have much stronger core deposits, much longer durations and reliability we believe but although the different segments decreased the mix kept the deposit overall yield pretty steady.

Okay. Very helpful. Thank you.

Thank you. And the next question comes from Tim Coffey with FIG Partners.

Good morning, everybody.

Good morning, Tim.

I wondered if I could get some information on the mortgage production in the quarter, what exactly your mortgage loans sold were and what the margin was.

Sure. Within our bank home loans mortgage banking division that will be reflected kind of in these business segment numbers. But our overall margins were down slightly during the quarter and our originations were also down off of that 2015 run rates, most of that we attribute to the seasonality of the first quarter which tends to be seasonally lower than other quarters. We would expect and we continue to expect to see increasing overall originations and we don’t see any long-term impact on our margins. Mostly what I think you'll see in the first quarter is consistent with prior period’s seasonality.

Okay. So maybe I can follow up later then on what those numbers were. And then within non-recurring expenses, what were those non-recurrent expenses related to the offerings this quarter?

In the first quarter the expenses relating to the offerings tend to be capitalized within the cost of the offerings. So there was not a material number relating to the two capital offerings. You will see in the second quarter $2 million to $3 million of increased expenses relating to the payoff of our senior debt those are expenses that were capitalized when we issued the debt that were still amortizing through but the payoffs get accelerated into the second quarter.

Okay. That's very helpful Steve. Thank you. And then on the increase in TDRs, I might have missed it in the prepared comments, but can you kind of provide some color on that?

Sure. Within our seasoned loan portfolio, historically we've bought certain loans that we have a path to restructuring and holding these tend to be lower LTV loans or loans within our strategy. What we saw this quarter is that there were loans within that portfolio that we were successfully able to restructure. All of them continue to be within our purchase strategy and are consistent with our expectations when the loans were acquired.

Okay.

Jim, would you like to add to that.

And I think you see that right. If you haven't seen a material change kind of from our provision expectation from that front. And so essentially well you've seen kind of a change in the categorization driven by kind of the accounting literature. Our expectations that Steve mentioned relative to the overall performance yield cash flows. Those points haven't changed.

Right. That would be consistent with what I'm seeing. Okay. And then, obviously you had a big gain on the sale of securities this quarter. Is that something that you plan on - we could see in forward quarters this year?

No, well I can tell you two things on the securities, one is we finished the quarter with the unrealized gains on our securities book meaningfully above where they started the quarter. So you saw meaningful unrealized gains within that portfolio during the first quarter. So we're not looking at pulling forward unrealized gains that existed before the beginning of the quarter. This is all intra-quarter. But what you really see here is that from a portfolio and risk management approach, we are highly cognizant of the impact of things like MSRs in our swap portfolio on - the impact that rates can have on those securities. And so we use and look to our overall balance sheet and balance sheet strategies to be able to offset fluctuations from those portfolios and to opportunistically manage our balance sheet, so that instead of providing you adjusted core earnings, we strive to just have consistent core earnings. And so the securities portfolio gains in large part were in intra-quarter recognized gain that were correlated with the intra-quarter fair value losses you saw on the MSR and other financial instrument portfolios.

Okay. I think I understand. And then if we - the comments on new loans, yields on new loans during the quarter being at 4.2% and the yields on the loan portfolio at quarter end being higher than that, is there a reasonable expectation we could see some more NIM compression as we go through the year?

Yes, no. There is always the potential for volatility and NIM, but you have to remember, we managed our portfolio with those are held for investment and held for sale component, and we also managed our existing portfolio where we have the capital markets capabilities from time-to-time if the market conditions require to hold or sell loans or securities effectively. So what you see I think from the new origination, the combination a lot of our originations especially for sale tend to be asset classes that may have lower coupons then some of our originations that get held.

Okay. Great. Well, those are my questions. Thank you for the time.

Thank you.

Thank you. [Operator Instructions] And our next question comes from Jacquelynne Chimera with KBW.

Hi, good morning, everyone.

Good morning.

Looking to asset growth that you have, Steve. So when I - based on the $8 billion in originations that you're expecting in the quarter and then I look to the large amount of asset growth that you've had over the past several quarters, if I look at the upper end of the $10 billion to $11 billion asset guidance versus growth that you have, it suggests a slower level of asset growth over the coming quarters. So when I look at that and the $8 billion, I would think that loan sales could pick up given that you wanted to keep the securities growth in line with asset growth. Am I thinking about that properly?

