Hello, and welcome to the conference call to discuss the Banc of California and PacWest Merger and Second Quarter Earnings. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this call is being recorded. Today's presentation will include non-GAAP measures. The reconciliation for these and additional required information is available in the earnings press releases, which are available on each company's Investor Relations website. The reference presentation is also available on each company's Investor Relations website. Before we begin, we would like to direct everyone to the safe harbor statement on forward-looking statements included in both the press releases and investor presentations published today. I would now like to turn the conference call over to Mr. Jared Wolff, Banc of California's Chairman, President, and Chief Executive Officer.

Good afternoon, and thank you for joining us. With me on the call today is Joe Kauder, the new CFO of Banc of California, and Paul Taylor, Kevin Thompson, and Bill Back from PacWest. Each company is going to provide a brief review of their second quarter financial results with more limited commentary than usual so that we can spend the majority of the call discussing the merger that was announced today. Let me start off by saying how thrilled we are to announce this transaction. We are very excited to discuss the tremendous benefits to stockholders, clients, communities, and colleagues that this merger will bring. The transaction will result in the third largest bank headquartered in California, with day one tangible book value per share accretion and significant EPS accretion in 2024 when expense savings have been realized. The transaction is accompanied by $400 million of capital from two very sophisticated bank investors, which will accelerate the transformation of the combined company. Paul and his team have done an outstanding job transforming the balance sheet in a short amount of time through the initial restructuring efforts they have undertaken. Paul and I are both committed to making this successful, and I know this will be a powerhouse franchise. We have worked extremely closely to bring this deal together, and it's going to be highly successful. Let me turn it over to Paul.

Thank you, Jared, and good afternoon, everyone. I want to start off by saying what a great job Jared has done with the Banc of California. He took over a bank a few months before I took over Opus Bank, so we've known each other for many years. Having turned around a few banks myself, I've been impressed with the transformation he has led at that institution in a short period of time. With that backdrop, it makes me excited about what's to come with this combination. This is a great deal with very compelling economics, the ability to reposition the combined balance sheet and set the stage for growth. We are clearly better together. I believe this merger will be beneficial for all of our stakeholders, with clients having access to an expanded set of products and services, employees having more opportunities for career advancement as part of a larger institution. The merger creates a premier California banking franchise which will be well positioned to capitalize on market opportunities and broaden the channels and customers it serves through increased scale and expanded product offerings. This is an opportunity to assemble a world-class team from both banks. I would like to thank all of the hard work people at PacWest that they do every day, and they've done through this year, and they will continue to do so in the years to come in the new combined organization. With that, I will turn it back to Jared.

Thank you very much, Paul. I'm now pleased to introduce Joe Kauder, our new CFO. As you know, we conducted a national search and saw many, many talented candidates, and of course, he stood out on top. I know you've all seen his background having served in very senior finance positions at Wells Fargo for a long period of time, including as CFO of their wholesale bank, which had hundreds of billions in assets. Joe just started his third week on the job, and he couldn't have come at a more exciting time. He's been instrumental in bringing this transaction together, and we're certainly grateful to have him here. Before turning over to Joe, I really do want to thank our Deputy CFO and Chief Accounting Officer, Ray Rindone, who did a truly outstanding job as Interim CFO. So thank you very much, Ray. And let me now turn it over to Joe.

