Q1 2026 Banc of California Inc Earnings Call

April 23, 2026

Operator 3: Hello, and welcome to Banc of California's Q1 2026 Earnings Conference Call. If you need operator assistance, please press star then zero. I'll now turn it over to Ann DeVries, Head of Investor Relations at Banc of California. Please go ahead.

Operator: Hello, and welcome to Banc of California's Q1 2026 Earnings Conference Call. If you need operator assistance, please press star then zero. I'll now turn it over to Ann DeVries, Head of Investor Relations at Banc of California. Please go ahead.

Speaker #2: Please go ahead. Good morning, and thank you for joining BANC OF CALIFORNIA'S FIRST 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.

Ann DeVries: Good morning, and thank you for joining Banc of California's Q1 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 for these measures and additional required information are 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, are subject to risks, uncertainties, and other factors outside of our control, and actual results may differ materially.

Speaker #2: Today's presentation will also include non-GAAP measures. The reconciliations for these measures, and additional required information, are available in the earnings press release and earnings presentation, which are available on our investor relations website.

Speaker #2: 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.

Ann DeVries: 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, are subject to risks, uncertainties, and other factors outside of our control, and actual results may differ materially.

Speaker #2: We 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 factor section of our most recent 10-K.

Ann DeVries: 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 factor section of our most recent 10-K. Joining me on today's call are Jared Wolff, Chairman and Chief Executive Officer, and Joseph 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.

Speaker #2: Joining me on today's call are Jared Wolf, Chairman and Chief Executive Officer, and Joe Cowder, Chief Financial Officer. After our prepared remarks, we will be taking questions from the analyst community.

Speaker #2: I would now like to turn the conference call over to Jared.

Speaker #3: Thanks, Anne. Good morning, everybody. We're pleased to report another strong quarter for Banc of California, with year-over-year earnings growth, net interest margin expansion, and continued positive operating leverage.

Jared Wolff: Thanks, Ann. Good morning, everybody. We're pleased to report another strong quarter for Banc of California with year-over-year earnings growth, net interest margin expansion, and continued positive operating leverage. Q1 earnings per share grew 50% from a year ago to $0.39, driven by continued net interest margin expansion and positive operating leverage. Pre-tax, 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.

Speaker #3: 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. Pre-tax, pre-provision income increased 28%, while our adjusted efficiency ratio improved by nearly 500 basis points year over year.

Jared Wolff: Pre-tax, 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.

Speaker #3: More importantly, the quarter reinforced our confidence in the earnings trajectory ahead. We continue to see durable momentum across the quarter drivers of the franchise, including margin expansion, deposit mix improvement, disciplined expense management, and embedded balance sheet remixing that should report support profitability and shareholder value for the coming quarters.

Speaker #3: 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 27, and increased our dividend from $0.10 per share to $0.12 per share.

Jared Wolff: In Q1, we repurchased 1.7 million shares and also extended our buyback program through March 27 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 CET1 ratio of 10.18% at quarter end, while 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 non-interest-bearing deposits of 4% annualized quarter over quarter and improvement in deposit mix, with NIB representing about 29% of total average deposits.

Speaker #3: 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.

Speaker #3: Our core earnings engine continues to generate capital at a healthy pace, with a CET1 ratio of 10.18% at quarter-end, while our tangible book value per share increased 1.5% quarter-over-quarter to $17.77.

Jared Wolff: Our core earnings engine continues to generate capital at a healthy pace with CET1 ratio of 10.18% at quarter end, while 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 non-interest-bearing deposits of 4% annualized quarter-over-quarter and improvement in deposit mix, with NIB representing about 29% of total average deposits.

Speaker #3: Core deposit trends were constructive during the quarter with continued growth in average non-interest-bearing deposits of 4% annualized quarter over quarter and improvement in deposit mix with NIB representing about 29% of total average deposits.

