Banc of California (BANC) Q1 2026 Transcript

DATE

Thursday, April 23, 2026 at 1 p.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — Jared M. Wolff
• Chief Financial Officer — Joseph Kauder

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TAKEAWAYS

• Earnings per Share -- $0.39, up 50%, led by net interest margin expansion and positive operating leverage.
• Pretax Pre-Provision Income -- Increased 28%, reflecting improved profitability.
• Adjusted Efficiency Ratio -- Improved by nearly 500 basis points, indicating enhanced operational efficiency.
• Net Interest Income -- $251.6 million, up 8%; remained relatively flat sequentially due to two fewer days in the quarter.
• Net Interest Margin -- Expanded to 3.24%, up 4 basis points from Q4 and 6 basis points year over year.
• Spot Net Interest Margin -- 3.22% after adjusting for the FHLB special dividend.
• Dividends and Share Buybacks -- Dividend per share increased to $0.12; 1.7 million shares repurchased; buyback program extended through March 2027.
• Subordinated Debt Redemption -- Plans to redeem $385 million in May.
• Tangible Book Value per Share -- Rose 1.5% sequentially to $17.77.
• Common Equity Tier 1 (CET1) Ratio -- 10.18% at quarter end.
• Deposit Mix -- Noninterest-bearing deposits grew 4% annualized quarter over quarter to 29% of total average deposits.
• Loan Production -- $2.1 billion, with strong contributions across the portfolio.
• Balance Sheet Remixing -- New loan production averaged 6.65% versus legacy repricings at 4.7%, driving NIM expansion despite a declining rate environment.
• Credit Migration -- Concentrated in specific real estate and LIHTC loans, with no expected losses and defined resolution paths.
• Net Charge-Offs -- $13.8 million, or 23 basis points annualized, primarily from two specific, previously disclosed situations.
• Allowance for Credit Losses (ACL) Ratio -- Stable at 1.12%; economic coverage ratio at 1.6%.
• Provision Expense -- $9.8 million, reflecting credit migration and offsetting an improved CRE price index.
• Noninterest Income -- $35.3 million, flat quarter over quarter when excluding a $6 million gain in the prior quarter.
• Noninterest Expense -- $181.4 million, flat sequentially and down 1% year over year, with compensation expense rising seasonally and customer-related expenses declining by $1.1 million quarter over quarter.
• One-Way ICS Sales -- $271 million in average balances were moved off-balance sheet to manage excess liquidity.
• Deposit Costs -- Declined 11 basis points to 1.78%, with a spot rate of 1.78% at quarter end; interest-bearing deposit beta for the quarter was 57%.
• Brokered Deposits -- Represented 9.3% of total fundings, flat versus the prior quarter; mainly short-term (three to six months).
• Loan Portfolio Trends -- End-of-period loans declined modestly due to higher payoffs in warehouse, fund finance, and CRE segments.
• Embedded Loan Repricing Opportunity -- $3.2 billion in multifamily loans expected to mature or reprice within two and a half years at sub-market coupons.
• Full-Year Guidance -- Reaffirmed pretax pre-provision income growth of 20%-25% and noninterest expense growth of 3%-3.5%.
• Regulatory Capital Tailwind -- Proposed changes could provide $150 million-$160 million additional CET1, increasing capital flexibility.
• AI Integration -- Broad deployment of AI tools is underway, with over 80% developer adoption and applications in productivity and compliance support.

SUMMARY

Banc of California (NYSE:BANC) reported substantial earnings per share growth backed by margin expansion and disciplined operational execution. Management highlighted actionable capital deployment measures, including both equity and debt initiatives, aimed at further strengthening the capital base and returning value to shareholders. The quarter demonstrated ongoing improvements in deposit mix and balance sheet positioning, with new loan production well above the rates on maturing assets, supporting embedded earnings growth potential.

• Management indicated that “remixing our portfolio as deposit costs have dropped has resulted in our margin expansion and making more money on a flat balance sheet,” emphasizing internal levers as the main source of profit momentum.
• Ongoing credit migration is concentrated in a small set of longstanding client relationships, with management expressing confidence that these items “will not disrupt our earnings trajectory.”
• Leadership stated that the recent AI rollout is already resulting in productivity gains, with “more than 80% of our developers using AI in their daily workflows.”
• The company expects net interest margin to expand by 3 to 4 basis points per quarter on average, with both loan remixing and deposit mix driving anticipated improvement.
• Deposit flows have trended higher early in the second quarter, suggesting ongoing momentum in core funding relationships.
• Senior management reaffirmed full-year guidance and underscored the durability of current drivers, noting that loan production may outpace payoffs, even without rapid balance sheet expansion.