Thank you, Jared. Of course, I'm very excited to be here at Banc of California. Having spent my entire career at much larger organizations, I've been highly impressed with the caliber of talent at Banc of California as well as the culture that exists, which is well grounded in banking fundamentals and delivering high-quality service to clients. It has been a fantastic and exciting start. Let me turn to a few comments about the quarter's financials. Our earnings release and Investor Presentation provide a great deal of information, so I will limit my comments to some areas where additional discussion is warranted. Please feel free to refer to our investor deck, which can be found on our Investor Relations website as I will review our second quarter performance. Unless otherwise indicated, all prior period comparisons are with the first quarter of 2023. Our net income for the second quarter was $17.9 million, or $0.31 per diluted share. On an adjusted basis, net income totaled $18.4 million for the second quarter, or $0.32 per diluted common share when net indemnified legal costs are excluded. This compared to adjusted net income of $21.7 million or $0.37 per diluted common share for the prior quarter. Overall, our second quarter performance was fairly straightforward with loan growth in core C&I and warehouse and improved asset margins driven by loan and securities repricing in the higher rates. Our deposit balances remained stable. However, our net interest margin decreased 30 basis points from the prior quarter to 3.11%, largely due to the impact of the higher levels of cash that we carried during the first two months of the quarter in response to the recent banking turmoil. The cost of the excess liquidity in the quarter was 12 basis points, and we saw a strong NIM recovery in June, subsequent repayment of the associated FHLB and FRB advances. Our overall earning asset yield would increase by 21 basis points to 5.20%. Our average loan yield increased 21 basis points to 5.28%, which was largely attributable to variable rate loans in the portfolio continuing to reprice higher rates on new loan production and the increase in warehouse line balances, which is one of the highest yielding asset classes in the portfolio. The average yield on securities increased 17 basis points to 4.83%, mainly due to CLO portfolio resets. Our total cost of funds increased by 52 basis points to 2.20%. Our average cost of deposits was 167 basis points for the second quarter, up 45 basis points. However, compared to the average Fed funds rates, which increased 48 basis points over the same time period. The net interest margin drivers page in the investor presentation deck further illustrates this information. Our noninterest income decreased $1.8 million from prior quarters, primarily due to the inclusion of certain nonrecurring items in the first quarter, including recovery of a loan acquired in the Pacific Mercantile transaction and the timing of gains recognized on CRA investments. Excluding those items, the other areas of noninterest income were relatively consistent with the prior quarter. Our adjusted noninterest expense decreased $825,000 from the prior quarter as the full benefit of cost savings from the headcount reduction made last quarter were realized and more than offset the continued investment in other areas of the company, such as our new payments processing business. Turning to our balance sheet, total assets were $9.4 billion at June 30, a decrease of approximately 7% from the end of the prior quarter, which was largely due to the reduction in excess liquidity held in cash and a corresponding reduction in FHLB and FRP borrowings. Our total equity decreased by $1.9 billion during the second quarter as $18 million in net earnings were offset primarily by capital actions, which included both common stock dividends and the repurchase of approximately $16 million of our common stock. Our total loans increased approximately $102 million from the end of the prior quarter, primarily due to increases in our core C&I and warehouse portfolios. Our total deposits decreased $81 million from the end of the prior quarter due primarily to lower interest-bearing checking and noninterest-bearing deposits, partially offset by higher certificates of deposit. However, after an initial decline, total deposits increased as we moved through the quarter, and our end-of-period balances were $102 million higher than our average balances in the quarter. Importantly, our noninterest-bearing deposits were 36% of period-end balances. As noted in our earnings release, we had substantial inflows of new deposits from new client relationships. Our credit quality remained solid in the second quarter. We had increases in both delinquent loans and nonperforming loans, but this was largely due to our asset-borrowed loans, which are well reserved for and have low loan-to-value, so we view the loss potential as remote. We recorded a provision for credit losses of $1.9 million, which included a $1.7 million provision for credit losses, largely to replenish the reserve for charge-offs of a loan acquired from Pacific Mercantile and other small C&I loans. Our allowance for credit losses at the end of the second quarter totaled $84.9 million compared to $89.4 million at the prior quarter, and our allowance to total loss coverage ratio stood at 1.19% compared to 1.27% at the end of the quarter. At this time, I will turn the call over to Kevin.

