Banc Of California, Inc. Q1 FY2022 Earnings Call

Hello, and welcome to Banc of California's First Quarter Earnings Conference call. Today's call is being recorded and a copy of the recording will be available later today on the company's Investor Relations website. Today's presentation will also include non-GAAP measures. The reconciliation for these and additional required information is available in the earnings press release, which is available on the company's Investor Relations website. The reference presentation is also available on the company's Investor Relations website. Before we begin, we would like to direct everyone to the company's Safe-Harbor statement on forward-looking statements included in both the Earnings Release and the Earnings Presentation. I would like to now turn the conference over to Mr. Jared Wolff, Banc of California's President and Chief Executive Officer. Please go ahead, sir.

Good morning, and welcome to Banc of California's first quarter earnings call. Joining me on today's call is Lynn Hopkins, our Chief Financial Officer, who will talk in more detail about our quarterly results. We had a great start to the year with many positive trends and actions that have continued to drive our financial performance forward: high-quality loan growth, solid inflows of noninterest-bearing deposits, margin expansion, higher levels of noninterest income, and strong asset quality. These efforts directly resulted in an increase in our adjusted pretax, pre-provision income, which was up 10% from the prior quarter. While our adjusted pre-tax pre-provision return on average assets increased 16 basis points to 1.55%. The increased level of returns reflects our franchise momentum, representing both our ability to continue generating profitable organic growth and the accretive benefits of the Pacific Mercantile acquisition. As always, we will also remain focused on growing and deploying capital to enhance our franchise value. As previously reported, we recovered over $31 million related to a loan previously charged off in 2019, which contributed to growth in our tangible book value. We also successfully redeemed all of our Series E preferred stock in the quarter and authorized and initiated an opportunistic stock repurchase program. We had a solid quarter of business development with $679 million in new loan fundings and total production increased 7% compared to the prior quarter. Loan demand was partially impacted by some level of seasonality that we typically experience at the beginning of each year. We also had some commercial clients delaying planned investments in expansion due to the sudden surge in Omicron that hit early in the year. While several opportunities in real estate lending were put on pause, our clients digested the rising rate environment and how it could impact pricing on properties. Notwithstanding these temporary factors, we still grew our total loans at a double-digit annualized rate while also keeping our warehouse line balances relatively stable, despite the higher mortgage rates that have impacted production volumes across the industry. This reflects the outstanding job that our team has done developing numerous relationships and providing us with many levers to pull in order to achieve our targets. Even as warehouse loan balances may moderate a bit, we expect our balance sheet to expand and earnings growth to meaningfully follow. We saw some firming up of loan pricing during the quarter, which resulted in higher average loan yields on both core C&I loans and bridge and permanent CRE loans. We are always disciplined about loan pricing, but ahead of the interest rate increases, we have been more selective in adding long-term fixed-rate loans to our balance sheet. Our momentum has been strong, notwithstanding the rate environment, and our loan pipeline is currently more than double what it was at the same time last year. On the liability side, we saw further improvement in our deposit mix, driven by continuing inflows of low-cost deposits, resulting from our business development efforts. During the first quarter, we opened 122 million in noninterest-bearing and low-cost checking accounts for new clients, in addition to inflows from existing clients. These new relationships helped drive a $170 million or 6% sequential increase in noninterest-bearing deposits, which brought noninterest-bearing deposits to 40% of total deposits at the end of the quarter. As many of you know, this is a threshold we targeted from the moment I got to the bank, and I am truly proud of our team for reaching this milestone. More importantly, I am proud of how we reached this milestone. There was no shortage of hard work and we've built a terrific deposit engine. While I expect in the coming quarters we might move above or below this level, our overall trajectory will be to keep increasing our percentage of noninterest-bearing deposits. As we mentioned on our last earnings call, following the Pacific Mercantile acquisition, we took a number of balance sheet management actions, including running off their higher cost deposits and beginning to redeploy the cash balances that were added in the transaction. The full quarter impact of these actions, along with the continued growth in noninterest-bearing deposits, further reduced our cost of deposits and contributed to a 23 basis point increase in our net interest margin from the prior quarter. This benefit began before the Fed started to increase the Fed funds rate. Given our asset sensitivity, we expect our margin to react positively, albeit not necessarily at the same pace that we enjoyed in the first quarter. That said, as I mentioned before, our margin is an output of many items and while our yearly trend will be upward, various factors could cause it to move up or down during a given quarter. In addition to our strong financial performance, we had a very productive quarter executing on key strategic initiatives to optimize our balance sheet, accelerate our earnings growth, strengthen our franchise, and create value for shareholders. First, we've mentioned in the past that Banc of California has become a talent magnet. In the first quarter, we were able to add some exceptional bankers to support the strong growth opportunities we are seeing in many areas. These hires are bringing additional expertise, relationships, and skill sets that complement our existing teams and will enable us to continue expanding our business development capabilities in both CRE and C&I, particularly in some of the large attractive vertical industries where we have built good momentum and see the potential to substantially grow these portfolios over the next few years. Second, consistent with our expected timing, we were able to redeem our Series E preferred stock which simplifies the balance sheet and will positively impact net income available to common stockholders by approximately $7 million annually. Third, through the successful efforts of our legal team, we were able to recover over $31 million on a loan previously charged off in the third quarter of 2019. We continue to pursue a number of other recovery opportunities, both credit and insurance-related. If successful resolutions are obtained, we will benefit shareholders and add to our tangible book value down the road. And fourth, given the substantial progress we have made in both strengthening our balance sheet and growing earnings over the past few years, we enhanced our capital allocation strategy with the authorization of an opportunistic $75 million stock repurchase program. That's equivalent to approximately 6% of our current shares outstanding and should further optimize our balance sheet and create value for shareholders. As we said before, our goal is to continue moving the ball down the field every quarter. Some quarters will make more progress than others, but every quarter we want to execute and deliver in a way that grows our financial performance and strengthens the franchise. Through the positive trends we continue to see in our financial results and our strong execution on other initiatives that positively impact earnings and shareholder value, we had an exceptional quarter of moving the ball down the field and creating shareholder value. Now, I'll hand it over to Lynn, who will provide more color on our financial performance and then I'll have some closing remarks before opening up the line for questions.

