[Management View]
Banc of California's management executed a strategic sale of commercial real estate loans at an estimated 95% of book value, optimizing the balance sheet and supporting a material reduction in credit risk exposure. The bank’s origination activity was diversified, with growth in lender finance, fund finance, and single-family residential loans contributing to portfolio remixing and higher yields. Management signaled flexible deployment of the share repurchase program and indicated that capital and liquidity remained resilient after significant buybacks. Expense discipline was observed, with actual costs tracking below guidance despite increased infrastructure and staffing investments. Noninterest income variability was managed, and margin expansion was achieved through effective asset repricing and funding mix. The credit profile improved, as evidenced by declines in nonperforming, classified, and special mention loans. A measured approach to additional provisioning was noted.

[Outlook]
Management is guiding to mid-single-digit asset and net interest income growth for the back half of 2025 and expects to achieve margin target range in Q4. The bank remains optimistic about its growth trajectory for the remainder of 2025, with estimates for 2026 growing higher. The digital account opening platform launching this quarter is positioned to drive nationwide deposit growth and complement branch-based expansion.

[Financial Performance]
Pretax, pre-provision income grew 6% quarter over quarter, supported by revenue growth exceeding a slight rise in expenses. Achieved 9% annualized loan growth, with broad-based commercial loan production driving the increase. Net interest income rose 3.4% quarter over quarter to $240 million, primarily from loan growth and higher yields. Net interest margin expanded to 3.1%, with spot NIM at quarter end of approximately 3.11%. Reported net income of $18.4 million, or $0.12 per share; adjusted net income of $48.4 million, or $0.31 per share.

[Q&A Highlights]
Question 1: Just on the loan sales, you know, the loans sitting in held for sale, looks like they are kind of ranging in that 5.3% to 6% yield range. I guess, what is the plan on the other side of the balance sheet? What do you plan to unwind and at what rate?

Answer: We have been growing pretty fast, and so I do not know that we have kind of match-funded it that way. We also are providing some leverage on those loans that we are selling. And so there is not a really a one-to-one relationship. We feel good about the 95% that we got. Specifically to your question about funding that $500 million, we are providing leverage on these transactions, which will offset some of the balance sheet impact.

Question 2: And then on the expense run rate, guide, the kind of low end of the range of $190 to $195, came in well below that this quarter. Sounds like you, you continue to make investments. But on the ECR side, I know you are not assuming any rate cuts in your outlook, which obviously would help. But it did look like the rate on those ECRs did come down. Just can you speak to what you did there and you know, what your plan is going forward?

Answer: We work it hard. We are trying to manage those costs as much as we can. On the ECR, we do not have any cuts in our forecast. Each 25 basis point cut provides $6 to $7 million in annual pretax income from a reduction in ECR. The decrease was just the timing of the way the rate cuts that happened at the '24 flowed through the way some of the contracts work, there is a little bit of a delay.

Question 3: For the loan sale, I know you guys gave quite a bit of commentary, and there is it is kind of broken up. The remaining $233 over the next several quarters, is the is the like, do you have a buyer? Do and this is the timing, or is it just held for sale hoping to find a buyer?

Answer: We have not identified buyers for every we had bids on all of it. Some of the stuff we decided to put out for sale rather than sell it to an individual buyer. And some, we actually have contracted or is we are drafting the contract now. We have determined who the buyer is or we have drafted the contract, and we will sell it. But we wanted to provide ourselves more time to sell some of the other ones. We think our mark is conservative. We might end up at 96. We could end up at 94, but I think the range is right.

Question 4: Should we assume that there is no more sort of loan restructurings coming out of the portfolio and that you are focused on growth opportunities from here almost exclusively?

Answer: We certainly tried to take as much as possible in the quarter. What I do not want to say is kind of we have cleared the decks because stuff always comes up. We have to leave space for the idea that something else could pop up somewhere. But we certainly tried to take the opportunity to make this a one-time event.

Question 5: I wanted to ask a question around the single-family resi growth this quarter. I think in the prepared remarks, you mentioned some was purchased single-family. Do you have the dollar amount of what was purchased? And you just describe kind of the I mean, it sounds like and clearly growth is strong in other verticals. Just curious like what would drive the strategy of purchasing single-family here?