Speaker #3: We continue to steadily attract new business relationships and are also seeing non-interest-bearing deposit balances ramp up in previously open accounts. With average balances per account of $2.5% from the prior quarter.

Jared Wolff: We continue to steadily attract new business relationships and are also seeing non-interest-bearing deposit balances ramp up in previously opened accounts, with average balances per account of 2.5% for 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 remain 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.

Speaker #3: 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 remain strong at $2.1 billion in the quarter, with healthy and broad-based activity across the portfolio.

Jared Wolff: Loan production and disbursements remain 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: New production in Q1 came in at a rate of 6.65%, while fixed rate and hybrid loan repricing were maturing by year-end, have a weighted average coupon of 4.7%.

Jared Wolff: New production in Q1 came in at a rate of 6.65%, while fixed-rate and hybrid loans repricing that were maturing 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 continue to manage credit proactively, remaining quick to upgrade and slow to downgrade. 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.

Speaker #3: We view that ongoing remixing as an important driver of future net interest income growth. This quarter, we continue to manage credit proactively, remaining quick to upgrade and slow to downgrade.

Speaker #3: 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.

Jared Wolff: 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.

Speaker #3: 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.

Speaker #3: As in the past, we will migrate credit when appropriate to take proactive action. We expect the ratios to improve over several quarters, and importantly, such migration will not disrupt our earnings trajectory.

Jared Wolff: We expect the ratios to improve over several quarters, and 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 longstanding customer where we've had a relationship for more than 20 years with no historical losses. The loans have low loan-to-value and personal guarantees in place and strong collateral values, and we expect them to be made current before the end of Q2. Classified inflows were tied mainly to two multifamily loans in a single relationship tied to a longstanding customer of the company. These loans were restructured with credit enhancements and are not expected to result in any losses.

Speaker #3: 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, our low-income housing tax credit loans, tied to a long-standing customer where we've had a relationship for more than 20 years, with no historical losses.

Speaker #3: 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.

Jared Wolff: The loans have low loan-to-value and personal guarantees in place and strong collateral values, and we expect them to be made current before the end of Q2. Classified inflows were tied mainly to two multifamily loans in a single relationship tied to a longstanding customer of the company. These loans were restructured with credit enhancements and are not expected to result in any losses.

Speaker #3: Classified inflows were tied mainly to two multifamily loans and a single relationship tied to a long-standing customer of the company. These loans were restructured with credit enhancements and are not expected to result in any losses.

Speaker #3: 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.

Jared Wolff: 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 non-performing status in Q1 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 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. Our balance sheet remains strong with healthy capital and liquidity positions.

Speaker #3: Net charge-offs also included a partial charge-off related to a hotel property that migrated to non-performing status in the first quarter of '25, and our office loan with a balance was adjusted to reflect an updated appraisal, while the loan remains current and performing.

Speaker #3: 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.

Jared Wolff: We do not view these items as indicative of 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. Our balance sheet remains strong with healthy capital and liquidity positions.

Speaker #3: Taken together, we do not expect this quarter’s credit migration to disrupt our earnings trajectory. Our balance sheet remains strong, with healthy capital and liquidity positions.

Speaker #3: We are also encouraged by the constructive backdrop from proposed regulatory changes around capital requirements, which have finalized substantially as proposed could provide $150 to $160 million of additional CET1.

Jared Wolff: We are also encouraged by the constructive backdrop from proposed regulatory changes around capital requirements, which, if finalized substantially as proposed, could provide $150 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. The $150 to 160 million is a baseline projection and could be higher under various scenarios. Overall, this was another strong quarter for Banc of California. 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'll return afterwards. Joe?

Speaker #3: 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.

Speaker #3: The $150 million to $160 million is a baseline projection and could be higher under various scenarios. Overall, this was another strong quarter for Banc of California.

Jared Wolff: The $150 to 160 million is a baseline projection and could be higher under various scenarios. Overall, this was another strong quarter for Banc of California. 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'll return afterwards. Joe?

