Banc of California Inc (BANC) 2025 Q4 法說會逐字稿

Hello, and welcome to Banc of California's fourth quarter 2025 earnings conference call. (Operator Instructions) I'll now turn it over to Ann DeVries, Head of Investor Relations at Banc of California. Please go ahead.

Good morning, and thank you for joining Banc of California's fourth quarter earnings call. Today's call is being recorded, and a copy of the recording will be available later today on our investor relations website. Today's presentation will also include non-GAAP measures.

The reconciliations to these measures and additional required information is available in the earnings press release and earnings presentation, which are available on our investor relations website.

Before we begin, we would also like to remind everyone that today's call will include forward-looking statements, including statements about our targets, goals, strategies and outlook for 2026 and beyond, which are subject to risks, uncertainties and other factors outside of our control, and actual results may differ materially.

For a discussion of some of the risks that could affect our results, please see our safe harbor statement on forward-looking statements included in both the earnings release and the earnings presentation as well as the Risk Factors section of our most recent 10-K.

Joining me on today's call are Jared Wolff, Chairman and Chief Executive Officer; and Joe Kauder, Chief Financial Officer. After our prepared remarks, we will be taking questions from the analyst community. I would like to now turn the conference call over to Jared.

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 into the year. I really couldn't be more pleased with the execution of our team.

And as you all know, we spent 2024 integrating the merger that was completed at the end of '23. And 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 in these last several quarters has been particularly good.

And as I frequently say, we try to move the ball down the field each quarter. And sometimes, it's a lot of plays that work. Other times, it's just a long path 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 place. 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.

So let me highlight a few of our many accomplishments for the full year '25. Our loan production disbursements were $9.6 billion, up 31% from $24 billion. 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 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 69% year-over-year, up 69% year-over-year.

And 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. And opportunistically, 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's 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 earnings drivers.

During the quarter, we grew pretax pre-provision income by 10% and generated annualized loan and noninterest-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 noninterest bearing deposit balances that we had in Q3 and for the second half of '25, as a whole, we achieved 10.5% annualized growth in NIB deposits, which was broad-based across our businesses and 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 keep in 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.

And we saw strong production from all of our business units, including construction, LIHTC and mini-perm 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'll see where we end the quarter.

But as of right now, things look very, very good. Average rate on new production in the quarter remained healthy at 6.83%, well above the rate of loans that have been maturing, and 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, our adjusted classified loan ratio would have declined 17 basis points quarter-over-quarter to 3%.

And as I mentioned, that loan made off yesterday. Our delinquency rate increased during the quarter due to two loans totaling $36 million, which became current in the first week of January. So excluding these loans, the adjusted delinquency ratio would have declined about 1 basis points 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's going to talk about some of the details and give some comments on what we expect for 2026.

And then I'll come back with some comments and we'll go to questions. Joe?

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 as the benefit of lower deposit costs 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.

While the fourth quarter loan growth had minimal impact on Q4 financial results, we expect this growth to be a tailwind for 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 3.20% and while our spot NIM at December 31 was 3.22%, which is up 4 basis points from the September 30 spot NIM of 3.18%, driven mainly by lower cost of deposits.

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. Average yield on loans declined to 5.83% versus a Q3 loan yield of 6.05% versus the September 30 spot yield of 5.90%, 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 2 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 to net interest income and yields in Q4 given the late timing of when those loans came on. And as a result, we expect to see a more pronounced benefit to our results as we move into the first quarter of '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.

Cost of deposits declined 19 basis points quarter-over-quarter to 1.89% driven by growth in noninterest-bearing deposits combined with the benefit of Fed rate cuts. We remain disciplined around our deposit pricing and achieved a 60% beta on interest-bearing deposits following the recent rate cuts.

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 for net interest income remains largely neutral although the proportion of float rate loans has increased.

The net interest income impact is largely neutral when adjusting for deposit repricing betas. From a total earnings perspective we will remain liability [sensitive] due to the impact of rate sensitive ECR cost on [HOA] deposits, which are reflected in noninterest 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 1/4 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.