INDUSTRY GLOSSARY

• LIHTC: Low-Income Housing Tax Credit loans, a form of lending tied to projects qualifying for federal housing tax credits.
• ICS: Insured Cash Sweep, a deposit placement service used to move funds off balance sheet for liquidity management purposes.
• Economic Coverage Ratio: The ACL (Allowance for Credit Losses) as a proportion of loans specifically weighted by economic scenario modeling, providing sensitivity to macroeconomic changes.
• ECR: Earnings Credit Rate, a banking compensation mechanism offsetting fees with credit for balances, especially in commercial deposit relationships.
• FHLB: Federal Home Loan Bank, a major wholesale funding source for U.S. banks, often providing special dividends in certain quarters.

Full Conference Call Transcript

Jared M. Wolff: Thanks, Ann. Good morning, everybody. We are pleased to report another strong quarter for Banc of California, Inc., with year-over-year earnings growth, net interest margin expansion, and continued positive operating leverage. First quarter earnings per share grew 50% from a year ago to $0.39, driven by continued net interest margin expansion and positive operating leverage. Pretax pre-provision income increased 28% while our adjusted efficiency ratio improved by nearly 500 basis points year over year. More importantly, the quarter reinforced our confidence in the earnings trajectory ahead.

We continue to see durable momentum across the core drivers of the franchise, including margin expansion, deposit mix improvement, disciplined expense management, and embedded balance sheet remixing that should support profitability and shareholder value for the coming quarters. Efficient use of capital remains an important priority for us. In the first quarter, we repurchased 1.7 million shares and also extended our buyback program through March 2027, and increased our dividend from $0.10 per share to $0.12 per share. We also announced our plans to redeem $385 million of subordinated debt in May. These actions reflect both our confidence in the long-term value we are building and our commitment to deploying capital thoughtfully and opportunistically for the benefit of shareholders.

Our core earnings engine continues to generate capital at a healthy pace, with a CET1 ratio of 10.18% at quarter end. Our tangible book value per share increased 1.5% quarter over quarter to $17.77. Core deposit trends were constructive during the quarter, with continued growth in average noninterest-bearing deposits of 4% annualized quarter over quarter and an improvement in deposit mix with NIB representing about 29% of total average deposits. We continue to steadily attract new business relationships and are also seeing noninterest-bearing deposit balances ramp up in previously opened accounts, with average balances per account up 2.5% from the prior quarter.

That reflects the quality of the relationships our teams are bringing in and the strength of our relationship-based deposit strategy. Loan production and disbursements remained strong at $2.1 billion in the quarter, with healthy and broad-based activity across the portfolio. Strong production levels continue to drive the remixing of the balance sheet toward higher-rate loans from lower fixed-rate legacy CRE loans. This remixing has helped protect our overall loan yield and net interest margin despite a declining rate environment. We expect the margin benefit from remixing to continue, as new production comes in at meaningfully higher rates than maturing loans, providing embedded earnings upside in the portfolio.

New production in Q1 came in at a rate of 6.65%, while fixed-rate and hybrid loan repricings or maturities by year end have a weighted average coupon of 4.7%. We view that ongoing remixing as an important driver of future net interest income growth. This quarter, we continued to manage credit proactively, remaining quick to downgrade and slow to upgrade. This resulted in some credit migration during the quarter, which was concentrated in a few specific real estate credits and does not reflect a broad change in portfolio performance or underwriting standards.

We believe this disciplined approach to managing credit is important because it allows us to address issues early, helps reduce the risk of larger surprises later, and should keep credit from becoming a more meaningful headwind as we continue to grow earnings. As in the past, we will migrate credit when appropriate to take proactive action. We expect the ratios to improve over several quarters. Importantly, such migration will not disrupt our earnings trajectory. This quarter's delinquency and special mention inflows were primarily driven by a limited number of credits with defined resolution paths.

Special mention inflows and delinquency inflows were driven primarily by LIHTC, or low-income housing tax credit loans, tied to a long-standing customer where we have had a relationship for more than 20 years with no historical losses. The loans have low loan-to-values and personal guarantees in place, and strong collateral values, and we expect them to be made current before the end of the second quarter. Classified inflows were tied mainly to two multifamily loans in a single relationship with a long-standing customer of the company. These loans were restructured with credit enhancements and are not expected to result in any losses.