Thank you, Jared. First, as mentioned, please refer to our investor deck, which can be found on our Investor Relations website as I review our first quarter performance. I'll start by reviewing some of the highlights of our income statements and then will move to our balance sheet trends. Unless otherwise indicated, all prior period comparisons are with the fourth quarter of 2021. I invite you to read our earnings release, which provides a great deal of information, so I will limit my comments to some of the areas where additional discussion is warranted. Net income available to common stockholders for the first quarter was $43.3 million or $0.69 per diluted share, up from $4 million or $0.07 per diluted share for the fourth quarter of 2021. Fourth quarter results included on a pretax basis a $31.5 million reversal of provision for credit losses, of which $31.3 million related to a recovery from the settlement of a loan previously charged off in 2019, and the $3.7 million after-tax expense related to the preferred stock redemption. There were no similar items in the prior quarter's results. However, the fourth quarter included on a pretax basis $13.5 million of merger costs and $11.3 million of provision for credit losses related to loans and unfunded commitments acquired in the Pacific Mercantile acquisition. Given the noise created from these items, we will focus on our adjusted pretax pre-provision numbers this quarter, which are more reflective of our core performance. Our adjusted pretax pre-provision income totaled $35.8 million, a 10% increase from $32.7 million from the prior quarter. This $3 million increase was due to higher net interest income of $3.4 million, driven by higher average loans and an increase in net interest margin, as well as higher noninterest income of $1.1 million, offset by higher operating costs of $1.3 million. A portion of these increases related to the impact of including Pacific Mercantile operations for a full quarter. Our net interest margin increased 23 basis points to 3.51% during the quarter as our overall earning asset yield increased by 21 basis points and our total cost of funds decreased by 2 basis points. Our earning asset yield increased to 3.87% due to a favorable shift in the mix of our earning assets as we deployed our excess liquidity and increased average loans, both from the impact of including PMB's balance sheet for a full quarter and our own net loan growth. In addition, the yield on loans and securities increased during the first quarter. Our average loan yield increased 6 basis points to 4.26%, primarily due to higher average yields in our commercial real estate, C&I, and SFR portfolios. This increase also includes the lower contribution from PPP-related income, which was measured at 2 basis points of our net interest margin this quarter, compared to 5 basis points in the prior quarter. Our average cost of funds decreased 2 basis points to 39 basis points, due mostly to lowering our average cost of deposits by 3 basis points to 8 basis points for the first quarter. The decrease in our average cost of deposits reflected an increase in our mix of noninterest-bearing deposits, which averaged 38% of total average deposits for the first quarter compared to 35% for the fourth quarter. Our adjusted expenses increased $1.3 million from the prior quarter, which was primarily due to including PMB's operations for a full quarter, the seasonally higher salaries and benefits expense that are typical of the beginning of each year, and the additions we have made to our banking teams to support our continued balance sheet growth. As of the end of the first quarter, we had met our goal of realizing cost savings of greater than 40% of Pacific Mercantile operating expenses. The effective tax rate for the first quarter was 27.9% compared to 32.4% for the fourth quarter. The decrease in the effective tax rate was due mostly to the impact the Pacific Mercantile acquisition had on our annual effective tax rate and other permanent items in the fourth quarter of 2021. Our annual effective tax rate for 2022 is estimated to be approximately 28%. Turning to our balance sheet. Our total assets increased by $189.8 million in the first quarter to $9.6 billion and total equity decreased by $86.3 million. The decrease in total equity was due mainly to the full redemption of our Series E preferred stock, higher net unrealized losses in the investment portfolio, and other capital actions, all offset by our net earnings for the quarter. Our other capital actions included our preferred and common stock dividends, as well as repurchasing $4.3 million in common stock under the program we announced in mid-March. At March 31, our tangible book value per common share was $14.05, up from $13.88 at the end of the fourth quarter. The change in our AOCI resulting from higher unrealized losses in the investment portfolio reduced our tangible book value per common share by $0.43 and the impact of the redemption of our Series E preferred stock reduced our tangible book value per common share by $0.06. We positioned the balance sheet for potential increases in market interest rates and to insulate our tangible book value from the impact of further decreases in AOCI. We transferred $329 million of longer duration assets consisting of agency collateralized mortgage-backed securities and municipal securities with high credit quality from available for sale to held to maturity. The unrealized loss from the data transfer totaled $16.6 million and will be deducted from the amortized cost. Our gross loans increased by $200 million or 2.8% during the first quarter. The growth in the first quarter included $968 million in fundings, including $364 million in SFR loan purchases, as we continue to opportunistically leverage our relationships with mortgage warehouse clients to add high-quality earning assets. Total commercial loans, which includes CRE, multifamily construction, C&I, and SBA, decreased $10 million. However, when PPP loans and warehouse lending are excluded, this portfolio increased $83 million or 8.3% on an annualized basis. Deposits increased $40 million during the quarter, with all of the growth coming from noninterest-bearing deposits. Demand deposits, noninterest bearing, plus low-cost interest checking, increased by 3% from the prior quarter. Over the past year, demand deposits increased to 72% of total deposits, up from 62%, reflecting the improvement we have made in our deposit base. This increase, combined with our proactive efforts to reduce deposit costs and bring in new relationships, drove our all-in average cost of deposits down to 8 basis points in the first quarter. This compared to 28 basis points in the same quarter a year ago. Our credit quality remains strong in the first quarter. Total delinquent loans decreased to $11.8 million to $61 million, while non-performing loans increased $2 million to $54.5 million in the first quarter. At March 31, 36% of non-performing loans were either in a current payment status but were classified non-performing for other reasons or SBA loans guaranteed through the PPP or 7(a) programs. Let me turn to our provision for the quarter. We recognized a negative provision for credit losses of $31.5 million in the first quarter, which included the impact of the $31.3 million recovery of a previously charged-off loan as a result of a legal settlement. In 2019, we recognized a $35.1 million charge-off for this loan, and we are extremely pleased we were able to recoup the stockholder value. Excluding the impact of this recovery, we had a negative provision of $200,000, due mostly to changes in the portfolio mix, improved macroeconomic variables used for modeling purposes, and the general credit quality of the portfolio, all offset by overall loan growth. Our allowance for credit losses at the end of the first quarter totaled $98.6 million and our allowance to total loans coverage ratio stood at 1.32%, which is lower than at the end of the prior quarter as we continue to see positive trends in asset quality. This enabled us to release the portion of the reserves built up during the height of the pandemic. Excluding our PPP loans and warehouse loans, both of which have lower relative risk levels in our reserve methodology, the ACL coverage ratio stood at 1.63% at March 31. Our ACL coverage to non-performing loan ratio remained healthy at 181%. At this time, I will turn the presentation back over to Jared.