Thanks, Joe. At the beginning of the year, we announced a renewed strategic plan to focus on our core community bank franchise and to deemphasize noncore businesses. We accelerated these efforts during the second quarter in light of the turmoil in the banking market. We're very proud that we've executed on the sale of our national construction loan portfolio, selling $2.6 billion of loans and $2.3 billion by the funded commitments at a discount of 4.5%. We also sold $2.1 billion of lender finance loans and $200 million of unfunded commitments at a 3% discount, with another $1.1 billion of unfunded commitments to be transferred over time to the buyer as funding. Since the beginning of the year, we also wound down our CIVIC operations. We sold $521 million funded and $24 million of unfunded commitments of the CIVIC loan portfolio this quarter. As a result of this divestiture, we also anticipate annualized compensation savings of $53 million and other expense savings of $17 million. As part of our efforts to improve our operational efficiency, we have closed and subleased a number of our facilities. We're simplifying and improving our business processes. We are consolidating contracts, and we are working to reduce expenses around the company. The swift actions of our team this quarter resulted in increasing our capital and improving our liquidity position. We are very pleased that our deposit base stabilized in the quarter and has now begun to grow. The loan-to-deposit ratio decreased to 81% with immediately available liquidity of $18 billion and a coverage ratio of uninsured deposits of 335%. We are holding a large amount of cash on balance sheet at the end of the quarter, much of which we plan to use to pay down the wholesale funding. Our CET1 capital ratio increased dramatically from 9.21% to 11.16% in the quarter. The diluted earnings per share was a loss of $1.75 in the quarter. Adjusting for one-time items associated with loan sales and restructuring, the adjusted earnings would have been $0.22 per share, which is just ahead of analysts' estimates for the quarter. We are very proud of the PacWest team members who bring passion to work every day as we serve our loyal customers and communities. With that, I'll turn the call back over to Jared.

Thank you, Kevin. We're excited to discuss the strategic merger and capital raise announced this morning. We've shared extensive information regarding the transaction in the investor deck published today, and I will take a few minutes to highlight the merger. The combination of Banc of California and PacWest is transformational and presents a unique opportunity to provide significant value to all our stakeholders. When I became CEO of Banc of California nearly 4.5 years ago, we needed to restructure and develop a relationship-focused business bank that prioritized three key areas: a high level of noninterest-bearing and core deposits, a healthy capital level, and low credit noise. We aimed to achieve this by excelling in our deposit strategies and lending to businesses within our footprint. We successfully met these three objectives and completed the transformation of Banc of California more quickly than expected, achieving better results in deposits, capital, and credit quality. Consequently, our efforts positioned us to enter this transformational merger with PacWest, which will establish the leading commercial bank in California with a strong, well-capitalized, and highly liquid balance sheet. We believe this transaction is very attractive for the shareholders of both companies. In addition to forming the leading franchise in California, the combination enhances capital and liquidity, is highly favorable for earnings per share and tangible book value, yields attractive profitability, and has limited execution risk, given the significant cost-saving opportunities and the familiarity between the two organizations. Our combined strategy will continue to focus on in-market relationship banking with a primary objective of providing a superior level of customer service, expertise, and robust treasury management solutions. As both Banc of California and PacWest have demonstrated, providing superior treasury management services paired with lending expertise will enable us to attract low-cost commercial deposits that we utilize to fund high-quality lending opportunities. On a combined basis, we will be the third largest commercial bank headquartered in California, which is absolutely one of the most attractive banking markets in the country. As we all know, over the past 18 months, the competitive environment in California has changed dramatically. During this time period, we have seen many other banks either completely exit or significantly pull back from California. As a result, there is a sizable opportunity for a skilled commercial bank with a high level of service and expertise to capitalize on this disruption by adding clients and increasing market share. The combined company will be well positioned to do this. And as a larger institution with increased scale, we will have even more resources to invest in technology, continue to attract the best talent, and further elevate the client experience, enhance overall efficiencies, and support our communities. Warburg and Centerbridge, two highly sophisticated bank investors, have signed commitments to invest $400 million concurrently with the closing of the transaction. The merger and concurrent capital raise will enable us to take advantage of several strategic actions designed to create a very strong balance sheet and enhance the capital and liquidity profile of the combined institution. These actions include selling liquid assets and utilizing excess cash to pay down $13 billion of wholesale funding. We have derisked these transactions by entering a number of hedges to protect the balance sheet and pricing through close. These actions will reduce the wholesale funding ratio of the combined institution to below 10% while maintaining 8% cash to assets and 10% CET1. We will also enhance our funding profile with a pro forma loan-to-deposit ratio of approximately 85% and a deposit base that will be comprised of 90% core deposits and 30% noninterest-bearing deposits. This transaction is immediately accretive to tangible book value per share and 20-plus percent accretive to EPS on 2024 expected EPS of $1.65 to $1.80. We believe there is low execution risk in achieving these projections as most of the upside will be driven by the balance sheet repositioning and reduction of PacWest non-run rate expenses. We estimate the combined company will produce a run rate return on assets exceeding 1.10% around Q4 in 2024 when the expense savings have been achieved, return on tangible equity of at least 13%, and generate 100 basis points of capital annually. This does not include additional upside opportunities that we have identified but did not model. An important and particularly unique aspect of this merger is the high degree of familiarity that our two institutions have, which we believe significantly minimizes the execution risk. One of our guiding principles in M&A is to only do deals where we have a high degree of confidence in the success of the transaction, and this is certainly the case with this transaction. As most of you know, I previously served as President of Pacific Western Bank, and during my 12 years plus there, I helped to lead more than 20 acquisitions. We also have a number of other executives at Banc of California who have leadership roles or worked at PacWest, including our Chief Credit Officer, Bob Dyck, who was Chief Credit Officer at Pacific Western Bank. Accordingly, we know the culture of the organization and the businesses that they operate. We know the true depth of talent that exists at the organization and have tremendous respect for their employees. During the diligence process and evaluation of the transaction, our ability to discuss issues on a deeper level was evident. We believe the high degree of familiarity and the foundation of trust will lead to a very smooth integration and enable us to effectively capitalize on the projected synergies from this merger that will enhance our ability to serve commercial clients and create additional value for shareholders of the combined company.