Overall, we do not expect losses to appear with migrated loans based on our strong collateral and defined resolution paths. Net charge-offs were $13.8 million, or 23 basis points annualized, and were driven by two specific situations that had already been identified and actively managed. Net charge-offs also included a partial charge-off related to a hotel property that migrated to nonperforming status in 2025, and an office loan where the balance was adjusted to reflect an updated appraisal while the loan remains current and performing. We do not view these items as indicative of a broader deterioration trend in any of our portfolios. Importantly, reserve levels remain solid. We increased reserves where appropriate in the areas that saw migration.

Taken together, we do not expect this quarter's credit migration to disrupt our earnings trajectory. The balance sheet remains strong with healthy capital and liquidity positions. We are also encouraged by the constructive backdrop from proposed regulatory changes around capital requirements, which, if finalized substantially as proposed, could provide $150 million to $160 million of additional CET1. That would create additional flexibility as we evaluate attractive capital deployment opportunities, including further optimizing our balance sheet to accelerate our earnings trajectory, supporting prudent balance sheet growth, and returning capital to our shareholders. $150 million to $160 million is a baseline projection; it could be higher under various scenarios. Overall, this was another strong quarter for Banc of California, Inc.

We continue to build the company the right way, with disciplined execution, a strong and resilient balance sheet, and a clear focus on sustainable growth and long-term shareholder value. Let me now turn it over to Joe for some additional financial details, and I will return afterwards. Joe?

Joseph Kauder: Thank you, Jared. For the quarter, we reported net income of $62 million, or $0.39 per diluted share, which was up 50% from $0.26 per diluted share in the prior year period. Net interest income of $251.6 million increased 8% year over year and was relatively flat versus the prior quarter. The increase in net interest income from a year ago reflects materially improved funding costs, while the linked-quarter variance was mainly due to two fewer days in Q1 versus Q4. Q1 interest income from securities also increased due to the purchase of high-yielding securities and a $1.3 million special dividend on FHLB stock.

Net interest margin expanded to 3.24%, up 4 basis points from Q4 and 6 basis points from a year ago, driven primarily by lower funding costs. Our spot NIM at March 31 was 3.22% after normalizing for the FHLB special dividend. We expect NIM to continue expanding through the remainder of the year supported by strong production, ongoing balance sheet remixing, and disciplined deposit pricing and mix. These tailwinds are evident in our portfolio today. As a result, we continue to expect average quarterly NIM expansion of 3 to 4 basis points, though the path may not be perfectly linear. As always, we do not assume any Fed rate cuts in our outlook.

Average loan yield declined 9 basis points to 5.74% versus the Q4 loan yield of 5.83% and was relatively flat to the December 31 spot yield of 5.75%. The Q1 loan yield reflects the full-quarter impact of two Fed rate cuts on the rates for new production and on our floating-rate loan portfolio, which represents 38% of total loans. Our spot loan yield at the end of Q1 remained stable at 5.75%. Total average loan balances increased 4% annualized. While Q1 loan production was strong, end-of-period loans declined modestly from the prior quarter mainly due to higher payoffs and paydowns, which were primarily in warehouse, fund finance, and other CRE.

We continue to expect full-year loan growth in the mid-single digits depending on broader economic conditions. Deposit trends remain solid, with average noninterest-bearing deposits continuing to grow in the quarter and average core deposits, excluding one-way ICS deposit sales, also increasing modestly. We use one-way ICS sales to move deposits off balance sheet and manage excess liquidity. In the first quarter, average balances swept off balance sheet through one-way ICS sales were $271 million. End-of-period deposits declined slightly from the fourth quarter due to lower broker deposits and retail CD deposits. We continue to expect deposits to grow mid-single digits over the course of this year.

Deposit costs declined 11 basis points to 1.78%, driven by the benefit of Q4 Fed rate cuts and the continued runoff of higher-cost deposits. We remain disciplined on pricing and achieved an interest-bearing deposit beta of 57% in the first quarter. Spot cost of deposits at March 31 was 1.78%. Our balance sheet remains positioned to perform well across rate environments and is largely neutral to changes in rates from a net interest income perspective. Sitting at neutral, we have the flexibility to manage our balance sheet to optimize results in any interest rate environment.

For example, in a rising rate environment, we would expect to manage deposit betas to be more measured than in a down-rate cycle, and the interest rate impact will be outpaced by the impact to interest income of the contractual repricing of our variable-rate loans. At the same time, we expect ongoing balance sheet remixing to continue to support net interest income expansion across rate environments. Fixed-rate and hybrid loan repricings or maturities by year end have a weighted average coupon of 4.7%, well below current production rates. Approximately $3.2 billion of multifamily loans are expected to mature or reprice over the next two and a half years. That embedded repricing opportunity remains an important earnings tailwind.

