Banc of California BANC Earnings Call Transcript

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Date

Thursday, January 22, 2026 at 1 p.m. ET

Call participants

• President & Chief Executive Officer — Jared Wolff
• Chief Financial Officer — Joe Kauder

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Takeaways

• Loan Production Disbursements -- $9.6 billion for the year, an increase of 31%.
• Non-Interest-Bearing Deposits (NIB) -- Nearly 2,500 new accounts and $530 million in new balances added, approaching 30% of total deposits; 10.5% annualized NIB growth for the year.
• Net Interest Margin (NIM) -- Reported at 3.2% for the quarter, with a spot NIM of 3.22% at quarter end, up four basis points sequentially.
• Quarterly Earnings Per Share -- $0.42, up 11% from the previous quarter's $0.38.
• Pretax Pre-Provision Income -- Increased 10% sequentially in the quarter and grew 39% for the year; projected to increase 20%-25% in 2026 based on the 2025 full-year base.
• Adjusted Efficiency Ratio -- Improved to 55.6%, down 266 basis points sequentially and nearly 900 basis points year over year.
• Annual adjusted EPS -- $1.35, up 69% from prior year.
• Tangible Book Value Per Share -- Increased 11% during the year, with notable growth in the fourth quarter.
• Share Repurchases -- 13.6 million shares bought back, equating to 8% of common stock, at a weighted average price of $13.59.
• Total Loan Growth -- 15% annualized for the quarter, 6% for the year; total loan balances at $25.2 billion.
• Fourth Quarter Loan Production -- $2.7 billion, up 32% quarter over quarter.
• Unfunded Loan Commitments -- Rose 90% quarter over quarter to $1.7 billion.
• Deposit Costs -- Fell 19 basis points sequentially to 1.89%; spot cost at quarter end was 1.81%.
• Net Interest Income (NII) -- $251.4 million for the quarter, down modestly from previous quarter due to late loan growth and lower accretion.
• NII Guidance for 2026 -- Full-year NII expected to increase 10%-12% from 2025, assuming no additional Fed rate cuts and including baseline accretion.
• Loan Yield -- Average yield declined to 5.83% from 6.05% prior quarter; spot loan yield at quarter end was 5.75%.
• Expense Trend -- Non-interest expense fell 3% sequentially to $180.6 million; guidance for 2026 is a 3%-3.5% increase from the $735 million 2025 base.
• Capital Return -- Double-digit return on average tangible common equity reported at 10.75%, up 319 basis points from the start of the year.
• Provision Expense -- $12.5 million for the quarter reflecting loan growth and risk rating updates.
• Credit Quality -- Nonperforming and special mention loans each decreased 9% sequentially; classified loans increased due to a single $50 million CRE loan that closed after quarter end.
• Allowance for Credit Losses -- Maintained at 1.12% of total loans with minimal net charge-offs.
• Preferred Stock Maturity -- $40 million in preferred stock maturing in 2027, with potential $0.16-$0.20 EPS benefit thereafter as discussed by management.
• Run Rate for Non-Interest Income -- Expected at $11-$12 million per month with some variability ("lumpiness") over time.
• Deposit Beta Guidance -- Jared Wolff said, "my expectations for the time being are that we would achieve a 50% deposit beta. Until, you know, and hopefully outperform that."
• Rate Sensitivity -- Joe Kauder stated, "a 25 basis point cut gives us $6 million annually in lower ECR cost," and emphasized largely neutral NII rate sensitivity.
• Technology and Talent Investment -- Expense guidance factors in continued investments in technology platforms (including AI, workflow automation, data infrastructure, payments, and HOA platforms) and planned front- and back-office hiring.
• Expense Seasonality -- Q1 expenses expected to be higher due to seasonal resets in compensation accruals.
• Shareholder Capital Actions -- Jared Wolff emphasized, "we returned significant capital to our shareholders by repurchasing 13.6 million shares or 8% of our common stock outstanding at a weighted average price of $13.59."
• Guidance Excludes Rate Cuts -- 2026 guidance does not incorporate potential future rate cuts.