Thanks, Jared. I couldn't get off of mute there. Sorry about that. Over the past few months, we have spent a great deal of time evaluating the best path forward for PacWest, and we believe this merger is a tremendous opportunity for the company, our clients, our employees, and our shareholders. Over the last few quarters, we've laid out a plan to reduce our reliance on wholesale funding, increase capital, and improve profitability. This merger meaningfully accelerates our stand-alone plan while putting the combined company into a position of strength within the market. With the increased scale, expanded capabilities, and robust capital and liquidity, we will be able to better serve the needs of our clients. Given the complementary nature of our franchises, similar cultures, shared values and vision, along with the senior management team that will be a combination of executives from both companies, we believe that we will have a smooth integration that will enable us to quickly realize the synergies that we project for this transaction. Simply put, we believe this merger will be beneficial for all stakeholders, with clients having access to an expanded set of products and services, employees having more opportunities for career advancement as part of a stronger institution, and most importantly, long-term shareholder value being created to a greater extent than what we believe we could create as a stand-alone PacWest. With that, Jared, I'll turn it back to you.

Thanks, Paul. I would just like to add, it's been a real pleasure to work with you and the rest of the management team at PacWest through this process. It's been a truly collaborative process, and we couldn't be more excited to bring our two organizations together and begin realizing the benefits that we all anticipate for our stakeholders. We are fortunate to have attracted the most talented colleagues in banking and we look forward to bringing them all together. Thank you to all of our colleagues for the tremendous dedication and hard work. Operator, we'd now be happy to answer any questions and open up the lines.

Thank you. We will now begin the question-and-answer session. Today's first question comes from Matthew Clark with Piper Sandler. Please go ahead.

Hi. Good afternoon everyone. Maybe just first on the cost saves, the $130 million, it seems a little low to me, just thinking through what legacy PacWest might have been able to extract from their franchises on a stand-alone basis. Can you just give us a sense for where that $130 million is coming from? Is it predominantly all legacy PacWest? Or is there also some coming out of legacy bank?