Noninterest income was $35.3 million, which was relatively flat quarter over quarter when excluding the $6 million lease residual gain in the fourth quarter. Noninterest expense of $181.4 million was relatively flat from the prior quarter and down 1% from a year ago. Compensation expense increased linked quarter due to seasonality, which includes Q1 resets for payroll taxes and benefits. Customer-related expenses declined $1.1 million quarter over quarter due to the impact from Q4 rate cuts on ECR cost. The broader expense base remains well controlled, and we continue to target positive operating leverage through revenue growth, margin expansion, and disciplined expense management.

Turning to credit, reserve levels remain solid, with the ACL ratio stable at 1.12% and the economic coverage ratio at 1.6%. Provision expense of $9.8 million reflects the Q1 migration and impact of other credit activity. While the Moody's updated economic forecast, which included a significant improvement in the CRE price index, would have supported a reserve release, we continue to maintain a more conservative outlook for purposes of our methodology and increased the weighting of adverse scenarios, offsetting that benefit. We continue to believe overall loan reserve levels are appropriate, particularly given the continued shift in growth towards historically lower-loss categories, which now represent 34% of loans held for investment.

We are pleased with the strong start to the year and the progress we are making in building the company's earnings power. As we look ahead to the rest of 2026, we are reaffirming our guidance for pretax pre-provision income growth of 20% to 25% and noninterest expense growth of 3% to 3.5%. Our net drivers of earnings growth remain firmly in place, including continued loan portfolio remixing, disciplined expense management, healthy client activity, and further benefits from deposit repricing and mix. Taken together, those levers give us good visibility into continued earnings growth through the balance of the year. And with that, I will turn the call back over to Jared.

Jared M. Wolff: Thank you, Joe. This was another strong quarter for Banc of California, Inc., with continued progress in key areas: positive operating leverage, growth in our core earnings drivers, strong balance sheet fundamentals, disciplined expense and credit management, and, of course, thoughtful capital deployment. The consistency of our results reflects the quality of the franchise we have built and the discipline with which our teams continue to execute. As we look ahead, we remain mindful of the uncertainty created by the conflict in the Middle East and the potential for second-order effects on growth, inflation, and client activity.

That said, what we are seeing today across our business lines is very positive, with strong pipelines, a resilient client base, and a healthy balance sheet. Our teams continue to win relationships in all areas of our business. We remain very optimistic with strong pipelines. Importantly, our outlook is supported primarily by company-specific levers already in motion rather than by the need for a more favorable macro environment. We remain confident in the path ahead, as our drivers of earnings growth are tangible, diversified, and already underway. We have a valuable deposit franchise, attractive business segments, strong pipelines, and a healthy balance sheet.

We also have meaningful embedded earnings opportunities over time, including, as Joe mentioned, the runoff of approximately $8 billion of lower-yielding assets, the redemption of expensive capital, including our preferred stock, and the opportunity to further optimize the balance sheet as the regulatory backdrop improves. These levers provide additional flexibility to accelerate earnings growth and compound shareholder value. We are also making strong progress in deploying AI tools broadly across the company, with nearly universal employee access, a robust Copilot active user rate, broad developer adoption, and more than 80% of our developers using AI in their daily workflows.

We see AI as a practical enabler of productivity, operating leverage, risk management, and scalable growth, and we are already seeing early signs of efficiency gains across code development, reporting, compliance support, and workflow automation. We also have a number of targeted use cases underway, including BSA review support and customer service applications. Over time, we expect these efforts to contribute to a more efficient operating model and improved client service. Our focus remains the same: to continue growing high-quality, consistent, and sustainable earnings by serving clients well, adding strong new relationships, maintaining disciplined underwriting and expense management, and further optimizing the balance sheet to drive long-term shareholder value. We like the momentum in the business.

We see multiple embedded levers for future earnings growth, and we believe Banc of California, Inc. is well positioned for continued progress in 2026 and beyond. I want to thank our employees for everything they are doing to move the company forward. Their execution, commitment, and focus continue to set us apart in all of our markets. With that, Operator, we will now open the call for questions.

Operator: Thank you. We will now begin the question-and-answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. The first question comes from David Cioverini with Jefferies. Please go ahead.

Analyst: Hi. Thanks for taking the questions. Good morning. I wanted to start on credit quality. You touched on this a bit, but can you walk through what the plan is for working out the increases in special mention and nonperforming loans? You mentioned the two credits that were restructured with credit enhancements. Can you talk about what those enhancements were? Did these borrowers contribute more equity into their projects?