Thank you, Lynn. I'll wrap up with a few comments about our outlook. As mentioned, since the start of the year, our loan pipeline has been steadily building and is now more than double the size it was at the same time last year, with good contributions coming from all asset classes and markets. While some of the external factors that I mentioned earlier may still impact the pace of loan closings, the size of the loan pipeline and the increase we typically see in production volumes as we move through the year points to a higher level of fundings than we saw in the first quarter. Our banking teams are doing a great job of developing new relationships and expanding existing relationships, and the new bankers that we have added are steadily increasing their productivity and generating high-quality lending opportunities for us that we can fund with our consistent inflow of low-cost deposits. We have also had a very focused effort on engaging with the new clients we added through the Pacific Mercantile acquisition and demonstrating how Banc of California can provide increased support for their continued growth and expansion. As we knew from our due diligence, this is an attractive client base, with healthy, growing operating companies that will present many opportunities to expand relationships over the coming years and contribute to our continued growth in commercial loans and low-cost deposits. The colleagues we added from Pacific Mercantile have done a terrific job integrating and are thriving at Banc of California. We had a solid start to the year, and we are on pace to achieve the goals that we set for 2022. We see many catalysts for driving higher earnings and returns as we move through the year: continued growth in earning assets from our business development efforts, additional margin expansion as the Fed increases interest rates, and continued focus on growing noninterest-bearing deposits, realizing more operating leverage as we continue to effectively manage expenses while growing revenue and the additional earnings resulting from the redemption of the Series E preferred stock and share repurchases. We are also making good progress on our initiatives related to technology and fee income and we look forward to sharing more on these initiatives in the months to come. On our earnings call in January, we indicated that we felt we were extremely well positioned to deliver another strong year in 2022. Given our growing pipeline, our momentum in business development, and our visibility and other catalysts that should lead to consistently strong financial performance, we continue to be confident in our ability to deliver another year of profitable growth. I want to thank all of our colleagues at Banc of California for their contributions and dedication, which helped us deliver a very solid quarter. Thank you for listening today. I look forward to sharing more about Banc of California's progress in the coming quarters. With that, operator, let's go ahead now and open up the line for questions.

