Timur Braziler: Great. Thanks for the questions.
Jared Wolff: Yeah. Thanks Tim.
Operator: The next question comes from Gary Tenner with D.A. Davidson. Please go ahead.
Gary Tenner: Thanks. Just a quick follow-up on the last question, were those credits with the legacy Banc of California or legacy PacWest?
Jared Wolff: They were a mix.
Gary Tenner: Okay. And then I just wanted to ask you, you’ve got in the deck I think as it relates to the year-end targets of the asset size kind of say you think it will be stable 3,6 but it could be between 34 and 36 as we think I think you talked about BTFP repayment probably in the second quarter, is it reasonable to anticipate a dip and then grow back towards 36 at the end of the year? Or just where do you see the balance sheet flows or trends on a quarterly basis for the rest of the year?
Jared Wolff: Gary, I don’t actually know the answer to the question. I think, I can tell you what could happen, which is if we — if absent selling kind of a large portfolio, we’re going to pay down bank term funding, our balance sheet shrinks by that much. And then I think we’re relatively safe after pension funds. Putting aside pension funding and we do something specific, it’s more dramatic, right? It could be $2 billion. So that’s why I don’t know. There might be other assets that — a lot of these discontinued portfolios, we’ve had a lot of inbound inquiries on. And so whether it’s student loans or lender finance or whatever, and so we can we can exit these loans if the pricing is right and if it makes sense for the company going forward there’s not a size that we’re focused on, it’s more profitability.
So I think those are the moving parts that could impact the balance sheet. But if we take out any dramatic moves, I think you can think about bank term funding coming off shrinking by that much. And then it’s stable from there.
Gary Tenner: Okay. I appreciate that. And then if I just ask one last question. There was a question earlier about the cash balance relative to the size of the balance sheet overall. With that in mind is BTFP effectively replace? I mean, it sounds like from what we’re just saying it’s paid off balance sheet contracts, and do those cash balances by definition? And are they lower than that 8% range that I think Joe you referenced from a prior question.
Jared Wolff: Joe, what do you think?
Joe Kauder: I’m sorry. I didn’t quite understand the question, could you repeat one more time?
Gary Tenner: Yeah. Sorry. I mean first of all I was just trying to clarify if BTFP repayment is done out of existing cash, based on what your comments were about the current cash level being kind of roughly where you’d wanted as a percentage of overall balance sheet.
Joe Kauder: Yeah. The subsequent paydown of BTFP will come from — it not would not result in a big reduction in our cash balance. That’s why I think I qualified in my comments in the script that qualified the — yeah, we will have to look at deposit inflows and other outflows before we make a final decision whether we’re going to pay it down. But you should not expect to see a step down in cash.
Gary Tenner: Okay. Thank you.
Operator: The next question comes from Andrew Terrell with Stephens. Please go ahead.
Andrew Terrell: Hey, good morning.
Jared Wolff: Good morning.
Andrew Terrell: Jerry, if I could just start on the non-interest bearing deposits, pretty nice build kind of in the quarter end. Was curious if you could give any color on how the NIB deposits have trended so far in the second quarter, have you seen continued growth or any kind of moderation there?
Jared Wolff: We have seen continued growth like an update this morning and we get reports on a regular basis. I’m hesitant to tell everybody that that’s what’s going to happen because I know that this stuff can vaporize and pipelines are only as good as what actually gets booked. But I like the momentum and I like the progress that we’re making and I think it’s just going to quarter-to-quarter hard to know over the course of the year and IB is going to grow. And so it could be uneven. I hope it state. I hope it’s kind of consistent. But right now, it looks like it will be consistent and I guess we’ll know at the end of the quarter, but it’s looking positive.
Andrew Terrell: Okay. No, I appreciate it. And then sorry to go back to just the margin question, but last quarter I mean, we talked about 15 basis points of earning asset yield improvement in the first quarter. And I understand it sounds like maybe the base was a little too high to start because of the purchase accounting. But now that we’re kind of that’s behind us, would you still expect 15 basis points of earning asset yield expansion per quarter, just from booking loans at higher yields and replacing the lower-yielding loans. I guess, 15 is still a good number?
Jared Wolff: I don’t think it’s unreasonable. I mean I think it’s definitely — again, it’s an output for us in terms of where we end up. And we have a lot of levers to pull which is why we can still hit our numbers even if the margin is — we can make it up on volume rate. And there’s other levers that we have to pull on expenses and other things to kind of get our numbers to a place where we think it’s sustainable. If the interest rate curve doesn’t cooperate early, then we can take out expenses earlier, more earlier and the interest rate curve will catch up with us. We’ll catch up with the interest-rate curve later and take out those expenses in terms of interest expense later as an IB ticks up and other things. Is 15 basis point of improvement a reasonable goal for the quarter? Yeah, I think so. Are we going to get all the way there, is it going to 10, is it going to be 16? I don’t know, but it’s not unreasonable. What do you think Joe.
Joe Kauder: I would echo what Jerry said. And there’s a lot of moving pieces. It depends upon our ability what loans we originate in the quarter. Also, what loans maybe paydown ahead of the — head of had a plan, but there’s no but just to give you a sense, if what we’re looking at — in the first quarter our new loan production yield was up north of 8% now up getting up towards 8.5%. So as you imagine a lot of the loans that are rolling off are much, much lower than that. So we have we have good trajectory there. Good a good glide path and we’ll see how it comes out.