Jared M. Wolff: Yes. They contributed more equity in both cases in those loans that were downgraded. They brought more equity. What we want to see is more time. We want to see them work according to plan. We have every expectation that they will. But when we talk about being quick to downgrade and slow to upgrade, we do not immediately make a change to the rating just because they provided a credit enhancement. We want to see performance over time, and we expect that these projects will return to normalcy over time and be upgraded with improvement over several quarters.

We also have visibility to other projects in those classifications that we expect to be upgraded, and so that is why, over time, we expect to see benefits not only from those projects, but other projects in those categories.

Analyst: Got it. Very helpful. And then shifting over to the net interest margin, it sounds like you have some good tailwinds in place, especially with the 6.65% production versus the 4.7% rolling off. The 3 to 4 basis points of quarterly expansion—how linear should that be? And remind us of the sensitivity to rate cuts to the extent we do get some rate cuts later this year?

Jared M. Wolff: I will start, and I will let Joe jump in. We sit today relatively neutral, and we believe, as Joe mentioned, we have the ability to pivot depending on the rate environment. We have already seen that in a down-rate environment, our net interest margin expands. In an up-rate environment, we would expect deposit increases to trail and go much more slowly, and we benefit from rising rates in our floating-rate loan portfolio and new production, and so we would expect to benefit in a rising rate environment as well. We think those benefits would more than offset any sort of contribution that ECR would take in an up-rate environment.

Joe, do you want to comment specifically on how linear our NIM should move?

Joseph Kauder: In theory, it should be pretty linear through the year, picking up as the year goes on. As we grow our balance sheet and as we add more higher-yielding loans and continue to manage our credit costs, the NIM improvement and benefit will expand as the year goes on. What we do not have in there is accelerated accretion. We have this $8 billion of loans which we know will pay off or pay down at some point, and when that happens, we will get the accelerated accretion from the portion that was marked during the merger.

Analyst: Thank you.

Operator: The next question comes from Matthew Timothy Clark with Piper Sandler. Please go ahead.

Matthew Timothy Clark: Hey, good morning.

Jared M. Wolff: Morning.

Matthew Timothy Clark: Just on the expense run rate, you are on pace to be flattish relative to last year, and you maintained the 3% to 3.5% growth guide. What are the things coming online that we should think about that would cause that run rate to grow from here this year?

Jared M. Wolff: As we look into the next couple of quarters, you will see a little bit of an increased compensation expense as the year-end inflation adjustments and those things kick in. They will be somewhat mitigated by the payroll taxes and the other benefit adjustments coming in, but they should step up just a little bit. And then also, we are probably making some more investments in our platform, so you will see a little bit of an increase potentially in some of the professional fees and other things as we move forward in some of our really important projects to grow earnings and help the balance sheet. I would just add that we are going to continue to be disciplined.

I think it is normal to expect those increases through the year. If we find ways to offset them, we will do that, because we believe that we can keep finding efficiencies. The AI initiatives are real, and we are seeing some early signs and some early wins, and we will not lose the opportunity to manage expenses as we always have.

Matthew Timothy Clark: Yep. Okay. And then just on the ECR deposit balances, understanding the sensitivity to rate, but with no rate cuts this year—assuming there are no rate cuts—is there any effort to try to remix away from those deposits or try to incrementally push those costs down?

Jared M. Wolff: We are looking for ways to improve our deposit costs across the board. The biggest and most important way to do that is to bring in noninterest-bearing deposits that have no expectation of yield and rely on our services. We have a lot of efforts underway, and we continue to make progress there. I am really pleased with what our teams are doing. I see stories every day of clients coming to the bank, bringing more.

Even this morning, we heard about a client that got acquired, and the company that acquired them decided that they were going to keep all of the deposits at our bank because we were giving better service than they were receiving elsewhere, and they brought more deposits in. Another story: a customer that had left after the merger to a large bank was not getting the service that they expected and brought back $3 million of deposits. These stories are meaningful. So, the first thing we can do is bring back operating accounts and grow operating accounts, and our teams are doing a great job.

The second is to be very proactive on deposit costs, whether or not there are Fed rate cuts or increases, and see how we can manage our deposit costs. As it relates to ECR, those contracts generally come up annually, and when they come up, depending upon our deposit flexibility, we will negotiate with them to improve our positioning. That has been the case the last two years as our deposit positioning has been better, and we have been able to negotiate those accounts to our benefit.

Matthew Timothy Clark: Okay. Great. Thank you.

Jared M. Wolff: Thank you.

Operator: The next question comes from David Pipkin Feaster with Raymond James. Please go ahead.

David Pipkin Feaster: Hey. Good morning.

Jared M. Wolff: Morning.