Summary

Management delivered double-digit growth across production, profitability, and tangible book value, emphasizing the impact of late-quarter loan growth on next period's earnings. Fourth-quarter loan yield compression and muted net interest income were linked to both rate cuts and the timing of new originations, while nonperforming and special mention loans declined and credit reserves remained stable. The call highlighted broad-based deposit and loan momentum, a proactive balance sheet remixing strategy, and disciplined but ongoing investments in technology and talent. Management articulated rate-neutral guidance for 2026, specifying a direct benefit from lower ECR expenses in the event of Fed cuts and anticipated a significant EPS uplift from preferred stock retirement after 2027.

• Management explicitly forecast full-year loan and deposit growth in the mid-single digits, with broad contributions across the C&I, real estate, and specialty lending businesses.
• Joe Kauder confirmed the spot net interest margin at year-end stood at 3.22%, a four basis point sequential increase, with expectations for further expansion across 2026.
• Joe Kauder specified, "A full quarter impact of the strong loan growth we had in Q4 represents about $13 million in loan interest income before any associated funding costs," providing clear guidance on income trajectory.
• Non-interest income experienced a sequential 21% rise, attributed to a gain on the sale of a lease residual and other market-sensitive items, with management reaffirming an $11-$12 million run rate expectation.
• The company's floating-rate loans grew to 39% of the portfolio, making its NII largely neutral to rate changes when adjusting for deposit betas.
• Expense discipline included a $2 million FDIC assessment benefit in the quarter and a one-time $4–$5 million compensation accrual effect, with decentralized budget control reported as a new strategy for 2025.
• Investment in AI and automation platforms is intended to slow employee headcount growth rather than to achieve immediate cost savings, supporting both back-office efficiency and front-end capabilities.
• No new material risks or negatives were flagged as management described the current environment as characterized by strong execution and opportunity capitalization.

Industry glossary

• NIB (Non-Interest-Bearing) Deposits: Checking or deposit accounts that do not earn interest for the account holder, typically used as a measure of low-cost funding for banks.
• ECR (Earnings Credit Rate): A rate applied to certain corporate deposit balances to offset bank service fees, often more rate-sensitive during periods of Fed rate changes.
• SFR (Single-Family Residential): Mortgage loans backed by one- to four-unit residential properties, often a key component of regional bank portfolios.
• PPNR (Pretax, Pre-Provision Net Revenue): Earnings before taxes and loan-loss provisions, often used as a core profitability metric for banks independent of credit quality fluctuations.
• Beta (Deposit Beta): The percentage of rate movement that a bank passes through to depositors, used to assess deposit cost sensitivity to Fed rate changes.
• Classified Loans: Loans designated by the bank as exhibiting increased credit risk and warranting greater scrutiny under regulatory frameworks.

Full Conference Call Transcript

Jared Wolff: Thanks, Ann, and good morning, everyone. I have a prepared script here, but let me go off script for a minute. This was a really great quarter and end to the year. I really could not be more pleased with the execution of our team. As you all know, we spent 2024 integrating the merger that was completed at the end of '23. So 2025 was supposed to be business as usual. Well, in my view, there really was nothing usual about what we did in 2025. It really represented very strong performance by our teams on both sides of the balance sheet.

Solid credit management, great expense controls, and we did a great job bringing new high-quality relationships to the bank. Our production these last several quarters has been particularly good. As I frequently say, we try to move the ball down the field each quarter, and sometimes it is a lot of plays that work. Other times, it is just a long pass that gets us there. But at least this quarter, it felt like we played a ton of offense. Our time of possession was very long, and we strung together a lot of good plays.

In my view, we did this very well throughout all of '25, expanding our core earnings power and profitability, strengthening our balance sheet, and creating a ton of value for our shareholders. Let me highlight a few of our many accomplishments for the full year of '25. Our loan production disbursements were $9.6 billion, up 31% from '24. We added nearly 2,500 new NIB deposit accounts and nearly $530 million of new NIB deposit balances, getting us close to that 30% NIB as a percent of total deposits. Our margin expanded 30 basis points driven by a 47 basis point decline in deposit costs.

Expenses came down 7% year over year, and our adjusted efficiency ratio dropped nearly 900 basis points. Our adjusted pretax pre-provision grew 39%, and adjusted EPS of $1.35 was up 69% year over year. We had tangible book value per share growth of 11%, including a pretty substantial growth in tangible book value per share in the fourth quarter. Importantly, we returned significant capital to our shareholders by repurchasing 13.6 million shares or 8% of our common stock outstanding at a weighted average price of $13.59, far below where it is trading today as we all know.