Speaker #3: 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.

Speaker #3: Let me now turn it over to Joe for some additional financial details. I'll return afterwards. Joe?

Speaker #4: 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 comparable prior-year period.

Joseph Kauder: Thank you, Jared. For the quarter, we reported net income of $62 million, or 39 cents per diluted share, which was up 50% from 26 cents per diluted share in the comparable period, 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 four basis points from Q4 and 16 basis points from a year ago, driven primarily by lower funding cost. Our spot NIM at March 31 was 3.22% after normalizing for the FHLB special dividend.

Speaker #4: 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 link quarter variance was mainly due to two fewer days in Q1 versus Q4.

Joseph Kauder: 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 four basis points from Q4 and 16 basis points from a year ago, driven primarily by lower funding cost. Our spot NIM at March 31 was 3.22% after normalizing for the FHLB special dividend.

Speaker #4: 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 16 basis points from a year ago, driven primarily by lower funding cost.

Speaker #4: Our spot NIM at March 31st 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.

Joseph Kauder: 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 2 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%.

Speaker #4: 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.

Speaker #4: 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 31st spot yield of 5.75%.

Joseph Kauder: 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 2 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%.

Speaker #4: 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.

Speaker #4: Our spot loan yield at the end of Q1 remained stable at 5.75%. Total average loan 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.

Joseph Kauder: 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 pay downs, which were primarily in warehouse, fund finance, and other CRE. We continue to expect full year loan growth in mid-single digits, dependent on broader economic conditions. Deposit trends remain solid, with average non-interest-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 Q1, average balances swept off balance sheet through one-way ICS sales were $271 million. End-of-period deposits declined slightly from Q4 due to lower broker deposits and retail CD deposits.

Speaker #4: We continue to expect full-year loan growth in the mid-single digits, dependent on broader economic conditions. Deposit trends remain solid, with average non-interest-bearing deposits continuing to grow in the quarter, and average core deposits, excluding one-way ICS deposit sales, also increasing modestly.

Joseph Kauder: Deposit trends remain solid, with average non-interest-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 Q1, average balances swept off balance sheet through one-way ICS sales were $271 million. End-of-period deposits declined slightly from Q4 due to lower broker deposits and retail CD deposits.

Speaker #4: 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.

Speaker #4: 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 for the course of this year.

Joseph Kauder: We continue to expect deposits to grow mid-single digits for the course of this year. Deposit cost 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 Q1. Spot cost of deposits at 31 March 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.

Speaker #4: 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.

Speaker #4: We remain disciplined on pricing and achieved an interest-bearing deposit beta of 57% in the first quarter. Spot cost of deposits at March 31st was 1.78%.

Speaker #4: 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.

Speaker #4: 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.

Joseph Kauder: 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 of 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 repricing or maturing by year-end have a weighted average coupon of 4.7%, well below current production rates, and 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.

Speaker #4: And the interest-spent impact would be outpaced by the impact of interest income from 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.

Speaker #4: Fixed-rate and hybrid loan repricing, or maturing by year-end, have a weighted average coupon of 4.7%, well below current production rates. And approximately $3.2 billion of multifamily loans are expected to mature or reprice over the next two and a half years.

Joseph Kauder: Fixed rate and hybrid loan repricing or maturing by year-end have a weighted average coupon of 4.7%, well below current production rates, and 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.

Speaker #4: That embedded repricing opportunity remains an important earnings tailwind. Non-interest income was 35.3 million, which was relatively flat quarter over quarter when excluding the $6 million lease residual gain in the fourth quarter.

Joseph Kauder: Non-interest income was $35.3 million, which was relatively flat quarter-over-quarter when excluding the $6 million lease residual gain in Q4. Non-interest 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 1.60%.

Speaker #4: Non-interest 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.

Speaker #4: 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.