David Pipkin Feaster: Jared, I wanted to follow up on your commentary on the capital side with the regulatory capital relief. Could you talk about what your top priorities might be at this point? Obviously, buybacks are extremely attractive, but are there any other capital optimization opportunities that you are considering or that are on the table?

Jared M. Wolff: We run a lot of different scenarios. Obviously, buybacks are a big part of it. Using it to redeem preferred is in our plans, and we would not need other funding sources if we did that. We will look at our balance sheet and look at low-hanging fruit and things that are suboptimally priced and see what we could do with that and what the earn-back might be. The $150 million to $160 million is, I would say, a very conservative estimate of what we could achieve under these new rules.

We are still doing the analysis, but in our initial analysis, we had a third party look at it and they think we are going to get more than that. I feel very good about that opportunity for us specifically, and there are a number of things that we could do.

David Pipkin Feaster: That is helpful. That is a nice windfall. Switching gears to loan growth, you reiterated the loan growth guide. How do you get to your mid-single-digit pace of growth this year? Obviously, warehouse is seasonally weaker, but production was solid and diversified this quarter. How do you think about production over the course of the year and the key drivers? And how do ongoing payoffs and paydowns play into those expectations?

Jared M. Wolff: We put a new chart in the deck on page 15 that shows production and disbursements, as well as paydowns and payoffs, so people can break down and see how heavy the production was and how broad-based it actually was, and the average rate. One of the best things about that chart is it shows our weighted average rate on loans since the first quarter of last year has stayed flat despite the declining rate environment. That is exactly what we talk about—remixing our portfolio as deposit costs have dropped has resulted in our margin expansion and making more money on a flat balance sheet. We know that will continue to be true.

Whether or not we have net growth or just remixing from our high production, we will continue to make more money. If we grow the balance sheet as well, earnings will grow even faster than what we projected. We have in our budget hitting our numbers with a balance sheet that does not need to grow fast, and if we grow faster, we will make even more money. We have line of sight into what the payoffs were and where they are, and we think they were elevated by historical standards in the first quarter.

Whether they remain elevated is hard to know, but right now it looks like production is going to outpace payoffs and paydowns for the foreseeable future, and we hope that is the case. There are certain loan pools that we can buy to improve the balance sheet if necessary. Overall, we still expect mid-single-digit loan growth. It is just one quarter. This happened last year as well where we had lower production early on in certain quarters, but we still ended up pretty much at our targets. It is too early to say that we are not going to hit our targets based on everything we see.

Even if we had lower net growth by our estimates, we still hit our earnings targets based on our ability to remix the balance sheet. That is why we put it in there—because we think the power of that is pretty important.

David Pipkin Feaster: That is helpful. Thanks.

Jared M. Wolff: Thank you.

Operator: The next question comes from Jared David Shaw with Barclays. Please go ahead.

Jared David Shaw: Hey, everybody. Thanks. Sticking with production—when we look at the production numbers staying relatively stable, down a little bit but relatively stable—what would have to happen to really see that grow? You have spoken about the strength of the economies that you are working in and the competitive disruption that has happened. What is keeping that production from really growing more?

Jared M. Wolff: First quarter is generally a little bit lower; it can be. We were at $2.1 billion versus $2.2 billion last year. In the fourth quarter, we were at $2.7 billion. Those are pretty good numbers on a loan portfolio that is about $24 billion. To grow $8 billion of production on a $24 billion loan portfolio is solid. Could we move faster? We probably could. We could ask various business units to increase sizes and take larger positions and make more capital available, but we really believe it is necessary to grow in balance. We look at deposit flows. We look at our balance sheet overall. We are at a loan-to-deposit ratio that is very comfortable.

We can move that up, but we are not looking to grow as fast as we can. We are looking to do it in a very sustainable, reliable way so that earnings are repeatable and consistent—reliable, high-quality earnings. So I would say we could move faster, but it feels like we are at a pretty good pace right now, moving a little bit faster than the economy around us, and it feels like a good pace.

Jared David Shaw: Okay. Thanks. On the $8 billion of identified target runoff—how long does that take to move through the system?

Jared M. Wolff: We have $6 billion of multifamily loans that will reprice or mature. About half of those $6 billion mature or reprice in the next two and a half years—that is the bulk of it. We have a chart on page 16 of our deck that walks through the repricing of those loans. Less than one year is $1.7 billion, one to two years is $1.1 billion, and more than three years is $2.3 billion. We see $2.8 billion in the next one and a half to two years, and then about $1 billion in the next two to three years. That is how you get to the $3.2 billion over two and a half years.

Jared David Shaw: Yep. Okay. On the deposit side, how have flows been early in the second quarter? There is seasonality with some of the first quarter flows, but looking at end of period versus average, any color there?