Noninterest income of $41.6 million was up 21% sequentially, driven by a 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 noninterest income can be lumpy at times, we still expect normal run rate for noninterest income of about $11 million to $12 million per month.

Noninterest 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 other adjustments, a reversal from a prior quarter FDIC special assessment expense of around $2 million and lower customer-related expenses related to 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 to 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 ratings. We maintained our allowance for credit losses at 1.12% of total 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 in delivering high-quality, consistent results.

And with that, I'll turn the call back over to Jared.

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 continues to resonate with clients and our teams are executing at a very high level. Our fourth quarter loan and deposit growth reflect the talent of our teams and position us well for further earnings growth as we continue in 2026.

I'm 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'm 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 Instructions) David Chiaverini, Jefferies.

I wanted to sort out on net interest income and the net interest margin. 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?

So I'll start and then let Joe jump in. Typically, our margin expands a couple of basis points every quarter. And it's 3 to 4 basis points a quarter. Sometimes it jumps a little bit more. You get some accelerated accretion or something like that.

But we think that's 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?

Yeah. So I think we said earlier in the call that 25 basis point cut gives (inaudible) $6 million annually and lower ECR cost. But I agree with Jared is when we do our technical ALM calculation, we come out to neutral, and that's what I believe we are not pure net [interest] income neutral.

However, when you have rate cuts, you also have, you 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 bank. So I think we would benefit a little bit in our [pure] net interest margin from lower rates.

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

We've achieved in excess to 50% beta, I think, every single quarter. It's hard to maintain that momentum. We obviously started from a much higher place. But I think we're also very good at managing our deposits on a very granular basis.

And so I, my expectations for the time being is that we would achieve a 50% deposit beta until, and hopefully outperform that until we modify it, that's kind of what our expectation is. And hopefully, we get into the high 50s, low 60s.

Matthew Clark, Piper Sandler.

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?

Matthew, that includes accretion, but we don't really have, it's just basically the baseline accretion is very little, if any accelerated accretion.

We haven't had it, we really haven't had any, Matthew, just to stay on that for a second. We, it's been one of those things that just hasn't shown up and it's going to show up because we have all these loans that are going to mature.

And so it's going to force itself on the balance sheet, and it's going to be a great kind of annuity for our shareholders when it happens. It just hasn't been happening. And it's got to eventually. And so when that happens, it will be good.

Okay. Great. And then within the PPNR growth guide of 20% to 25%. Can you just clarify the base that you're using for fee income and noninterest expense, just to make sure we're on the same page because there's.

The base is the year-end 2025 results.

So it's off the fourth quarter run rate or it's off the full year?

Full year.

Full Year. Okay. But in terms of dollars, I don't know if you have it off hand, we can follow up. But just curious what base you're using in terms of dollars for fees and expenses because there's nonrecurring items, obviously.

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

Okay. And 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 that 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?

So we just, I mean, go ahead, Joe.

I was just going to say so 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?

Yeah, that was right. And we expect to continue SFR for a while. We want that, that portfolio is doing really, really well. The prepayment speeds are much lower than what we modeled. 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, and we buy a lot of them off our warehouse lines with our clients. And so it's a very good program that we have.

And our balance of SFR, which are fixed rate, 30 year fixed rate, most of them, are mostly owner-occupied as opposed to investor and they're well distributed geography geographically throughout California.

So in some ways, it's a hedge to other floating rate portfolios that we have. And so we like that portfolio for that reason. So we'll try to continue it in moderation, but it probably will continue to grow a little bit, Matthew.

In terms of loan growth overall, 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 the last, the end of the year, it kind of came together really, really well.

And so you can't really control the timing. So it was, a lot of we saw the pipeline in Q4. We weren't 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.

Christopher McGratty, KBW.

Jared, on the expense growth, the 3, 3.5, you made a couple of points in the remarks about investing in technology. I'm 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?