And the first question will come from Timur Braziler with Wells Fargo. Please go ahead.

Maybe starting on the loan pipeline, certainly encouraging to hear that the pipeline remains very strong even following a strong first quarter. Can you just provide where you're seeing most of that pipeline build coming from? Is it continued momentum in C&I? Is it built up in CRE? Just kind of what the composition of that pipeline is?

You know, surprisingly, it's very balanced. There is still a lot of CRE production, both on the bridge side and the multifamily side. We are not fixing rates longer than about five years right now, except very selectively. So, there is still an active market on the permanent financing side for 10-year loans where the rates aren't fixed longer than five years for apartment loans in California. And that market is still robust. As much as rates have moved, we still have to remember that rates are still very, very low on a historical basis. There are still benefits for people refinancing and properties are coming up off maturities all the time, so people are going to seek refinancing, and that's just an active transactional market. So that's going to continue. On the C&I side, we've put a lot of emphasis on growing our C&I portfolio, and Pac Merc certainly contributed there. I think we're seeing the benefit of the larger lending opportunities we’re able to provide with our bigger balance sheet. The economy is holding up very well in Southern California. The jobs report that came out this morning was obviously very encouraging. So we're benefiting from all of that. It's not really in one area; we're seeing it, fortunately, across all of our asset classes. And as we mentioned, generally, we think warehouse is relatively stable. It could temper a bit and come down a little bit, but we're growing through that with the growth in our other areas.