Jared M. Wolff: We are up this quarter relative to last quarter at the same point in time. Inflows have been higher early in this quarter relative to last quarter, and last quarter our averages were up. Oftentimes, in the first quarter, things come out for taxes and the like. Our averages are what move the balance sheet, and it felt like we had a really good quarter. So far, we are higher this quarter than last quarter at this point in time.

Jared David Shaw: Okay. If I could squeeze one more in: on the allowance ratio, you talked about utilizing more of the adverse scenario to prevent more reserve releases. With the loan book the way it is right now, is 96 basis points a good level to expect for the rest of the year, assuming no broader economic backdrop change?

Jared M. Wolff: Our ACL is 1.12%, and our economic coverage ratio is about 1.60%. That feels very comfortable. That assumes we continue provisioning around this quarter’s level—$9 million to $9.5 million—and depending on production, it could get up to $10 million or $11 million, but it feels like the right level.

Jared David Shaw: Great. Thank you.

Jared M. Wolff: Thank you.

Operator: The next question comes from Robert Andrew Terrell with Stephens. Please go ahead.

Robert Andrew Terrell: Hey, good morning.

Jared M. Wolff: Morning.

Robert Andrew Terrell: I wanted to ask a question on the broker time deposits. It looks like over the past year those are up around $500 million or so. As we think about mid-single-digit deposit growth for this year, should we expect more brokered deposit addition throughout the year to support that growth, or do you think there is an opportunity to remix the brokered position this year?

Jared M. Wolff: We focus on overall deposit costs and keep brokered within a band. We will opportunistically use it, especially when we see that we have paydowns coming in certain areas or big chunks of deposits running off, and we will selectively go into the brokered market when we find better pricing relative to alternatives. We continue to move our cost of deposits down, and we do not mind selectively using brokered. Joe, more detail?

Joseph Kauder: Our brokered was 9.3% of total fundings this quarter compared to 9.7% in the fourth quarter—pretty flat year over year. Brokered also depends a bit on loan growth. If we see a pickup in loan growth and it accelerates, and we are able to put really good high-quality loans on the books, we need to keep it in balance with deposits, but we are not afraid to dip into brokered a little bit to help put those loans on our balance sheet knowing that deposits are going to catch up.

Jared M. Wolff: To that point, we saw that loans were coming in late. We saw average balances moving down, and we said, okay, let us grab some brokered. Let us keep our loan-to-deposit ratio in balance, and if we have excess, we will invest it. Our team is pretty good at balance sheet management. We can let our loan-to-deposit ratio float up as well if we want.

Robert Andrew Terrell: Makes sense. I know you have some term on the borrowing side, but is there any term in the broker deposit portfolio? Is it all shorter or floating rate?

Joseph Kauder: We do a little bit of term. It is all less than a year, but it is largely within three to six months, with a little bit going out further—nine months or twelve months.

Robert Andrew Terrell: Okay. Great. Thanks for taking the questions.

Joseph Kauder: Thank you.

Operator: The next question comes from Christopher Edward McGratty with KBW. Please go ahead.

Christopher Edward McGratty: Hey. Jared, on credit, you guys went through a similar portfolio downgrade process last year where you ultimately worked things through. What is different or similar this year as you go through this process?

Jared M. Wolff: It is pretty similar. These are some larger legacy relationships where we are trying to migrate them down to more manageable levels. Similar to last year, we migrated this and it did not get in the way of earnings, and we just continued to earn through it. Gradually, our ratios improved. Is this the last chunk of it? Probably. It is pretty close. You never say never, because something else pops the moment you say that, but I feel pretty good about where we are, and it was time to move some stuff around. You have conversations and relationships and you say, look, we do not want these relationships to be this large anymore.

We would like you to move these things faster—that was the case in a couple of the loans. In some of the other loans, they just did not manage it well, and we were watching them and held their feet to the fire and said, you need to do this differently, and we are going to hold you to it. As we mentioned, we have personal guarantees and plenty of support. These LIHTC loans are very valuable loans. They are really good projects, and the housing is sorely needed, and there are tax benefits to it. I am not worried about the outcome. Sometimes this is just the right thing to do.

So, similarities to last year: we expect the ratios to migrate better over several quarters, they are large relationships, and we set expectations a little more aggressively than may have been set in the past for the borrowers.

Christopher Edward McGratty: Thanks for that. While we are talking credit, could you speak about the legacy Square 1 book from PacWest? Software is a big topic, but remind us overall the makeup of the book and how you are thinking about tech.