Yeah. So just let me say as a starting point, Chris, I have talked about this, but maybe others might find it interesting. I mean, we're a growth company at this point. And we're spending to support the growth that we have in our company. It's very positive, in my view.

Like we're not going to spend, we're going to keep expanding earnings and earnings are going to grow hopefully pretty fast. But we're 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, we've deployed AI across the company in a couple of different ways. And I've challenged our team to manage to that and figure out where we can deploy it better we don't 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're leaning into in terms of technology projects overall.

There's a couple that I think will be ongoing. One is just back-end and workflow technology, whether it's nCino or Salesforce or less Salesforce, but more nCino, and we have ServiceNow and some other things.

We have a project to improve our data, a major project in the company where we're looking at how to 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 kind of know what's coming ahead.

And so that's 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's a smaller portion of spend. We have our HOA platform, which we're investing in to make sure that it's really a top-tier platform that we had in Smart Street so we can really serve our clients well.

And other client-facing technology. So there's a number of things, Chris, that are kind of here, but we all think that there's a good return on them and some of them are back office and some of them are client facing.

Got it. Understood. And my follow-up, Jared, just on the medium-term targets, any updated thoughts now that you're making a lot of progress towards them. Any timing update what needs to happen to get that bridge rectified a bit?

Sure. Yeah, without putting a specific date on anything, we obviously liked the progress that we made in the fourth quarter on a return on tangible common, which was a pretty big clip up. It doesn't stay steady, so it will back up a little bit and then it will move forward again.

In Q1, I think it probably drops a little bit and then it moves back up as we get through the year. But we're making really, really good progress. I mean, and if you look at how much we're clipping in [tangible] book value quarter-over-quarter, that's one of the things I think that people also don't really focus on is how much extra tangible book value we're putting on the table every quarter, which feels really good.

I'm not going to put a date out there, Chris, for that, but we have line of sight into our targets, and we feel very, very good about them.

Awesome. And then maybe, Joe, just to clarify two quick ones. The FDIC benefit, you think it was at $2 million? And then any help on the tax rate going forward?

Yeah. So $2 million is, yes, that's about what the FDIC benefit was in the fourth quarter. And then 24.5%, 25%, probably 25% is a good tax rate going forward.

Chris, also on kind of our profitability targets. One thing that people should also remember is we have preferred stock that's a $40 million tax on the common. It's $10 million a quarter that comes out before we pay the common after tax. That matures next year.

And so pretax, it's a pretty big number. And after tax, it represents, before you figure out what the funding cost would be to replace it, it's over $0.20 a share, $0.20 of earnings.

And so it should be at, maybe it's $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's going to be an accelerant along with a whole bunch of other things.

Okay. So that's definitely coming out next year is what you're messaging on the.

Yeah, it matures. Yeah, it matures and we have a couple of ways.

I think September '27, it matures.

Yeah. So we've already planned for how we're going to handle that preferred stock, and there's a lot of ways we could take it out but it's going to be, it's expensive, seven to three quarters.

And so we have much lower ways to fund that. So even if you put a 3.5% funding cost on it, you're saving 4.5% plus, and that contributes $0.20, $0.15 to $0.20 earnings?

Ben Gerlinger, Citi.

I just wanted to double check. I know we talked through the guidance here on NII, no cuts. Is that fair to say the same thing as well for the expense for the [3 to 3.5] implies no cut?

Yeah. We have no cuts in our forecast in any of our forecast numbers.

But the expense guidance does pick up is that the cuts that occurred in the fourth quarter don't benefit us until the first quarter of '26.

So yeah, it does.

Yeah, your (multiple speakers) costs is going to be lower in 1Q, which it should be obviously the fourth quarter cut. I'm just thinking like if there's a cut in June or something, that's not contemplated in the forward expense guidance.

Yeah, not contemplated at all.

Got it. Okay. So there's going to be a little bit [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've made and kind of personnel and balance sheet cleanup has been pretty tremendous throughout the year of '25.