Okay, thanks for that. In context of that larger pipeline, how should we think about SFR purchases going forward, that portfolio being 22% of the overall loan book? Are you looking to get that closer to 30% where you might see peers or how would you frame that?

So here's the balancing act. We originally were buying loans through our relationships to offset runoff. We didn't intend to grow the portfolio in and of itself. But as we looked at that, we thought this is really a very good risk-adjusted yield in a very stable asset class, and so it was a good return for shareholders. We're not actively buying a lot right now. We have a pipeline that we've committed to that we're holding onto. But it's probably going to slow down as the refinancing slowed down in the single-family sector. Everything else is providing a pretty big engine on a core basis. We obviously aren't getting any deposits from that business, and so it's not self-funding the way some of our other lines of business are. So, we'll continue to look at it selectively, but probably more to backfill runoff than to grow.

Okay. Last one for me, just looking at the funding side, it's been a tremendous transformation in driving 40% DDA. How are you thinking about future deposit growth in a rising rate environment? Is there a high level of confidence that you continue to grow deposits, despite what may be happening industry-wide, just given your continued market share gain in Southern California? Or do you foresee having to lean more heavily on borrowings to help fund near-term loan growth?

It's a good question. It's one of the things I think we're most proud of, getting to that 40%. It could go down any given quarter and then go back up, but it will continue to grow as a percent of overall deposits. What is really special about hitting that threshold was the amount of money that came from new relationships to the bank. As I mentioned, it was over $120 million in the quarter, that came from new relationships as opposed to just grabbing money from existing relationships and as liquidity builds up. So, we are bringing in new relationships to the bank. We expect our deposits to grow as our loan balances grow. If faster than our deposit growth, we will need to rely on maintaining our target of 95% to 100% loan to deposit and not get overheated and ensure that we're funding appropriately and matching duration with the loan portfolio. We have hardly any broker deposits to speak of, and we really haven't tapped the CD market either. So we have those opportunities. We think our margin will continue to expand, and we will assess how we do this. So, the flows every quarter of noninterest-bearing and transactional accounts include low-cost checking accounts; that’s what we lead with, and then we have all these other levers to pull should we need them. Lynn, I don't know if you have any other thoughts there?

I think those are consistent with where we ended the first quarter and our views on the pipeline and some trailing SFR purchases. To the extent that fundings are a little bit higher in the second quarter, we would continue to use some borrowings in the short term. I think the deposit growth and the pipeline we have look strong as well. We are still very focused on the mix. So, to the extent that total deposits go up, maybe the pace of noninterest-bearing deposit growth is a little bit tempered. So, as Jared mentioned, maybe the ratio moderates more like the average that we saw in the first quarter. But I think it looks strong as well.

We have dual tactics going on at all times with our loan and deposit pipeline, and they're both very strong. But it just happens that our loan pipeline is moving really well right now, and we need to make sure that we fund appropriately. So, we're keeping an eye on that.

The next question will come from Matthew Clark with Piper Sandler. Please go ahead.

Maybe one for Lynn. Any updated thoughts on your expense guidance that you provided last quarter came in a little bit lighter. I think, at the high end of the range that we probably all expected $45.5 million to $47 million, any updated thoughts there?

Thanks, Matt. I think that it's been a big topic related to inflation and maybe the impact on salaries and overall services. So, we've been watching that closely. I think with fully integrating Pacific Mercantile's operations and continuing to see those benefits and leveraging our expense base, I think we continue to stay comfortable with that range. We might be towards the higher end of it, given what we are seeing in the wage pressure a little bit, and then ongoing investments back into our operations and technology. So, I think we look more to our adjusted noninterest expense to average asset ratio. We're at about just over 2%, which is lower than we were a year ago, up a little bit from the fourth quarter. But I think that's something that we look at closely.