Well, there are really two buckets for our expense savings assumptions. The first is there are temporary elevated expenses that exist at PacWest that they have identified, including higher FDIC assessment consultants and some legacy costs that will run for a little while that have to do with the closing down of some of the businesses they've exited, including the runoff portfolio for CIVIC. Additionally, there's a lot of expense saving overlap that we've identified for the combined company going forward. As a result, we believe that on the model, we modeled getting to a $1.90 expense ratio, which we believe is very conservative and very achievable. So there isn't going to be more in there, Matthew, but that's what we felt comfortable modeling, and we like the output that's on a highly conservative basis.

Okay. I have a related question. You have been under $10 billion, while PacWest has been above that for a while. Are there any investments you plan to make to surpass $10 billion, or do you believe you can take advantage of what PacWest has achieved?

We were over $10 billion as you mentioned previously. We have the infrastructure that was built to a large organization. I think between the two of us, we're going to be fine. We're going to have a substantial transition leadership team and integration team combined of folks within the organization, and so I think we'll be good there.

Okay. I'm considering the long-term strategic implications of this combination. Is it reasonable to conclude that there will be no national lending volume after the merger? Could you also discuss single-family and multi-family residences? It seems that Legacy Bank plans to sell some loans in that area. Will you continue to be involved in that business?

Yes, the heart of the combined company is going to be the community bank franchise. Paul and Kevin and the team have done a great job of building progress towards converting PacWest into a strong community bank with a couple of other lending niches, but they had largely exited the national lending businesses already. Banc of California, at its heart, is a community banking franchise. We don't have any national lending businesses. So these two franchises together are going to make a really strong partnership in California in the markets that we continue to serve. There are some niches that we both have that we really like. We have some niches on the deposit side. We have some interesting verticals that we use to gather deposits, and they do too. They have a great HOA business that Alan DeTata leads, and they have a fund finance and venture funding business that Sean Lynden leads that are really strong. They're very low loan-to-deposit businesses with low credit. And so we believe that it's worth holding on to those businesses as long as we can live within our means and reduce concentration. This bank pro forma day one is going to be 85% loan to deposit with very low wholesale funding. I think it's going to be a very strong franchise. We're going to ensure that we look to avoid the concentration risk that I think all banks have experienced over the last several years. And with the low wholesale funding ratio that we have, the capital we have, and the excess liquidity, we're going to be well positioned to do that.

Okay. And then just on the merger...

You asked another question about SFR. As part of restructuring the balance sheet, we plan to sell certain assets, which we have identified but not yet determined the specific ones. We have implemented hedges to safeguard the expected outcome. This includes our SFR portfolio and multi-family portfolio at Banc of California, which amount to $1.8 billion and $1.6 billion in available for sale securities, along with PacWest's available for sale securities. By doing this, we will generate significant liquidity and reduce wholesale funding at PacWest and across the combined institution, ending with less than 10% wholesale funding upon closing. Neither of us originates single-family loans today; the purchases we made aimed to enhance our assets in a low-rate environment, and those portfolios have performed well. However, in this plan, we intend to sell them off and reduce our borrowings.

Okay. Great. And then just on the merger charge, it looks a little high, but it includes the cost of hedging and deal-related costs and the capital raise. I mean if you stripped out the cost of the capital raise and hedging, what would that number look like relative to the deal value?

It's about 1.5% to 2% of cost savings, which is where these things end up being and some comparable deals that we looked at. So you're right, it's highly elevated because it has the cost associated with the capital raise as well as the hedging costs, which were substantial. Those two things combined were substantial.

Okay. And then were there any other bidders in this process? Or is it just you two for the most part?

Well, there is going to be a robust description in the proxy about the background of the merger, but I think this combination is going to be fantastic, and we're excited to get it done.

The next question comes from Chris McGratty with KBW. Please go ahead.

Great. Thanks. I just wanted to dig into the deposit assumptions for a moment. Slide 10 and Slide 20 give a slightly different starting point for the core deposits. I guess what I'm getting after is, if you combine the two companies, noninterest-bearing deposits, I think to get to that 30% mix, you're assuming some growth of NIBs from the second quarter. So I'm interested in commentary there to start, please. Thanks.