If we turn to the specifics of the fourth quarter, our Q4 earnings per share grew 11% sequentially to $0.42, reflecting strong positive operating leverage and great momentum across our core earning drivers. During the quarter, we grew pretax pre-provision income by 10% and generated annualized loan and non-interest-bearing deposit growth of 15% and 11%, respectively. We also achieved double-digit return on average tangible common equity of 10.75%, an increase of 319 basis points since the start of the year. This quarter, like the complete 2025 year, as I said, there was nothing usual about it. I think our teams did a phenomenal job.

Q4 core deposit trends were very positive as we saw a continuation of the strong growth in non-interest-bearing deposit balances that we had in Q3. For '25 as a whole, we achieved 10.5% annualized growth in NIB deposits, which was broad-based across our businesses, attributable to both new accounts as well as average balance growth. This growth reflects the continued success of our relationship-driven deposit strategy and our ability to attract and deepen very high-quality client relationships. Loan production and disbursements were very strong in Q4, at $2.7 billion, up 32% quarter over quarter, resulting in total loan growth of 15% annualized.

As we said in our materials, loan growth was heavily weighted toward the end of Q4 and actually had a very limited impact on fourth-quarter financial results. The late-quarter loan growth positions us very well for earnings expansion in 2026 and beyond. Unfunded new commitments also grew significantly, up 90% quarter over quarter to $1.7 billion, providing an additional tailwind for further balance sheet growth. Loan growth during the quarter was driven by C&I generally, as well as in venture, equipment finance, warehouse, fund finance, and our lender finance businesses. We saw strong production from all of our business, including construction, life tech, and mini firm financing. We also continue to complement our origination activity with selective single-family loan purchases.

Our pipelines remain strong, and we expect loan production activity to remain healthy in '26 across all of our business units. As we sit here today, so far in the quarter, deposit activity has continued to remain strong, and our pipelines look very, very good. We will see where we end the quarter, but as of right now, things look very, very good. The average rate on new production in the quarter remained healthy at 6.83%, well above the rate of loans that have been maturing. We expect to continue benefiting from the remixing of our balance sheet as our higher-rate loan production more than offsets maturities of lower-yielding loans.

We continue to see positive trends in credit quality as well, with most credit metrics improving during the quarter. Importantly, nonperforming and special mention loan balances each decreased 9% quarter over quarter. Classified loan balances increased partially driven by a nearly $50 million CRE loan due to a delay in the closing of the loan. That closing actually happened yesterday. Excluding this loan, the adjusted classified loan ratio would have declined 17 basis points quarter over quarter to 3%. As I mentioned, the loan paid off yesterday. Our delinquency rate increased during the quarter due to two loans totaling $36 million, which became current in January.

Excluding these loans, the adjusted delinquency ratio would have declined about one basis point to 66 basis points. Our coverage ratios were stable with our allowance for credit losses at 1.12% of total loans and our economic coverage ratio at 1.62%. We believe our reserve coverage remains appropriate, reflecting both loan growth and portfolio mix as net charge-offs remained very minimal in the quarter. Our strong Q4 and full-year results underscore the strength of our franchise and our consistent execution across the organization by a truly phenomenal team that we have here. The momentum we achieved is broad-based, spanning both loan and deposit growth, margin expansion, positive operating leverage, credit performance, and obviously generated a fair amount of capital.

Our team is firing on all cylinders, and we believe we are very well positioned to continue delivering consistent, high-quality earnings growth and long-term value for our shareholders in '26 and beyond. Let me turn it over to Joe, who is going to talk about some of the details and give some comments on what we expect for 2026. Then I will come back with some comments, and we will go to questions. Joe?

Joe Kauder: Thank you, Jared. For the fourth quarter, we reported net income available to shareholders of $67.4 million or $0.42 per diluted share, which was up 11% from $0.38 per diluted share in the third quarter. Net interest income of $251.4 million was down modestly from the prior quarter. The benefit of lower deposit cost was muted by the timing of our loan growth occurring late in the quarter. Lower loan income in Q4 was also driven by the impact of rate cuts on floating rate loans and lower accretion income, which was elevated in Q3 due to loan prepayments. The fourth-quarter loan growth had minimal impact on Q4 financial results; we expect this growth to be a tailwind.