Look, we measure the organization regularly from a risk and kind of business standpoint, and a lot of the growth is driven by what we believe we can attract in a core fundamentally sound way. I remember back to early last year where we slowed our growth a little bit through additional sales and received some questions about whether our platform could continue to grow at the pace we had historically grown. I feel really good that we have the optionality to grow the NII through assets or to manage the portfolio and prune it through our capital market function. We look at that every quarter. I would tell you we’ve provided some guidance earlier that we expect our gain on sales from loan sales to revert back towards what we're seeing last year and I think we've gave a guidance that is closer to $6 million to $8 million not every quarter, but kind of on an average run rate quarter and this quarter was materially below that. So you also saw some HFF loan build where that number went up and some of that resulted in the increased assets that we have, so we have a larger inventory available for sale. We have confidence that that inventory would recognize prices above their carry prices, and we look to the market into our business to determine what the right mix of asset growth versus gain on sale is from time-to-time.

Okay. So is it fair to say that the $10 billion to $11 billion estimate is where you're thinking based on what the market looks like right now, but if things were to change, you may decide later in the year that you might like to keep some additional loans rather than selling them so asset growth could be beyond that?

I mean sure that’s a fair summary, we recognized the high quality deposits and loans that generate net interest income or the highest value and best long-term franchise builder for the banks. So there are opportunities to achieve that without pressuring capital liquidity or operations or other risks. We would look to achieve that. So our best estimate that we've provided in the guidance is a balance of those factors, but we are seeing and even this week we've been fortunate enough to announce the addition of some really exciting new talent especially in our commercial banking and SBA lending groups. To the extent that we saw earlier attraction or accelerated traction from some of these folks or from our existing folks that that could change our views.

Okay. That's really great color. Thank you. And then looking to the sale of the TPG group, can you just provide a little bit more color on maybe the promissory note and particularly on the earn-out period that you're expecting and then if you would anticipate any sort of a gain on sale from the transaction.

Sure. The Palisades Group transaction is expected to close in the next few weeks. So we'll be able to provide a kind of a day-one accounting shortly after that. We do anticipate a gain on sale although not materially large number. That being said, we have retained upside within this agreement where over the next several years we could receive up to $20 million or more of payments that are subject to certain performance conditions. We would expect that the first couple years - the first year or two that might be more concentrated on whether those earn-outs would be realized. We haven't filed the complete documents yet, so I’m a little bit unable to get into materials that we haven't filed on the call, but we feel very good about the Palisades Group, we think they have a bright future. We're really excited to continue to participate in their upside and we're equally excited about the simplifying effects of the transaction. The downside risk that's been taken off the table with the transaction and the effects on our efficiency ratio and the focus of our management team in operations where our team can really focus on scaling and growing those business that are right in our sweet spot without distraction.

Okay. Thank you. Then just one quick little house cleaning one, so in the prepared remarks you had mentioned $11.3 million in fair value marks. I just want to make sure I wrote that down correctly. It was $10 million from the MSR and $1.3 million from the swaps?

Jim mentioned those two numbers yes related to the financial instrument fair value marks that we saw as directly related to the interest rate movements in the first quarter.

Okay. Great. Thank you very much. I'll step back now.

Thank you. And the next question comes from Don Worthington with Raymond James.

Good morning, everyone.

Good morning, Don.

Just a couple minor follow-ups. In terms of the DEA growth, non-interest-bearing deposits, would you characterize that as coming mainly from new account relationships or increasing balances with existing customers?

There was clearly a mix. However a big part of that mix this last quarter was from new accounts. We continue to see progress on existing account relationships and growing our pocket share within those accounts. But we're also really starting to see the benefits of some of the great new talent we've brought in and the relationships where we’ve been starting to build here in California where we're seeing a lot more in word inquiry on relationships. We're seeing a lot better brand presence and exposure. And we believe that as we continue to grow out our teams. We're getting some of the best relationship managers in the region and we're very excited about that. And you know we’re hopeful to continue to see promising returns from those investments.

Okay. Great. And then last question. On the increase in the line of credit with Wells Fargo, is there any specific purpose that you're looking at for that line usage, should you take down borrowings or is it more just a flexibility issue of having that in place?

Yes, it's more of flexibility issue I talked in my comments about our initiative to review all aspects of our balance sheet. As we approach the $10 billion mark including the impacts on DFAST what we found was having that flexibility capacity was very helpful. When we think about our continuing source of liquidity and it also is very helpful with our decision to call and repay our $85 million of senior debt where we had been finding a large amount of that senior debt that was outstanding at a 7.5% yield was sitting at our holding company and not being deployed into assets that earned back the cost of that debt. So expansion of the facility also enabled us to have the confidence that we have the capital we need - if we need without having to take on a 7.5% yield in the meantime.

Great. All right thanks Steve.

Thank you. But as there are no more questions at the present time. I would like to turn the call over to management for any closing comments.

Thank you, everyone for joining our call this morning. We appreciate your support and interest in Banc of California and we look forward to keep you updated throughout the rest of the year.

Thank you. The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.