Yes. I mean there's going to be a little bit. We both know what we're expecting to do. We are expecting to close. This is pro forma because we expect to close late Q4 early Q1, so we based it on 9/30. The plan is to be approximately 30% noninterest-bearing at close, and we hope to exceed that, of course.

Okay. And then maybe a question on credit. PacWest has historically had a little bit volatility in the credit numbers you're not marking their balance sheet. Maybe a comment or two on how you see the portfolio today. I think there is a little bit of migration like banks in the second quarter, but just color on the assumed loss rates maybe on a combined basis.

Sure. I'm happy to talk about the robust diligence we did and kind of what we're modeling going forward. But before we do that, Kevin or Paul, do you guys want to comment on the quarter at all?

You bet. First, I'll mention we executed on a number of balance sheet restructuring initiatives, including selling national lending portfolios as part of that with our CIVIC portfolio since the portfolio had some, a little bit of credit deterioration. According to GAAP accounting rules, we had to count those losses on sale as a credit loss rather than a loss on sale. So that shows up in our provision. So to your point, Chris, it does create a little bit of noise in that provision, but those are true losses charge-offs in our mind. They're just losses on sales that happen to be in that geography. And then from a credit perspective in the quarter, there are some ups and downs. Past due loans are down. Our nonaccruals are up because of specific loans. Our special mentions are down, get classified throughout. So some are normal ins and out that we'll see over time. But as a reminder, we did sell our national construction portfolio, which is very in credit quality. But I think it adds even a better credit profile for the combined bank.

It's important to mention on the CIVIC portfolio that we've seen ever since our involvement in CIVIC. It will push past dues, they're more of a sloppy loan, for lack of a better term. They seem to always pay. It's just more of a slow pace. So we're not concerned that there's a systemic trend or anything in that portfolio.

Let me jump in. We conducted thorough due diligence on each other, especially on the credit portfolio, as it’s crucial to examine these details carefully in such transactions due to the potential risk. PacWest has done an excellent job of reducing risk on their balance sheet. The sales they performed weren't necessarily reflective of risky portfolios, but rather involved national lending portfolios where larger loans did not generate enough deposits, putting pressure on the balance sheet, even without loss content. They have effectively mitigated that risk, and the remaining loan portfolio is now much more diversified than before they began this process. Regarding CIVIC, there are over $2 billion in loans that are being phased out, primarily for rental housing, which behaves more like a consumer portfolio, despite not being one. Although there may be some delinquency, it consistently performs. We have conducted extensive diligence, including bringing in third parties, and two sophisticated investors, who invested significantly in this deal, also conducted thorough analysis on both banks, which we utilized. We both feel very confident about each other’s credit portfolios. Looking ahead, the portfolio will resemble the community bank lending we both engage in, with opportunities for niche lending as well. While we are cautious, we expect that this bank will primarily lend within its established region, and we are optimistic about that. Typically, our coverage ratios range from 120 to 125 basis points, while PacWest's is about 90 basis points. Although we cannot predict the exact figures, we modeled our coverage ratio to be closer to our norm than theirs. We will need to evaluate this through the CECL framework, but we have sufficient support in the numbers to reach our goals.

Great. I wanted to confirm that the $1.65 to $1.80 is a pro forma number for the full year. I'm interested in understanding the timing of the savings. If I'm correct, the $140 million is associated with the accretable yield, which I assume applies to the life of the loan and is just for 2024. Can you provide more detail on this and any related nuances?

I'm going to let someone else comment on the marks, as they have an advanced degree. Regarding the $1.65 to $1.80, we thought it would be useful to provide an estimate for 2024 earnings. In terms of how we'll reach that figure, expense savings will provide their full benefit by the end of the year rather than earlier. For instance, 18% of PacWest facility charges will mature or expire at the end of 2024. We need to consider whether to terminate them early and incur a fee or wait until they expire. These factors will contribute to our results by the end of 2024. We believe we will see the complete benefit of our savings estimates by then. So, the $1.65 to $1.80 represents our estimated EPS for 2024. I hope I provided enough time for you to figure out the accounting numbers. Joe or Kevin, would you like to take that?