Okay. And then on the deposit pricing outlook, I think the last earnings call, there was an expectation that you could probably hold the line on deposit costs for the first 100 basis points. Any updated thoughts there, given the outlook for more Fed rate hikes relative to the last time? And whether or not you're getting any kind of requests from customers yet?

So, we've received very few requests from customers, surprisingly, and we have calls on this frequently and have a feedback loop to make sure that we're sharing information and thinking about our strategy. We've avoided making large, wholesale moves across our pricing grid for now. Again, when you're focused on noninterest-bearing and service and solutions for clients, they're not focused on interest rates. You get rate most on the money market and CD, which we've pushed out some of those higher costs and rate-sensitive clients from PMB. That’s why we didn't show more growth in the quarter, even though the net number was a little bit lower because we've selectively put those out. I expect we'll get some requests from the institutional clients that are in contracted accounts that are similar to money market or time to CDs. We're going to start hearing from them soon enough here, and we're looking at how we’re going to fund loans efficiently. I think the costs are going to go up, probably within the next quarter or two. I don’t believe it will happen this quarter; it may be close to where we are now, but I think we’ll start seeing an uptick in the second half of the year for sure. We expect our loan growth yield to outpace the increase in deposit funding costs for sure. So, that’s why we expect our margin to hold or expand, but we are going to have to share some of the cost with our clients, and that will increase the cost of deposits.

Yes, I mean, I would just add, ending the quarter with our overnight borrowings at $300 million plus, we would look to be shifting those into deposits in our deposit growth. So, I think just purely swapping those two out, you would have an increase associated with market rates there. But with growth in earning assets, I think the loan yields would outpace the increase in the deposit funding costs.

Okay. And then just on the buyback, it’s good to see you guys started it. Do you feel like you might be able to step that activity up, or does the growing global macro uncertainty give you some pause?

No, I certainly - look I - we think our company is undervalued and certainly see opportunistic ways to buy our stock in the market. It’s under a program. We can only buy during a blackout when you’re under a 10b5 program, so we’re under that now. And we’ll evaluate it when it opens back up. I believe in our company and future value, and I think these temporary geopolitical issues notwithstanding, our company is going to continue to grow, and I think our stock will continue to perform. So, we see ourselves as a buyer of our stock at these levels.

Okay. Last one from me, just on the new loan yield. It sounds like there's a little bit of a lift there in a few categories. What would you attribute that to? Is it more mix? Was there some relief in terms of competition? Just any color there would be helpful.

In terms of rising loan yields, loan pricing overall has increased across all categories. So as we grow the loan book, it benefits from higher rates. The amount that loan yields have gone up has not caused activity to pause. Rates are still low enough on a historical basis that it hasn’t affected business activity. Clients aren’t pausing when their rates rise by 25 or 50 basis points in terms of getting a new loan. They’re just factoring it into the rising cost of doing business, and it hasn't slowed their business initiatives yet, if that makes sense.

Yes. Thank you.

Did I answer your question? Okay.

The next question will come from Gary Tenner with D.A. Davidson. Please go ahead.

Thanks, good morning. I appreciate all the color in the commentary on the deposit side and I agree, remarkable job there over the last couple of years. Just one last question I had was, just as you're thinking about the ACL, when I think you flagged the adjusted ACL, still up near 170. Obviously, a nice recovery this quarter that went directly into capital. How are you thinking about the ACL from here as you think about kind of the CECL model, any changes to the inputs there and all our sequel result expect a pretty de minimis if not negative provision for the year, excluding this quarter?

Sure, Gary, thank you. For the provision and where we ended the first quarter, there was a lot going on, given that we have a nice recovery of $31.3 million related to legal settlements. That came through that particular account. Setting that aside, we looked at our portfolio at the end of the quarter, the credit quality that's in it, the growth that occurred during the quarter, and then as we will talk about on the macroeconomic variables, our outlook on the economy. We do have certain specific reserves that sit inside our reserve levels. Even setting those aside, we feel like we're very well reserved. Now that we're two years into the pandemic and we're coming out of that particular crisis, I appreciate that there is other uncertainty. But when we look at the reserve, we're getting close to what may have been viewed as pre-pandemic levels. To the extent that we have net loan growth, we think we would expect potentially some modest reserves. It may be offset by continued improvement in asset quality. I don't know that I would automatically go to the negative reserves. I think there's still a lot of uncertainty in the markets, and we do work through a process there. But we do think we're well reserved and extremely well capitalized as well.