Net interest income in Q1. A full quarter impact of the strong loan growth we had in Q4 represents about $13 million in loan interest income before any associated funding costs. As we look ahead, we expect 2026 full-year net interest income to increase 10 to 12% from 2025. Our net interest margin in Q4 was 3.2%, while our spot NIM at December 31 was 3.22%, which is up four basis points from the September 30 spot NIM of 3.18%, driven mainly by lower cost of deposit. We expect NIM to expand throughout the year as margin expansion should come from both sides of the balance sheet.

We expect to continue to drive deposit costs lower, and our loan production continues to originate at rates higher than loans expected to pay off. We do not assume any additional Fed rate cuts in our outlook. The average yield on loans declined to 5.83% versus the Q3 loan yield of 6.05% and versus the September 30 spot yield of 5.9%, which normalizes for the elevated accretion income and rate cut that we had in the third quarter. The Q4 loan yield reflects the impact of the two Fed rate cuts on the rates for new production and on our floating rate loan portfolio, which has grown to 39% of total loans.

Spot loan yield at the end of Q4 was 5.75%. As a reminder, our strong loan growth had minimal impact on net interest income and yields in Q4 given the late timing of when those loans came on. As a result, we expect to see a more pronounced benefit to our results as we move into '26 and beyond. Total loan balances of $25.2 billion were up 15% on an annualized basis for the quarter and 6% for the year. Total average loan balances were essentially flat quarter over quarter given the timing of the loan growth. In '26, we expect full-year loan growth in mid-single digits, dependent upon broader economic conditions.

For now, we expect that growth to be broad-based across all our C&I and real estate lending areas that meet our credit criteria. Deposit trends were generally favorable with a continuation of strong NIB balance growth in the quarter. We temporarily increased short-term broker deposits during the quarter to support our strong late-quarter loan growth. The cost of deposits declined 19 basis points quarter over quarter to 1.89%, driven by growth in non-interest-bearing deposits combined with the benefit of Fed rate cuts. We remain disciplined around our deposit pricing, achieving a 60% beta on interest-bearing deposits following the recent rate cuts. The spot cost of deposits at the end of Q4 was 1.81%.

Looking ahead into '26, we are forecasting another good year of deposit growth in the mid-single digits. The interest rate sensitivity of our balance sheet net interest income remains largely neutral. Although the proportion of floating rate loans has increased, the net interest income impact is largely neutral when adjusting for deposit repricing betas. From a total earnings perspective, we remain liability sensitive due to the impact of rate-sensitive ECR costs on HOA deposits, which are reflected in non-interest expense. Should rate cuts occur, every 25 basis points currently represents about $6 million of ECR pretax savings.

We expect fixed-rate asset repricing to continue to benefit net interest margin as we remix the balance sheet with higher quality and higher-yielding loans. We have $2.5 billion of total loans maturing or resetting over the next year, with a weighted average coupon rate of 4.7%, which is way below our Q4 average rate on new production of 6.83%. Our multifamily portfolio, which represents about a quarter of our loan portfolio, has approximately $3.2 billion repricing or maturing over the next 2.5 years at a weighted average rate that offers significant repricing upside. Non-interest income of $41.6 million was up 21% sequentially driven by gain on the sale of a lease residual, as well as higher market-sensitive income.

Commissions and fees income increased 16% year over year, primarily due to our stronger loan production. While non-interest income can be lumpy at times, we still expect a normal run rate for non-interest income of about $11 to $12 million per month. Non-interest expense of $180.6 million declined 3% from the prior quarter, largely due to lower compensation expense from hitting tax and benefit accrual limits and the other adjustments, a reversal from a prior quarter FDIC special assessment expense of around $2 million, and lower customer-related expenses related to the impact of the Q3 Fed rate cut. As a result, our adjusted efficiency ratio improved to 55.6%, down 266 basis points from the prior quarter.

We remain focused on managing expenses prudently while continuing to invest selectively in talent and technology to support long-term growth. In 2026, we are targeting full-year expenses to increase 3 to 3.5% from 2025. Note that for Q1, we expect lower customer-related expenses as the impact of Q4 rate cuts flow through. Also, the first quarter typically includes some seasonality around resets of compensation expense accruals, so expenses in Q1 will be seasonally higher in a few categories. Provision expense of $12.5 million was largely driven by the strong loan portfolio growth and updates to risk rating. We maintained our allowance for credit losses at 1.12% of total loans, and net charge-offs were minimal.