Yes. So I'd just like to clarify specifically your question.

I am wondering about the timing of when the $140 million mentioned on Slide 22 will be reflected back into earnings.

Yes. That's over six years. That's a core deposit intangible that comes back in over six years.

Pardon?

And then the loan, so the loan marks, if you think about it, most of the Banc of Cal loan portfolios we intend to sell. So those will not be accretive back into earnings, all the accretions on the CDI.

The only accretable yield is the $140 million. Okay.

And you had the non-PCD loans that will be accretable as well, and the $140 million rate marks.

The next question comes from Andrew Terrell with Stephens. Andrew, please go ahead.

Hey, good afternoon.

Hi, Andrew.

Just quickly on the planned asset sales, just to make sure of the forward contracts you've put in place fully hedged for the potential of rate volatility between now and close. And then can you discuss just the comfortability with any kind of discount you'd expect on the asset sales or maybe what's baked into the pro forma assumptions in terms of non-rate-related discount?

So we have hedged for interest rate risk. That's right. I'm going to turn it over to Joe because he's the expert on the hedges, but we have hedged for interest rate risk, and we've accounted in our model for potential variation. The timing of the sales is something within our control. If there's a non-interest rate dislocation in value supply and demand, we don't have to sell at that moment. We could sell later. Again, we're getting down to below 10% wholesale funding, but we could keep it higher if we wanted to, for timing purposes, to make sure that we hit the numbers that we are targeting in our projections. But Joe, do you want to walk through kind of exactly what we've done?

On our single-family loan portfolio, which totaled approximately $1.8 billion, we entered into a contingent forward sale agreement. This agreement is contingent, meaning if the deal does not close for any reason, the contract will terminate. The contract aligns with the current mark on those assets, which mainly reflects a rate adjustment, so there isn’t any additional credit or spread involved. For the remainder of the balance sheet, we were hedging against interest rate risk from now until the deal closes to safeguard the entity's capital during this period. We utilized interest rate swaptions, calibrated to the appropriate portfolio duration, to ensure our protection.

Understood. And then on modeling assumptions on Page 13 of the slide deck, the 2.4% pro forma funding costs, does that just take the 2Q run rate funding costs for both companies and then back out the planned restructuring? So said another way, would not account for any incremental funding cost increase from here?

I believe that's correct. It does account for the current yield curve projection using the current yield curve. Kevin, do you have any other perspective on that?

I apologize. I missed that part. Andrew, what was the question?

Just on the 2.40% pro forma cost of funds, does that assume any incremental funding cost or deposit cost increases in the back half of the year? Or does it just use 2Q and then pro forma for the structure?

No, it does have yes, Joe's right; it has the forward curve in it. So there's one expected rate hike. That's right.

And then, Jared, it sounds like, I mean, you made a comment earlier in the prepared remarks, just additional upside and maybe some additional earnings that you don't really include in the pro forma assumptions here and its expenses. You're fairly optimistic about achieving the expense saves that are being presented. I was just curious if you could talk kind of outside of that other opportunities or areas you've identified that could be sources of earnings upside here?

We aimed for an expense ratio that we believed was easily attainable, reflecting a conservative approach. PacWest has effectively reduced risks on their balance sheet and had a plan in place that identified various cost savings. Some of these cost savings were no longer relevant to the ongoing operations, while others were expected to enhance efficiency as they move forward as a franchise. By analyzing key expenses and typical merger practices, arriving at a target of $1.90 seemed quite straightforward. I believe that $1.90 is a solid target, though not outstanding, while aiming for $1.85 and lower is our longer-term goal. We see significant potential for further savings in this area.

And I would say that as you look at the overall model, I mean, that's got PacWest forecast in there. Due to our liquidity issues we've had this year, I mean, just to sort of reiterate what Jared already said is that our growth is well below our demand. There's a decision as to whether you do it with the economy and everything. But the demand is much, much higher than we have in the plan.

Got it. Okay. Thank you for the question and congrats on the deal.