The next question will come from David Feaster with Raymond James. Please go ahead.

I wanted to touch on C&I. Obviously, there were some moving parts in the quarter with the transfer, but even excluding that, we saw some C&I growth, which is great to see. I just wanted to get a sense of what drove that growth. Is it new relationships, increased utilizations, expansion into some of the new segments that you've gone into, and just how do you think about your ability to continue to drive C&I growth going forward?

Well, I'm looking at our pipeline daily and weekly, and as I mentioned earlier, it's a very balanced pipeline. We expect C&I to continue to grow. Real estate is going to grow too, but we expect C&I to continue to grow. It's across all of our assets at this point. Line utilization is up slightly. It's in the high 40s. It was in high to mid-50s before the pandemic and right now it’s in the high 40s, up a little bit from the mid-40s. So there's a little bit of contribution there, but not tremendously. It's more just new business from existing and new clients.

Okay. Well, that's great. And then, you touched on your prepared remarks, you've had a ton of success on new hiring, as a talent magnet as you've said. Just curious how the hiring pipeline looks? Where are you most focused on hiring new producers? Is it more in some of the specialty lines and then are there any additional lines that you might be interested in, or just are you seeing more opportunity in core commercial, general commercial bankers?

So the hiring is taking place generally on the production side. We need to ensure a suitable gearing ratio. For every production person you add, you also need to add the right support people that are critical to how we do our business on the loan operation side and our analysts, as well as our underwriters, who do a tremendous job. We have to balance that. In terms of specific roles we’re hiring for, we’ve made inroads on the ABL side. We have a Head of ABL that we announced and he has been hiring people to fill in on his team. We previously talked about hires we've made in the entertainment and media space, and we have to ensure that we're supporting those teams as well. We continue to hire in healthcare and grow just in general commercial and real estate. I would say it’s pretty broad-based and everything we've announced we're just continuing to expand. It's a good time right now in Southern California and in all the markets we serve. Our teams are doing a terrific job in the Bay Area and in the Central Valley where we have staff. There's a lot of new relationships coming to the bank from people's previous engagements and also just our name is out there. I ran into a client on the street the other day who said he heard our names three times in the last week and he wants to get together again. The momentum is certainly there for us right now, which is nice. So, specific hiring is ongoing, particularly on the production side and we want to have the right balance. The operation side needs additional support to handle the growing business we anticipate by adding more producers. Therefore, we are hiring in areas such as healthcare and entertainment, along with general commercial banking. Finding the right balance of talent is critical as we are integrating new producers into our existing framework. We need to ensure that the operations team can support the respective increases in business. I hope to provide updates on both the Finexio partnership and our technology initiatives by the end of next quarter. We're excited to share the details once everything is finalized. We’re anticipating nice contributions from Finexio in the back half of the year. Their progress and performance are encouraging.

The next question will come from Kelly Motta with KBW. Please go ahead.

I wanted to circle back on loan growth and specifically on the mortgage warehouse lines, just with the moving rates. I believe Jared, in your prepared remarks you said you expect to grow in spite of mortgage warehouse or actually even grow it. I just - I was wondering if you could just add a bit more color on what we should be expecting there?

Sure. I think mortgage warehouse will temper. So I think that the balances that are out right now, we’re not expecting them to grow and they may indeed shrink slightly. But we expect overall to grow as a company, notwithstanding the fact that that line may come down a little bit. Our team - I mean, I think we've proven this out pretty consistently; I'm kind of tired of talking about it, but I know it's a question. Our business is very different than the way it’s conducted elsewhere. Our teams are fantastic and we tend to be the primary and secondary lines for most of the borrowers we lend to. Our team has done a great job bringing in new relationships in the warehouse business as well to support our business in that area. That said, overall financings and refinancings in the single-family market, which is what that business is about, are slowing. Therefore, there’s not as much business at hand. The securitization market has slowed a little as well as people expect rates to rise, and therefore, they want to wait to securitize things that might be booked at rates that are lower than future rates. So, knowing that, things have slowed a bit. Our team has done a great job managing it. We believe it won’t drop off a cliff; it’ll move down gently, and our other businesses are growing fast enough to more than offset any slowdown in that area. It’s just going to move in tandem, and we’re confident we’ll continue to show growth.