As Jared mentioned earlier, overall credit performance trends were mostly positive. We are very pleased with the strong progress we made in 2025, scaling our franchise and delivering positive operating leverage while protecting our balance sheet and generating significant returns to our shareholders. In 2026, we are projecting pretax, pre-provision income to grow 20 to 25%, reflecting our ability to drive earnings growth while maintaining disciplined expense management. As we continue into 2026, we believe we are well-positioned to continue building on our momentum and delivering high-quality, consistent results. With that, I will turn the call back over to Jared.

Jared Wolff: Thank you, Joe. Q4 was a strong finish to a great year for Banc of California. As we look ahead, we believe we are in a superior position to continue building on this momentum, and we have meaningful tailwinds to help accelerate our growth in '26 and beyond. The consistency of our results, the strength of our balance sheet, the momentum in our business, and the quality of our people reinforce our confidence in the path ahead. Our focus remains on growing high-quality, consistent, and sustainable earnings.

We plan to achieve this by continuing to scale our franchise, maintaining disciplined expense management while investing in technology and talent to support long-term growth, as Joe mentioned, protecting the balance sheet through prudent risk management, and deploying capital strategically to drive long-term value. Our markets and niche businesses offer compelling opportunities as we continue to capitalize on the dislocation in the California banking landscape and beyond. Recent bank M&A activity has provided further disruption in our markets, with good opportunities to attract new clients and talent. Our relationship-driven approach and best-in-class franchise continue to resonate with clients, and our teams are executing at a very high level.

Our fourth-quarter loan-to-deposit growth reflects the talent of our teams and positions us well for further earning growth as we continue in 2026. I am excited about the opportunity ahead, and I want to thank our talented employees who accomplished so much in '25 and set the stage for a successful '26. I am incredibly proud of our team's hard work and dedication and look forward to all the great accomplishments we can achieve together in '26. With that, operator, let's go ahead and open up the line for questions.

Operator: We will now begin the question and answer session. To ask a question, you may press star then 1. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from David Feaster with Jefferies. Please go ahead.

David Feaster: So wanted to sort it out on net interest income and the net. The guide you gave does not include rate cuts. Just curious about the NIM trajectory as well as NII, what could happen if the Fed does cut rates?

Jared Wolff: So I will start and then let Joe jump in. You know, typically, our margin expands a couple of basis points every quarter. It is three to four basis points a quarter. Sometimes it jumps a little bit more. You get some accelerated accretion or something like that. We think that is kind of a reasonable guide for that. In terms of what happens if rates get cut, we do believe that our margin would expand a little bit faster. Joe, what do you want to comment on that?

Joe Kauder: Yeah. So, you know, I think we said earlier in the call that, you know, a 25 basis point cut gives us $6 million annually in lower ECR cost. But I agree with Jared. It is, you know, when we do our, you know, technical ALM calculation, we come out to be neutral, and that is what we believe we are in our pure net interest income. We are neutral. However, when you have rate cuts, you know, you also tend to have, a lot of times, improved economic activity. You have more things that are happening to your balance sheet that are advantageous to banks.

So I think we would benefit a little bit from our net interest margin from lower rates.

David Feaster: Great. And in terms of your deposit beta, can you comment on what your expectation is with another couple of cuts?

Jared Wolff: We have achieved in excess of 50% beta, I think, every single quarter. It is hard to maintain that momentum. We obviously started from a much higher place. But I think we are also very good at managing our deposits on a very granular basis. So my expectations for the time being are that we would achieve a 50% deposit beta. Until, you know, and hopefully outperform that. And until we modify it, that is kind of what our expectation is. Hopefully, we get into, you know, high fifties, low sixties.

David Feaster: Great. Thank you.

Jared Wolff: Thank you, David. The next question comes from Matthew Clark with Piper Sandler. Please go ahead.

Matthew Clark: Hey. Good morning, guys. Just want to clarify some of your guidance on the NII growth for the year of 10 to 12%. Is that including accretion or is that excluding accretion?