Thanks, Andrew.

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

Thanks. Good afternoon. Just a couple of points of clarification. On that Slide 22, again, where you highlight the fair value marks, the $500 million pretax, $140 million goes into earnings. Is that delta the multi-family and single-family discount that's locked in effectively on the sale at closing?

Yes, because you're selling a number of the loan portfolios there. So those are the laps being accreted back into earnings.

Okay. I wanted to clarify that. Thank you. And then secondly, on Slide 12, you mentioned an additional $2 billion of cash generated at closing. Could you explain how that cash generation works?

So PacWest...

Go ahead, Jared.

Go ahead, Kevin, please take it.

I would say PacWest on our side, we plan to sell some of our available-for-sale securities after closing as well as one has some excess cash. We both hold high levels of operating cash and working quite as much at this level of balance sheet. So that leaves us $2 million excess there at the end.

Thank you for your answers. My third question has already been addressed. I appreciate you taking the time to respond.

Thank you.

The next question comes from Tim Coffey with Janney. Please go ahead.

Yes. Good morning, gentlemen.

Good afternoon, Tim.

Jared, can you talk about the timing of the merger approval? Have you received any assurances that it can happen within the timeframe you've outlined?

So we've said in the documents that we are looking for to close the transaction at the end of Q4 or early Q1. Of course, we previewed this transaction with regulators. Based on those conversations and the specifics of this transaction, we believe that timeframe is achievable. So look, we're not going to pin the regulators down. They have to go through their process, and that process is well laid out, but we believe that, that timeframe is achievable.

Okay. Can you comment on how long ago you bought the regulators in?

We have made the regulators aware of this process from a very early phase.

Okay. That's fair enough. And then regarding the $200 million pretax charge, does that include the change in control?

So both parties have a double-trigger change in control. We've got a plug in there for severance that would be paid to people who are terminated as part of the deal. Most people don't have contracts, right? So there's normal severance, but we have based on our estimates and numbers in that number.

Okay. That's right. And then just your thoughts on the venture banking business. Jared, are you planning to establish any kind of concentration limits in terms of customers or capital or things of that nature?

Let me start off on concentration limit topic generally, because I have very strong feelings about this. But let me say, without any pause that I think the venture business is a great is, and the way that they do it the way they do fund finance, I think they know exactly what they're doing; they're doing it very, very well. But concentration is an issue in banking across all banks. Every bank has some level of concentration. We all have these legal lending limits that say, you cannot lend more to single customer or a group of related customers above a certain percentage of your capital. There's no corollary on the deposit side, and we all need to live within our means and make sure that we're not overly concentrated by customers either on the asset or the liability side. I'm in favor of reducing concentration where it makes sense. You can do it in a couple of ways; you can do it by making sure that they're time-based, or have some contractual obligations so that they can't pull their money without giving you notice. So you can convert liquid stuff into something that acts more like a time-based deposit. We do that with some of the larger deposits at Banc of California. There are money markets with institutions, but we have a contract with them. If the money wanted to leave, it would be scheduled to leave over time, and we can plan for it. Overall, I believe that concentration risk is something we have to manage throughout the entire bank, not just at venture or HOA or Community Bank or the San Diego region or the L.A. region or anywhere. We just have to manage it overall. I think PacWest would tell you, they feel the exact same way. That's something that all banks are going to have to manage better going forward.

Okay. And then last question for me.

You're right on, Jared.

And then for Jared and Paul, any sense of how much customer overlap you have between your two institutions?

We haven't calculated the exact figures, but we understand anecdotally that this is a massive market. There won't be significant overlap due to the vast amount of business available, though we do share some customers and have collaborated on a few projects. My experience at PacWest gives me a deep respect for the individuals there, both those who are still with the company and those who have moved on. There are some customers we have in common.

I spoke to one of our customers right before this call, Jared.

You did? Great. Well, great.

Thank you very much. Those are my questions.

Thanks, Tim.

This concludes our question-and-answer session. The call has now concluded. Thank you for attending today's presentation. You may now disconnect.