Answer: We only purchase single-family. We do not have a single-family origination platform. We have access to single-family through mortgage warehouse lending. We lend to nonbank lenders. We are secured by the individual mortgages on all of those lines. We might have a $150 million line or a $75 million line that they are making $800,000 or $3 million mortgages. We are secured by each of those individual mortgages. We see all those mortgages. We already like the credit, and we have the opportunity from time to time to buy those off the lines. The coupons right now on the single-family that we are buying is pretty good. We are getting stuff in around seven. These are non-QM mortgages. They are often thirty-year fixed. Really high credit quality, mid-700 FICOs, a lot of California, low debt to income, and importantly, these are owner-occupied loans.

Question 6: I wanted to go back to some of the commentary around deposits and the kind of cost this quarter versus last quarter. And I appreciate, Jared, the commentary around kind of the need to fund growth and kind of the timing of deposits versus loan growth. But on an absolute basis, the rate paid on interest checking and on money market moved up quarter over quarter. So just as we are thinking about the back half of the year, and certainly, you could pay that and still, you know, put loans on that or you know, accretive to the overall margin. I get that. But just thinking about those kind of rates paid, do you think those still trend higher over the back half of the year? Is there a competitive dynamic that has made that has kind of stabilized?

Answer: Interest-bearing checking went up almost nine basis points in the quarter, and money markets went up about two basis points. CDs surprisingly went down by 13 basis points and savings went down by about seven basis points. Overall, we saw a little bit of an uptick in the cost of deposits. It is very competitive right now. We have a committee that approves pricing exceptions on deposits for relationships, and I get involved if there is a lending relationship. Our teams are doing a great job. It is more competitive than we have ever seen. There is obviously a demand for liquidity out there. We are getting our share of loans better than others because we have a solution that really works.

Question 7: Looking at the margin outlook, in that kind of 3.20 to 3.30 4Q, that assumes some level of acceleration here in the back end of the year just talk me through what the driver is? Is that mostly on the fixed asset repricing side? Are you assuming some mix shift benefit with just the deposit growth earlier in the quarter? And I am just wondering if we do get some rate cuts, is that going to be beneficial at this point? Or is that be maybe a little detrimental towards that guide?

Answer: Rate cuts would be beneficial. Because we would immediately move down deposit costs and I think that is going to move a little bit faster. In terms of margin expansion, it is primarily coming on the loan side. We are putting large amounts of loans on at very good rates. We also have a fair amount of loans rolling off at lower rates, that loan roll on, roll off is going to have a significant benefit to us. On the cost of deposits, we are pretty conservative on that in our forecasting estimate. We are assuming it is going to be pretty flat.

Question 8: Just last for me, we have seen a frenzy of kind of M&A conversation reenter the regional bank here in recent weeks. I am just wondering, you guys are not really the only game left in town in Southern California. I am just wondering how you guys are thinking about maintaining independence here and maybe what considerations would be needed in order for you guys to consider partnering with a larger institution?

Answer: What I am really proud of is how hard our teams are working at growing the bank organically. We have a huge opportunity in front of us to grow this bank organically. We are showing it. I think the bar is very high for us. But we are a public company. We are out there every day. The environment is very frothy right now. The regulatory environment is turning favorable. From an M&A standpoint, people are excited about that. I would expect us to have the opportunity to go buy somebody when we have a normal multiple on our stock, which I expect to get there soon as a reflection of our consistent growth in earnings.

[Sentiment Analysis]
The tone of the analysts was inquisitive and focused on understanding the strategic decisions behind loan sales and growth opportunities. Management was confident and optimistic, emphasizing strategic execution and organic growth potential while acknowledging competitive pressures in the deposit market.

[Quarterly Comparison]
| Key Metrics | Q2 2025 | Q1 2025 |
|------------------------------|-------------|-------------|
| Pretax, Pre-Provision Income | +6% QoQ | - |
| Total Loan Growth | +9% annualized | - |
| Net Interest Income | $240 million | - |
| Net Interest Margin | 3.1% | - |
| Net Income | $18.4 million | - |
| Adjusted Net Income | $48.4 million | - |

[Risks and Concerns]
Risks include potential fluctuations in credit quality and the competitive landscape for deposits. The bank's ability to maintain its growth trajectory amidst macroeconomic uncertainties and competitive pressures in the deposit market remains a concern.

[Final Takeaway]
Banc of California's strategic loan sales and diversified origination activities have positioned the bank for continued growth and improved credit quality. Management's focus on organic growth, disciplined expense management, and strategic asset repricing has driven performance improvements. The bank's proactive approach to managing credit risk and optimizing its balance sheet supports its optimistic outlook for the remainder of 2025 and beyond. While competitive pressures in the deposit market pose challenges, the bank's strategic initiatives, including the launch of a digital account opening platform, are expected to drive further growth and profitability.