Joe Kauder: Matthew, that includes accretion, but we just do not really have it is just basically the baseline accretion. It is very little if any, any accelerated accretion.

Matthew Clark: Okay.

Jared Wolff: We have not had it. We really have not had any. Matthew, just to stay on that for a second, it has been one of those things that just has not shown up, and it is going to show up because we have all these loans that are going to mature, and so it is going to force itself on the balance sheet, and it is going to be a great kind of annuity for our shareholders when it happens. It just has not been happening. And it has got to eventually. And so, when that happens, it will be a good.

Matthew Clark: Yep. Good. Okay. Great. And then within the PPNR growth guide of 20 to 25%, can you just clarify the base that you are using for fee income and non-interest expense just to make sure we are on the same page because there are.

Joe Kauder: Yeah. The base is the year-end 2025 results.

Matthew Clark: So it is off the fourth quarter? The fourth quarter run rate or it is off the full year?

Joe Kauder: Full year. Twenty-five.

Matthew Clark: Full year. Okay. But in terms of dollars, I do not know if you have it off hand. We can follow up. But just curious what base you are using in terms of dollars for fees and expenses. Because there are nonrecurring items, obviously.

Joe Kauder: Maybe we take that offline and do that in the follow-up call, Matt.

Matthew Clark: Okay. Okay. Then just on the loan growth this quarter, pretty broad-based. Maybe first, just if you could quantify the amount of single-family purchases you did in the quarter and whether or not you plan to do some within that mid-single-digit growth guide for the year. And I guess in terms of the stronger growth this quarter, what may have changed in the market?

Joe Kauder: So we just.

Jared Wolff: Let me go ahead, Joe.

Joe Kauder: I was just going to say so, you know, on a net basis, SFR has increased about $216 million. I think the purchases were a little bit north of $250 million, and then we had some runoff as well. So Jared, I am.

Jared Wolff: Yeah. That was right. And we expect to continue SFR for a while. We want that portfolio is doing really, really well. The prepayment speeds are much lower than what we model. And so the returns have been very good with really limited credit noise at all. These are very strong loans. And we are fortunate to have access to them, and our team does a great job sourcing them. So.

Jared Wolff: And we buy a lot of them off our warehouse lines with our clients. And so it is a very good program that we have. And our balance of SFR, which are fixed-rate thirty-year fixed-rate, most of them, are mostly owner-occupied as opposed to investor. And they are well distributed geographically throughout California. So it is in some ways, it is a hedge to other floating rate portfolios that we have. And so we like that portfolio for that reason. So we will try to continue it in moderation. It probably will continue to grow a little bit, Matthew. In terms of loan growth overall, you know, our teams have just been hitting the streets.

And have done a really good job being out in front of clients, and pipelines take a while to build. And, you know, the last the end of the year, it kind of came together really, really well. And, some you cannot really control the timing. So it was a lot of we saw the pipeline in Q4. We were not sure when it was going to hit, and it really a lot of it hit pretty late. And then some stuff picked up in the beginning of this year. So it seems just broad-based, and our teams are doing a really, really good job.

Matthew Clark: Okay. Great. Thank you.

Jared Wolff: Thank you. The next question comes from Christopher McGratty with KBW. Please go ahead.

Christopher McGratty: Great. Thanks. Jared, on the expense growth, the three, three and a half, you have made a couple of points in the remarks about investing in technology. I am wondering if you could just unpack it a little bit. Whether you think this is kind of a 2026 little bit of a push, or is this kind of a new rate of investments required?

Jared Wolff: Yeah. So, you know, just let me say as a starting point for you and I have talked about this, but maybe others might find it interesting. I mean, we are a growth company at this point. And we are spending to support the growth that we have in our company. It is very positive in my view. Like, we are not going to spend we are going to keep expanding earnings, and earnings are going to grow hopefully pretty fast. But we are going to make sure that we have the right infrastructure to give this company the talent and the technology that we need to do it the right way. We are getting benefits from AI.

We have deployed AI across the company in a couple of different ways. And I have challenged our team to manage to that and figure out where we can deploy it better. We do not think about it as a way to shrink our employee base. We think about it as a way to maybe slow the growth of employment and also to redeploy our employees to do things that are more upskilled. And so, AI is something that we are leaning into. In terms of technology projects overall, there are a couple that I think will be ongoing.