Is there anything on '26 that really hasn't even left the starting blocks yet? Or is it momentum from things we currently see today and then just continuing the game plan?

I think it's more momentum. I'd love to point to something that says, God, this is low-hanging fruit we haven't even grabbed it yet. I think that preferred stock is probably a good example.

But in terms of kind of our core operations and what we're doing, Ben, it's just blocking and tackling and building on, our marketing team has done a superb job. We had a client, we have a client that's in Vegas and he was out here.

I'm just sharing this as an anecdote. He was out here for a Laker Game for his son and he's like driving downtown and his wife takes a photo of our new building downtown and he says, god, that's great signage, and I'm like we haven't even moved in yet, and our signs already up.

And then he's driving the next day to Orange County because he's 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 driving it.

Our name is out there a lot, and that's representative of all of our markets, not just Southern California. And so we are really capitalizing on that. I'd 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 have 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 and in a cost-effective way. And it takes really talented people to do that well, and we keep hiring them.

And we do plan to do significant hiring in to support our teams, both in the front office and the back office, and that's going to continue to, I guess, support the momentum that we have and it is more momentum than kind of finding an opportunity that we haven't really latched on to yet.

Andrew Terrell, Stephens.

I was hoping just to go back to expenses quickly. Do you have the, are you able to quantify the amount of benefit you guys got this quarter from the lower tax or benefit accrual in compensation?

Yeah. It was probably around $5 million for the quarter, $4 million to $5 million.

Okay, great. And I guess, just overall on expenses. I'm trying to kind of.

I want to clarify that. I would say that that's when we look out to first quarter, that's how much I think is going to, when we reset into the first quarter, that's the kind of the change that you're going to see.

Got it. That's helpful. Yes. And I guess I'm just overall trying to bridge the gap for the 3.5% growth off of $735 million was the baseline, the 2025 reported.

At kind of the midpoint, that's $190 million a quarter in expense in 2026, but you've got a little bit of headwind from the comp picking up, but you'll get the benefit back on ECR cost that should drop in the first quarter as well. So I guess I'm just trying to get a sense of what's driving the kind of lift of expenses into 2026.

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 don't get caught.

And then if things don't 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 decentralize some of our expense management.

I gave to all of our business unit leaders and functional leaders their own budgets and said, you guys manage your budgets, I'm 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's some of it that we're letting people do. So part of our guide being conservative is that we're going to let our teams do what they think is right because they did a great job last year. And if it comes in higher a single quarter, it's going to show up in a benefit later in the year, and we're comfortable with that.

So we feel like we're in a really good spot. And part of this is less science and more or art in terms of knowing where we're going to go. If the growth isn't there, we're not going to spend the money.

But if the growth is there, we plan to spend the money. And so we're going to get some efficiencies to but we are being conservative, Andrew, for those reasons.

Yeah. No, it makes total sense. And you guys did a great job this year on expenses.

Jared Shaw, Barclays.

Maybe just going back to the loan growth. In the past, you've sound really optimistic about some of the tailwinds in the market from whether it's the World Cup or the Olympics or even rebuilding coming out of the fires.

But when we look at the expectation for loan growth, how do you view sort of the local markets versus some of the national lines? And how should we be thinking about sort of the appetite for CRE going forward as well, just as you sort of maybe look at those as three different areas.

Well, starting with, on real estate and specifically construction, one of the things that happened in '25 is we had a lot of payoffs of construction loans. And we also offloaded some long-term fixed rate financing that comes with our LIHTC deals.

Oftentimes when you do LIHTC, you get construction upfront and then you have a long-term fixed rate loan that can be 30 years, that's rates that might not be too desirable. Our team did a great job of figuring out a way to do the front end at good rates and have other people take out, do the takeout.

That's because we can't use that, we can't really use the tax credit. And so, that's one thing that happened. So that reduced our balances in an area where I think we're going to grow going forward because what they've figured out is two things.