That's really helpful. Thanks a lot.

Of course.

And then I guess, keeping that in mind and also understanding that repayments are likely to flow as refinances slow. Do you have any expectation as to the net growth number for 2022 now? Any changes on the commentary you gave last quarter with that?

So, I would say that the first quarter performed better than I would have expected, because typically the first quarter is slower. We guided to overall for the year, kind of high single-digit loan growth. When I think about that, I'm considering our core growth, which is kind of what we hit in the quarter. We hit 8% on an annualized basis excluding PPP and warehouse. That seems appropriate at this point; however, our pipeline is really strong. I just don’t know what payoffs will look like. So I would probably say okay, now we’re looking at high single-digit, low double-digit ranges. Obviously, you feel comfortable expanding the range knowing our pipeline is strong. But it’s hard to ascertain actual production with payoffs looming. Last quarter’s production volume, including purchases, was at an all-time high, and I know it will be even higher this quarter, even with a bit less in terms of purchases. We have a little in the pipeline, but it’s going to slow as we progress through the year. So, yes, Kelly, I mean I think that’s the best I can provide. I wish I had a more precise number. But I certainly feel more comfortable that we could hit double-digit loan growth this year, given what we did in the first quarter.

That's really helpful. Thank you so much for the color, Jared.

Yes. No problem. Okay. Thanks, Kelly.

The next question will come from Andrew Terrell with Stephens. Please go ahead.

Jared, I just wanted to ask on the buyback. I hear you when you’re talking about being attractive at these levels, but given you kind of just announced, so I was hoping you could just talk about the framework you consider when determining the attractiveness of the buyback. I don't know if you have any kind of internal rate of return threshold or tangible book value you earn back that you look at when considering the buyback. But just hoping you could share some color there.

I think the best way I can answer that question, Andrew, without disclosing specific parameters in our 10b5 framework, is to say the price looks low to me right now. We’re trading at less than 1.5 times tangible book. I view our company as a growth company with an expanding margin that has 40% noninterest-bearing deposits in one of the best markets in the country. We’ve maintained 12 consecutive quarters of meeting our expectations, exceeding even some of our own targets. Our remarkable team consistently outperforms in terms of delivering positive results each quarter. Reflecting on our tangible common metrics, I recognize we will see growth in our return on tangible common equity as well as our return on average assets. We achieved a 1.11% ROAA in the quarter, a goal we set for the year. We’re aligned towards future growth and maintaining momentum, and I feel we are undervalued at our current price levels.

Yes, no, that’s great color and I appreciate it. Maybe just one more question from me. Do you have the yield or the weighted average yield for the - I think it was $360 million or so of residential mortgage purchases made this quarter?

I think we haven't disclosed that, but I want to say they are in the mid-3s to upper-3s, based on the rates and trade yields during the quarter. It shows up in our net interest margin table that's in the back of that release. Our single-family yield went from 3.32% last quarter to 3.45% this quarter. That includes some of the purchases that we accounted for.

Yes.

Obviously, there’s a bit of an inflection point occurring with rates moving in the market. We saw pricing start to increase towards the end of the quarter.

One of the reasons we are bullish on that portfolio is because it doesn't require many people to manage it. It's outsourced to DMI as the servicer, and these are low loan-to-value, high FICO primary residences, primarily in California, that perform consistently. It was challenging to find equivalent yields in a low interest rate environment that didn't require significant oversight, which would actually lower our yield. So, on a risk-adjusted basis, it felt smart to allocate capital there for our shareholders. However, as loan growth accelerates in other areas where we can achieve better yields and returns, the SFR portfolio should remain flat as we expand in other lines of business.

This concludes today's conference call along with our question and answer session. You may disconnect your lines at this time and thank you for your participation.