You know, one is, just back end and workflow technology, whether it is in Encino or Salesforce or less Salesforce, but more Encino and we have, you know, ServiceNow and some other things. We have a project to improve our data, a major project in the company where we are looking at how to, you know, optimize the data that we have and streamline it and make sure that it is organized in a way that our employees can self-serve around it. And build reports and, you know, kind of know what is coming ahead. So that is a really important project for us, including kind of our back-office finance modernization as a project.

We are investing in our payments business. We continue to do that. Although that is a smaller portion of spend. We have our HOA platform, which we are investing in to make sure that it is, you know, really a top-tier platform that we have in Smart Street so we can really serve our clients well. And other client-facing technology. So there are a number of things, Chris, that are kind of here, but we all think that there is a good return on them. Some of them are back-office and some of them are client-facing.

Christopher McGratty: Got it. Understood. Thank you. And my follow-up with Jared just on the medium-term targets. Any updated thoughts now that you are making a lot of progress towards them? Any timing updated what needs to happen to get that bridge rectified a bit. Thanks.

Jared Wolff: Sure. Yeah. Without putting a specific date on anything, we obviously liked the progress that we made in the fourth quarter on our return on tangible common, which was a pretty big clip up. It does not stay steady, so it will back up a little bit, and then it will move forward again. Q1, I think it probably drops a little bit, and then it moves back up as we get through the year. But we are making really, really good progress.

And, I mean, if you look at how much we are clipping intangible book value quarter over quarter, that is one of the things I think that people also do not really focus on is how much extra tangible book value we are putting on the table every quarter, which feels really good. I am not going to put a date out there, Chris, for that, but we have line of sight into our targets. We feel very, very good about them.

Christopher McGratty: Awesome. And then maybe, Joe, just to clarify two quick ones. The FDIC benefit, you can give us $2 million, and then any help on the tax rate going forward?

Joe Kauder: Yeah. So $2 million is about what the FDIC benefit was in the fourth quarter. And then I 20, you know, 24 and a half, 25 per probably 25% is a good tax rate. Going forward.

Christopher McGratty: Alright. Thank you.

Jared Wolff: Hey, Chris. Also, you know, on kind of our profitability targets, the one thing that people should also remember is we have preferred stock. That is a $40 million tax on the common. It is, you know, $10 million a quarter that comes out before we pay the common after tax. That matures next year. And so pretax, you know, it is a pretty big number. And after tax, it represents before you figure out what the funding cost would be to replace it, it is over $0.20 a share. $0.20. And so of earnings.

And so, it should be, you know, maybe it is $0.16 or $0.17 of earnings that paying off that preferred stock is going to contribute to our company. In 2027. Which we feel really good about. So that is going to be an accelerant along with a whole bunch of other things.

Christopher McGratty: Okay. So that is definitely coming out next year is what your message on the price. Yeah. It matures.

Joe Kauder: Yep. It matures in We a couple of I think it is September 27.

Jared Wolff: Immature. Yep.

Joe Kauder: Yeah. So we have already planned for how we are going to handle that. Preferred stock, and, you know, there are a lot of ways we could take it out but it is going to be it is expensive. It is seven and three-quarters, and so you know, we have much lower ways to fund that. So even if you put a three and a half percent funding cost on it, you are saving four and a half plus percent and that contributes, you know, $0.20, $0.15 to $0.20 to earnings.

Christopher McGratty: That is helpful. Thanks, sir.

Joe Kauder: Yep.

Operator: Next question comes from Ben Gerlinger with Citi. Please go ahead.

Ben Gerlinger: Hey, wanted to double-check. I know we talked through the guidance here on NII, since no cuts. Is that fair to say the same thing as well for the expense growth of three to three to Is that implies no cut?

Jared Wolff: Yeah. Yeah. We do have no cut we have no cuts in our forecast. In any of our forecast numbers.

Joe Kauder: But what the expense guidance does pick up is that the cuts that occurred in the fourth quarter do not benefit us until the first quarter. Of '26. So, yes, it does not matter. Yeah. Your HOA cost is going to be lower than one q, which should be obviously the fourth quarter cost. I am just thinking, like, if there is a cut in June or something, that is not contemplated in the in the fours, expense guide. No. Not contemplated.

Ben Gerlinger: Correct. Not contemplated at all.