One is we can do the front end, which gives us the opportunity to kind of build that back up without taking the long-term risk. But second of all, on the longer-term loans that I have seen, the pricing has been really good.

So like we just approved a 17 year loan that was it for the permanent piece of a tax credit deal, but it was at 6% which felt like, these were, in the past, they were like 3.5% or 4%, just to give you some context. And we get a lot of good deposits and we have good relationships.

So I think on the real estate side, specifically speaking to construction, we're going to have some opportunity to kind of build and grow that business, and I think that will provide some balance.

The permanent piece obviously sticks around and the construction financing is two to three years generally. In terms of bridge financing, some of that stuff went down. We're still seeing opportunities. And as I mentioned in my prepared remarks, we're still doing mini-perm.

We're just being careful about it. The pricing can be a little thin. And we want to make sure that we are putting on good loans at good rates.

We have a lot of opportunities to use our balance sheet and our teams have been disciplined to say, are we getting the right returns to use our balance sheet for this type of loan? But we absolutely want to support our clients that have their deposits with us and have been long-term clients that do repeat business with us.

Those are the clients we want to support, and we try to be competitive on the rate side. Are other business lines that are not kind of geography-based or niches, one more thing on that, Jared.

So I would say that what we think about is our Commercial and Community Bank, which is kind of our not only our branch network, but our regional teams that are throughout California and Colorado, they did a really good job last year.

And as I mentioned, we had a lot of runoff. But I think we're still grounding ourselves with the right focus. And I think that our expectations this year is that, that part of the business is going to grow faster than it did last year.

It grew slower last year than other kind of our niche verticals that are not geography-based. This year, I think we expect more balance and we expect to see our kind of our geographic teams growing pretty much at the same pace as some of our other teams like lender finance, fund finance, warehouse grew a lot faster last year.

I think the growth in those teams this year, my expectation is it will be good, but they don't need to grow as fast as we're going to get contribution from other parts of the company.

Okay, all right. And then just looking at the deposit side, you had really good DDA growth. Should we think as the balance sheet continues to grow, that the DDAs stay a consistent part of total deposits? Or do you think they could be growing from here?

Well, I will say that I've been surprised, pleasantly surprised by the acceleration of NIB. And we did a pretty big analysis of where that's coming from, what it looks like. Some of it is operating accounts. It's all relationship-based.

Some of it is operating accounts for businesses that use a lot of services of our company. Some of it is part of our venture and fund finance business where they put it in NIB because that's what they do.

But it might be a little bit more volatile and it moves up and down, but it's all relationship-based based on clients that are, they have their deposits here and they're not somewhere else.

They're operating accounts and they're, the bulk of their deposits. So it's hard for me to say, it depends on the pace at which we grow loans.

I've been very pleased that we've been able to maintain our NIB rate at 28% to 29%, while our loans have been growing that fast because usually, it's going to cause you to have to dip into other sources of funds, and it's going to dilute the percentage of NIB.

Loan to deposit ratio has creeped up to about 91%, which is fine. We can manage it there, and we'll continue to manage it. But the answer is I don't know. Like it would be great to get NIB percentages up to 30%. That would mean that those deposits have to grow same speed or faster than our loans.

So I don't know if that's reasonable. It could happen on a given quarter, we could get a whole bunch of success from pipelines that have built up and it just happens that we got a really good quarter.

So it's possible. But I think loans are growing faster than we expected. So the likelihood is that it won't stay at that percentage.

Okay. And then just finally for me, just on capital and the buybacks. You didn't do anything this quarter, but you were busy earlier in the year. Should we, I mean, is 10% really a floor for CET1 here?

Or should we think that the buyback is opportunistic around that? Or how should we think about sort of incremental purchases with capital right here?

So I think both are true. I think that we expect to have an active buyback program that we'll use opportunistically. We're still not trading at peer median for tangible book, right? So we're trading at a discount there. And we like where we see where we're going.