Jared M. Wolff: Our venture ecosystem generally—which is outlined in our deck—is more than just “tech,” so it is important to lay out everything. We have fund finance, which is capital call lines of credit to private equity and venture capital firms. That is approximately $1.4 billion, and deposits are about the same amount—$1.4 billion. The rest of our venture and Square 1 ecosystem is about $950 million of loans split evenly between tech and life sciences—call it $475 million each. They have about $5 billion of deposits against that approximately $950 million of loans.

Of the roughly $450 million in tech, we did an analysis of where software might be disrupted by AI or where any of our tech clients might be disrupted by AI in a negative way such that their business model or funding potential was disrupted. We ran this a couple of different ways and came up with a handful of loans and a little over $4 million of outstanding loans that we thought were on the high-risk watch list. While we keep monitoring this, it is not something we see as materially disrupting our portfolio today, although we will continue watching.

It is important to remember that out of our $24 billion of loans, that tech group is $450 million to $475 million, of which a small portion would be attached to what people think about as software that could be disrupted—and $5 billion of deposits between tech and life sciences.

Christopher Edward McGratty: That is great color. Thank you.

Jared M. Wolff: Thank you.

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

Gary Peter Tenner: Thanks. Good morning. I had a follow-up on the NIM. You mentioned the pace of NIM expansion over the course of the year. Is that expansion in your projections driven exclusively by the asset side and yield, or is there any material contribution from further reduction of funding costs over the course of the year?

Joseph Kauder: I would say it is a combination of both. There is definitely benefit from loans continuing to grow. We have deposit growth in conjunction with our loan growth, and that deposit growth is where we really focus on bringing in noninterest-bearing deposits. It is our lifeblood, and we continue to try to grow that. There are few things we can do that are more profitable than adding a noninterest-bearing deposit. You saw the NIB percentage grow slightly this quarter, and we expect that to continue to grow this year.

As our deposit mix grows to be more heavily weighted toward NIB and other lower-cost interest-bearing accounts, we expect to pick up a little bit of NIM from that as well as from loan growth.

Jared M. Wolff: This quarter, we saw more contribution from the full-quarter benefit of deposit cost reduction from the Fed cuts in the fourth quarter, and the fact that our loan yield stayed flat in the declining rate environment is pretty powerful. In an uptick environment, you would see a lot more from the loan yield; in a downtick environment, you would see a lot more from deposits.

Gary Peter Tenner: That makes sense. Thinking about a neutral environment for the rest of the year, just trying to get a sense of the contribution from one side versus the other.

Jared M. Wolff: In a neutral environment, a lot of it is probably loan-based because the loans we are putting on are at much higher rates than the loans coming off. That is a fair way to think about it.

Gary Peter Tenner: Makes sense. Any updated thoughts you could share on the BankEdge product, having brought on Chris Healy a couple months ago to head that business?

Jared M. Wolff: Chris is doing a great job with the team. I am getting an updated budget this week with expectations for BankEdge, which is our merchant acquiring platform, as well as our card products where we are issuing. Both are doing extremely well. We expect in the back half of the year to provide more guidance on how we think these will contribute going forward. I am really pleased with our focus here, and I think Chris is going to bring ideas to the bank—similar to his prior institution—about how they accelerated growth on both the card side and the merchant acquiring side through partnerships and direct selling. More to come on that.

Gary Peter Tenner: Great. Thank you.

Jared M. Wolff: Thank you.

Operator: The next question comes from Anthony Elian with J.P. Morgan. Please go ahead.

Anthony Elian: Hi, everyone. On NII, last quarter you gave us a range of up 10% to 12% for the full year, including accretion. Does that still feel like the right level? And can you talk about the cadence of NII over the course of this year?

Joseph Kauder: Yes. We are still feeling pretty comfortable about all of our guidance we provided at the end of 2025. As loans pick up, we do have some seasonality—the first quarter has historically been one of our weaker quarters. It usually picks up in the second quarter and continues throughout the year. We still feel pretty confident about those numbers and that they will come in.

Anthony Elian: And then on comp expense, can you quantify how much the seasonal resets contributed to 1Q, and how much of that do you expect to come out going forward?

Joseph Kauder: You can see it on the noninterest expense page—the increase in compensation from the fourth quarter to the first quarter is substantially all driven by the resets. Not all of it will come out over the year. Maybe half to two-thirds of those increases come out over the course of the year as people hit their Social Security limits or their 401(k) match limits. Those will roll off.

Anthony Elian: Thank you.

Operator: This concludes our question-and-answer session and Banc of California, Inc.'s First Quarter 2026 Earnings Conference Call. Thank you for attending today's presentation. You may now disconnect.

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