Jared Wolff: Yeah. One of the things that Joe and I talked about was on the spot rate is we gave, that’s really just a moment in time on the margin and there’s a lot of pieces to it. And so we just feel like giving the margin for the month is probably a better thing to do going forward, which is why we laid out that chart in the deck.
Andrew Terrell: Yeah. Understood. It’s helpful. I appreciate it. Back to the there’s a question around the preferred and potential redemption there. And it sounded like, Jared, in your response, that the preference would be to continue to build capital, at least in the short run. Can you just remind us kind of goalposts on the capital front? I forget which metric you’re paying most close attention to, but can you just refresh us on your kind of capital targets?
Jared Wolff: Yeah, I think CEP1, getting that closer to 11 is probably when we feel like we’ll have excess capital. And so, from there, I think it’ll be an easy conversation to have about how we’re going to deploy it.
Andrew Terrell: Got it. Okay. If I could sneak one more in and just I appreciate the color you guys gave around the delinquencies and the non-performers but the classified loans what drove the step-up in classified this quarter.
Jared Wolff: Joe, do you want to touch on that?
Joe Kauder: I was going to say, I think it’s a lot of the same drivers that impacted delinquencies and MPLs, but I was going to say, I think it’s a lot of the same drivers that impacted delinquencies and MPLs, but, Jared, I’m not sure if you have further color.
Jared Wolff: No, it was the same group.
Andrew Terrell: Okay. Understood. All right. Thank you for taking the questions.
Jared Wolff: Thanks.
Operator: The next question comes from Timothy Coffey with Janney. Please go ahead.
Timothy Coffey: Hey, gentlemen. Thanks for the questions. Jared, you in the prepared remarks said that cost dates are coming in better than expected. Do you have any color on that and would it cause you to update your estimate for cost dates? It looks like this is around $130 million pre-tax?
Jared Wolff: I’m definitely not going to update our — kind of our guidance for where we think we can get to. We said we’d get to between 2 and 2.10 expense ratio. I think that’s good. Not everything is going to go our way. I know that. We just had a really good quarter in terms of expense savings. That’s a little bit ahead of schedule. So that gives us a little breathing room if something else doesn’t go our way, but hopefully we can outperform.
Joe Kauder: Yeah, I would echo what Jared said. It’s just people executing just slightly ahead of schedule.
Timothy Coffey: Okay. Great. Thanks. And can you remind me what the dollar value of the credit link note is or how much of the single family residential portfolio it covers?
Joe Kauder: Yeah, Bill, do you have that handy?
Bill Black: Look in Jared, it’s about $125 million on the balance sheet. It covers about $2.65 billion of loans.
Timothy Coffey: Great. Thanks.
Jared Wolff: And it absorbs the first 5%, right? Right, Bill, it absorbs the first 5% of loss, right?
Bill Black: Yes.
Timothy Coffey: Great. And then my last question, I just wondered if you could provide a little bit of color on Civic. The deck says loan to low LTV well-collateralized but there seems to be a lot of migration for business that was shut down by a year ago. I’m wondering if you have any operating or so.
Jared Wolff: So the loans are, just as a reminder for everybody. We have about a little over about $2.3 billion of total Civic loans, $2 billion approximately are for rent single-family homes that are investor owned, and the remaining balance are bridge loans, you can think about them as fix-and-flip primarily on single-family but they could be on multifamily as well small multifamily. It operates in many ways like the single-family portfolio, which has the lot of delinquency. People pay in one of the ways that it was being managed before PacWest bought it, was because it wasn’t a bank that it might if they went PQ because they just charge them more fees. And obviously, that’s not our profile. That’s not the way that we want to run things.
And so, as the portfolio transitions and PacWest discontinued it and kind of brought it more in-house, there — they had to change the borrower behavior. They’re not experiencing losses on these loans. It’s just our behavior is — was — I guess it was conditioned to behave differently than what we would like in a bank. And so, look, it’s serviced by a third party, we asset manager ourselves in-house. We’ve got a great team on it. It makes money but it’s just not what I would call a great portfolio to own inside of a bank and so, it’s either going to run off and overtime or we’ll figure out a way to exit if we get a price that we like. And we would look at both. Is that does that help?
Timothy Coffey: Yes. Extremely. Those are my questions. Thanks a lot.
Jared Wolff: Thanks, Tim.
Operator: The next question comes from Brandon King with Truist Securities. Please go ahead.
Brandon King: Hey. So, you’re sticking to the profitability target in the 4Q run rate, but could you help frame what you’re expecting NII to be? I know there’s a lot of moving pieces but I think is helpful if you could frame what the dollar NII amount could be to hit those targets?
Jared Wolff: I don’t think we’ve given that guidance Brandon. Joe, what do we said about — what have we said on that?
Joe Kauder: Yes. We’ve not put out specific NII or income statement numbers and I don’t think we intend to.
Brandon King: Okay. And then, for deposit, the deposit runoff. Could you just frame just what kind of deposit runoff you saw in the quarter? I guess what amount of that was intentional and what is left to anticipate runoff going forward?