So we like the opportunity to buy our stock given where it's trading and where we think we're headed and how much tangible book value we're building up, et cetera. But I also think that 10% should be considered a floor of sorts for CET1.

I think our shareholders appreciate that, that we're not going to run this company within capital and we're going to be good stewards. So hopefully, we'll build up capital at a rate where it gives us the flexibility to buy back stock opportunistically when we can.

We have, our buyback program is for a year. We have applied, it's still active. We are ahead of it, we are applying for approval for renewal of the buyback program. And so hopefully, that will stay live and will always be, have the opportunity to be in the market for it.

David Feaster, Raymond James.

You touched on, you spent a lot of time on the expense side. And obviously, we've talked about that the benefits from Fed cuts on the ECR deposits is not embedded in your guidance.

To the extent that we do get cut, how do you, we've talked about a lot of investments that you guys have on the horizon, a lot of disruption in the marketplace for potential hires and you got a lot of things going.

Would you expect that incremental expense savings to flow to the bottom line or, and beat your expense guide? Or would you maybe accelerate some investments in hiring or anything else that you're considering?

No, I think we can achieve the efficiencies of those, I think our expense guide is appropriate. I don't think we're going to need to dip into it more than what we, you never know.

But right now, we feel like our expense guidance is reasonable for all the things that we foresee and there is some upside in our numbers from rate cuts because what you're asking, if I understand is would we absorb those rate cuts by spending more money.

And therefore, we wouldn't get the, it wouldn't drop to the bottom line. And I think the way we see it now, it would drop to the bottom line.

The only thing I would add to that is that if we had a blowout year on the revenue side, an absolute blowout year where we were, or the revenue growth was higher than, significantly higher than we expected, you could see a little bit higher cost. Net-net, you would end up higher because of the revenue growth.

Yeah, that would be a good problem to have. I think we would continue, everything we're doing is with the goal of growing earnings in a sustainable way. And if we're able to grow earnings faster and we're spending money to grow earnings faster, I think that would be a good problem to have.

Absolutely. And on that, the guidance slide that you have, one of the bullets there talked about growing fee income and the rollout of payments products. It's something we haven't spent a lot of time talking about recently.

It sounds like we're closer to a rollout of that. How, I guess, where are we in the build-out of the product? How is early reception been time line for revenue growth and to the extent that you can help us maybe quantify the potential impact from that business.

I'll be prepared to do that mid this year. But let me just say that we are fully committed to our payments business, our issuing and acquiring businesses are growing very well. We've been rolling it out to our existing clients and some new clients.

I was just reviewing the budget the other day. We are very committed to this business and I'm excited about it. And I hope midyear, I can lay out some big successes.

And so that's kind of the time line for that rollout, is more mid this year?

Well, it's happening now. I just feel like I'll be able to give more visibility into it midyear.

Anthony Elian, JPMorgan.

On the balance sheet growth. So in 4Q, you grew loans, 15% annualized, deposits up 10% annualized. But the guide for '26 is up mid-single digits for each.

I'm curious, it seems like you have a lot of momentum, especially on the loan side. What's keeping you from having a stronger loan and deposit growth outlook for this year?

Yeah. I think just there's a lot of noise on the market. I mean, your Chairman who I'm a fan of, I think, would say that the outlook is very cloudy. And it's just hard. It's hard to be that bullish.

First of all, even if we did do that, Tony, if we, I mean would anybody believe it if we said we're going to grow 15% for the year, 10% for the year, (inaudible) believe it.

We had to, we got a little bit criticized we were mid- to upper single digits, and then we pulled it back mid-single digits even though I thought it was just like, okay, well, this is just what we're seeing, even though we had a really strong year. So I think we want to avoid doing things that have only downside into upside if that makes sense.

It does. And then, Joe, for my follow-up. You gave some puts and takes.

Antony, it doesn't mean any less bullish, just to be clear. Like I feel great about where we're going for all the reasons you mentioned.

And I hope to outperform the numbers that we put on the table, but I don't want to be so bullish that people say, well, there's only downside from there. So that's, to complete my answer, sorry about that.

