Transformational Merger Creates California's Premier Bank

We are thrilled to announce the completion of a transformational merger that has created California's premier bank. Through this strategic combination, we have become the third largest bank headquartered in California, solidifying our position as a key player in the state's banking industry.

This merger brings a multitude of benefits for our stockholders, clients, communities, and colleagues. Our clients now have access to a broader range of products and services, while our employees can expect enhanced career growth opportunities. Additionally, this merger strengthens our California banking franchise, enabling us to serve a wider customer base with our expanded scale and offerings.

We express our gratitude to both bank teams for their hard work and dedication in making this merger a reality. This is a significant milestone in our journey to build a relationship-focused business bank, and we are confident it will deliver substantial value to all our stakeholders.

Key Takeaways

• The merger will result in the formation of the third largest bank headquartered in California.
• The merger is expected to provide tangible book value per share accretion on Day 1 and significant EPS accretion in 2024.
• The merger is accompanied by $400 million of capital from sophisticated bank investors, which will accelerate the transformation of the combined company.
• Stockholders, clients, communities, and colleagues will benefit from the merger, with expanded product offerings, career advancement opportunities, and a premier California banking franchise being created.

Merger Announcement and Benefits

With the announcement of the highly strategic merger and capital raise, we're excited to share the benefits and opportunities that come with this transformative combination.

The merger will create the third largest bank headquartered in California, bringing expanded opportunities for growth and increased client access to a wider range of products and services. Day 1 tangible book value per share accretion is expected, and significant EPS accretion is anticipated in 2024.

The $400 million capital infusion from sophisticated bank investors will accelerate the transformation of the combined company. Stockholders, clients, communities, and colleagues will all benefit from this merger, as it creates a premier California banking franchise with increased scale and expanded product offerings to broaden the customer base.

This merger marks a significant milestone in our journey to deliver greater value to all stakeholders.

Acknowledgement of PacWest's Transformation

We acknowledge and commend PacWest's outstanding job in transforming the balance sheet, setting the stage for growth and repositioning the combined balance sheet for the transformational merger. PacWest's successful restructuring efforts have been instrumental in preparing the bank for this merger. We express our gratitude to the hardworking people at PacWest who have contributed to these efforts. To emphasize the significance of their achievements, we present a table showcasing the key metrics of PacWest's transformation:

Metric	Before Transformation	After Transformation
Total Assets	$X billion	$Y billion
Loan Portfolio	$A billion	$B billion
Nonperforming Loans	$C million	$D million
Net Interest Margin	X%	Y%
Efficiency Ratio	X%	Y%

PacWest's successful restructuring efforts have positioned the bank for growth and prepared it for the transformational merger. We are excited about the opportunities ahead and the potential to create California's premier bank.

Introduction of the New CFO

The arrival of Joe Kauder, the former CFO of Wells Fargo's wholesale bank, marks an exciting milestone for Banc of California as we introduce our new CFO. Kauder brings a wealth of experience, having served in senior finance positions at Wells Fargo. His expertise will be invaluable as we navigate the merger and capitalize on the opportunities it presents.

Kauder played a key role in bringing the merger together, showcasing his strategic acumen and leadership abilities. We express our gratitude to the interim CFO, Ray Rindone, for his contributions during this transitional period.

With Kauder on board, we're confident in our ability to drive the continued success of Banc of California and deliver value to our stakeholders.

Financial Performance Highlights

Moving into the discussion of Financial Performance Highlights, let's take a closer look at the second quarter results.

Net income for the quarter was $17.9 million, or $0.31 per diluted share. Adjusted net income was $18.4 million, or $0.32 per diluted common share.

Improved asset margins were driven by loan growth in core C&I and warehouse. However, the net interest margin decreased by 30 basis points to 3.11% due to excess liquidity.

On the noninterest income side, there was a decrease of $1.8 million, primarily attributed to nonrecurring items in the first quarter. Despite this, adjusted noninterest expense decreased by $825,000 from the prior quarter.

It's important to note that total assets decreased by approximately 7% from the end of the prior quarter.

Loan and Deposit Trends, Credit Quality, Strategic Plan, and Operational Efficiency

Continuing with our analysis of the financial performance highlights, let's delve into the trends in loans and deposits, credit quality, strategic plan, and operational efficiency.

• Total loans increased by approximately $102 million from the end of the prior quarter.
• Total deposits decreased by $81 million from the end of the prior quarter.
• Noninterest-bearing deposits accounted for 36% of period-end balances.
• Substantial inflows of new deposits from new client relationships.
• Loan-to-deposit ratio decreased to 81%.

Despite the decrease in total deposits, there was significant loan growth in the second quarter. Noninterest-bearing deposits remained a substantial portion of the overall deposit base. However, delinquent loans and nonperforming loans increased, primarily due to asset borrowed loans. The provision for credit losses recorded at $1.9 million, with an allowance for credit losses totaling $84.9 million.

The renewed strategic plan focuses on the core community bank franchise, including the sale of national construction loan portfolios and lender finance loans. Operational efficiency is being improved through facility closures and subleasing.

Frequently Asked Questions

What Are the Specific Terms of the Merger, Such as the Exchange Ratio or the Valuation of the Combined Company?

The specific terms of the merger, such as the exchange ratio and valuation of the combined company, have not been provided in the information given.

How Will the Merger Impact the Services and Offerings Provided to Clients?

The merger will have a positive impact on clients, as it will result in an expanded set of products and services. There will be changes to services, with increased scale and broader offerings to cater to a wider customer base.

Are There Any Potential Risks or Challenges Associated With the Merger?

There are potential risks and challenges associated with the merger. We must carefully navigate integration complexities, ensure cultural alignment, manage stakeholder expectations, and mitigate any potential disruptions to operations and customer relationships.

Will There Be Any Changes to the Leadership or Management Structure of the Combined Company?

There may be changes to the leadership and management structure of the combined company. As part of the merger, we will assess the current structure and make any necessary adjustments to ensure the success of the new organization.

How Will the Merger Impact the Employees of Both Banks in Terms of Job Security and Career Opportunities?

The merger will provide job stability and create opportunities for career growth for employees of both banks. By combining resources and expertise, the merged company aims to build a premier California bank, benefiting all stakeholders.