Ben Gerlinger: Got it. Okay. So it is going to be a little downside there. In terms of just the longer-term strategic it seems like you, like you said, Jared, you went from defense to a lot more offense in '25. When you think about '25 or '25 going into '26, the hirings that you have made and kind of personnel and balance sheet cleanup, it has been pretty tremendous throughout the year of '25. Is there anything on '26 that it really has not even left the starting blocks yet, or is it momentum that from things we currently see today and then just continuing that game plan?

Jared Wolff: I think it is more momentum. You know, I would love to point to something that says, god. This is low-hanging fruit. We have not even grabbed it yet. Know, I think that preferred stock is probably a good example. But in terms of kind of our core operations and what we are doing, Ben, it is just blocking and tackling and building on the know, our marketing team has done a superb job. We had a client we have a client that is in Vegas, and he was out here I am just sharing this as an anecdote. He was out here for a Laker game for his son. And he is, like, driving to downtown.

And his wife takes a photo of our new building downtown, and he says, god. That is great signage. And I am like, have not even moved in yet, and our sign is already up. And then he is driving the next day to Orange County because he is going to Newport. He sees our building on the 405, and then he sees three billboards on the most trafficked highway in the country. For Banc of California. He is driving our name is out there a lot. And that is representative of all of our markets, not just Southern California. And so we are really capitalizing on that.

You know, I like to say that our marketing and branding opens the door before we get to the building. It allows our teams to show up. People know who they are. They know the bank. They know the reputation of the bank. And it helps, I guess, grease the opportunity for us to be successful with clients. It gets us in the door for sure. But our team is the one that has to do the hard work of talking to the clients about the opportunity that they have here versus where they are. And why we can deliver a better solution in a more reliable way in a cost-effective way.

And it takes really talented people to do that well. We keep hiring them. And we do plan to do significant hiring in '26. To support our teams, both in the front office and the back office, and that is going to continue to, I guess, support the momentum that we have then. It is more momentum than, you know, kind of finding an opportunity that we have not really latched onto yet.

Operator: Was there a follow-up, Mr. Gerlinger?

Ben Gerlinger: No. That is good. Thank you.

Jared Wolff: Thank you. Thanks, Ben. The next question comes from Andrew Terrell with Stephens. Please go ahead.

Andrew Terrell: Hey. Good morning.

Jared Wolff: Morning.

Andrew Terrell: I was hoping just to go back to expenses quickly. Do you have the or you have a quantified the amount of benefit you guys got this quarter from the lower tax or benefit accrual? In compensation?

Joe Kauder: Yeah. It was probably around $5 million for the quarter. 4 to $5 million. Dollars Okay.

Andrew Terrell: Great. And I guess just overall on expenses, I am trying to kind of bridge Can I clear I am going to clarify that? I am going to say that is when we look when we look out to the first quarter. That is how much I think it is going to when we reset into the first quarter, that is the kind of the change that you are going to see.

Andrew Terrell: Got it. Yep. Okay. That is helpful. Yeah. And I am I guess I am just overall trying to bridge the gap for the, you know, the three and a half percent growth off of $735 million was the baseline, the 2025 reported. At kind of the midpoint, that is, you know, $190 million a quarter in expense in 2026, but you have got, you know, a little bit of headwind from the comp picking up, but you will get the benefit back on ECR cost that should drop in the first quarter as well. So I guess I am just trying to get a sense of what is driving the kind of lift that they expenses into 2026.

Jared Wolff: Well, we continue to remain conservative. And I think one of the things that we did and Joe and the team did a really good job of last year, is guide conservatively. And have the opportunity to have some things that come up to make sure that we do not get caught. And then, you know, if things do not come in and our teams manage their budgets well, we come in lower. One of the successes that we had last year was we actually distributed we decentralized some of our expense management. I gave to all of our business unit functional leaders their own budgets, and said, you guys manage your budgets.

I am not I am going to stop approving everything. And so they did that really, really well. They have the authority to hire who they need to hire to move the company forward. And so there is some of it that we are letting people do. So part of our guide in being conservative is that we are going to let our teams do what they think is right because they did a great job last year. It comes in higher a single quarter, it is going to show up in a benefit later in the year. And we are comfortable with that.

So we feel like we are in a really good spot, and part of this is, you know, less science and more.

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