Joe, for my follow-up, you gave some puts and takes to interest income and NIM. I'm wondering where you think the 1Q printed NIM could come in at inclusive of the loan growth you saw late in 4Q. I think last quarter, you gave a jumping off point for '26, somewhere in the 3.25% to 3.35% range.

Yeah. Well, as I said earlier, our step off is 3.22%. As I think we can expect it to increase quarter-over-quarter, a few basis points. We don't give a specific NIM guide. We gave our PTPP target. But I think if you assume a few basis point expansion every quarter, I think you'd be in the right range.

One of the things that, let me add to that, one of things that we have, that Joe and I run a couple of models on and has led us is, do we make more money growing loans at what rates, letting the margin slip, high-quality loans.

So the margin for us really is an output. It's pretty dynamic. And we're optimizing everything for like what's the right balance of loans and yield to grow earnings in a sustainable way in a variety of interest rate environments.

We've got floating rate loans on right now. Rates could drop. We still think we're going to put on loans at higher rates because of our production levels.

But at some point, that's going to flatline and rates aren't going to drop anymore, and they're going to go back up. And how are we setting ourselves up to continue to make money and continue to expand the margin.

I'm okay if our margin doesn't expand fast as long as we're moving in the right direction and we're making more money reliably, meaning that we're not going to give it back another quarter we made it this quarter, but it's not going to show up again.

So I'm comfortable with our margin clipping a few basis points every quarter in a reliable way. And then like this quarter, the loan showed up late, so we didn't get the margin benefit, it will come in early next quarter, but the spot was pretty good at the end of the quarter.

But the average was only a couple of basis points. So we know people care about the margin. It's a reflection of profitability, but we also have other tools to, it's not the sole thing that we think about.

We think about how do we mix our loans and deposits in a way that's going to optimize earnings and see what that means for the margin?

Yeah. And one thing, just as a reminder, the first quarter has two fewer days in it than, say, the fourth quarter. So that impacts your margin for the first quarter as well.

Tim Coffey, Janney.

Jared, maybe in the call you talked about some of the disruption that you're seeing in the marketplace across your footprint.

And I'm wondering on the commercial side of the business, does that, are you looking at if you do any hires on that side from the disruption, would you be looking to add to existing business lines or exploring new opportunities?

No. I think we're well covered in terms of the business lines that we have. And this is bringing in leaders and teams and people to complement the business that we have. We are constantly, like a, some of it's outbound and some of it's inbound.

We reach out to people that we think would make, be able to have strong contribution here and they'd be a fit for our culture. And we also get phone calls, people that I know from other organizations that I've been at or just through I or our teams know from their relationships.

Tell me what's going on at Banc of California. It seems like you guys are doing really well. I'd love to learn more and next thing you know, they were like, hey, I'm thinking about making a move, can we talk? And so it really does work both ways.

But there's no big lines that we're looking at currently. It's not to say that we wouldn't, but that's not on the table today. it's mostly to fill in our teams and products that we have today.

Okay. And Joe, I'm assuming that the expense guide includes any increase in real estate expenses?

Yes, it would.

Okay. And then, Jared, what's that?

I was going to say, I don't think we, I think real estate expenses are going to be fairly flat year-over-year, but it would include any increases.

And then, Jared, just one last question. For a while, you were kind of looking at fintech acquisitions, those kind of interest kind of slowed down?

Yeah. I don't know that there's anything that makes sense for us today. Like everything, we keep our ear to the ground, and we have a good channel with the talented investment bankers from all the shops that are connected to those opportunities, and we want to make sure that we're in front of them and that we see them.

And so we will always be willing to look at stuff. But I think the bar is pretty high for us to divert from our organic story right now. It's pretty good.

Thank you.

Thanks Jim. Appreciate it.

This concludes our question-and-answer session and Banc of California's fourth quarter earnings conference call. Thank you for attending today's presentation. You may now disconnect.