Joseph Kauder: 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 1.60%.

Speaker #4: Turning to credit, reserve levels remain solid, with the ACL ratio stable at 1.12% and the economic coverage ratio at 1.60%. Provision expense of $9.8 million reflects the Q1 migration and the impact of other credit activity.

Joseph Kauder: 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 increase the weighting of adverse scenarios offsetting that benefit. We continue to believe overall loan reserve levels are appropriate, particularly giving 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 pre-tax, pre-provision income growth of 20% to 25% and non-interest expense growth of 3% to 3.5%.

Speaker #4: 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 increase the weighting of adverse scenarios, offsetting that benefit.

Speaker #4: 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.

Joseph Kauder: We continue to believe overall loan reserve levels are appropriate, particularly giving 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 pre-tax, pre-provision income growth of 20% to 25% and non-interest expense growth of 3% to 3.5%.

Speaker #4: 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 pre-tax, pre-provision income growth of 20% to 25%, and non-interest expense growth of 3% to 3.5%.

Speaker #4: 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.

Joseph Kauder: 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. With that, I will turn the call back over to Jared.

Speaker #4: 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.

Speaker #1: Thank you, Joe. This was another strong quarter for Banc of California, 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.

Jared Wolff: Thank you, Joe. This was another strong quarter for Banc of California 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, and we remain very optimistic with strong pipelines.

Speaker #1: 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.

Jared Wolff: 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, and we remain very optimistic with strong pipelines.

Speaker #1: 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.

Speaker #1: Our teams continue to win relationships in all areas of our business, and we remain very optimistic with strong pipelines. Importantly, our outlook is supported primarily by company-specific levers already in motion.

Jared Wolff: 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.

Speaker #1: 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.

Speaker #1: 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.

Jared Wolff: 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.

Speaker #1: 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.

Jared Wolff: We are also making strong progress in deploying AI tools broadly across the company with nearly universal employee access, 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, 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 improve 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.

Speaker #1: 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.

Speaker #1: 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.

Jared Wolff: 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 improve 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.

Speaker #1: Over time, we expect these efforts to contribute to a more efficient operating model and improve client service. Our focus remains the same: to continue growing high-quality, consistent, and sustainable earnings.

Speaker #1: 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.

Speaker #1: We like the momentum in the business we see multiple embedded levers for future earnings growth, and we believe Bank of California is well positioned for continued progress in 2026 and beyond.

Jared Wolff: We like the momentum in the business. We see multiple embedded levers for future earnings growth, and we believe Banc of California 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, let's open up the line for questions.

Speaker #1: 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.

Speaker #1: With that, operator, let's open up the line for questions.

Speaker #2: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one, on your telephone keypad.

Operator 3: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from David Chiaverini with Jefferies. Please go ahead.

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

Speaker #2: If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two.

Speaker #2: At this time, we will pause momentarily to assemble our roster. The first question comes from David Cheverini with Jefferies. Please go ahead.

Speaker #3: Hi, thanks for taking the questions. Good morning. So, 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 non-performing loans?

David Chiaverini: Hi. Thanks for taking the questions.

Jared Wolff: Morning.

David Chiaverini: Morning. 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 non-performing loans? You mentioned about 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?

Speaker #3: You mentioned about 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?

Speaker #1: Yes, they contributed more equity in both cases—in those loans that were downgraded, they brought more equity. We want to see more time, and we want to see them work according to plan.

Jared Wolff: Yes. They contributed more equity in both cases. In those loans that were downgraded, they brought more equity. We want to see more time, and we want to see them work according to plan. We have every expectation that we will. When we talk about being quick to downgrade and slow to upgrade, we don't 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. That's why over time, we expect to see benefits not only from those projects, but other projects in those categories.

Speaker #1: We have every expectation that we will. But when we talk about being quick to downgrade and slow to upgrade, we don't immediately make a change to the rating just because they provided the credit enhancement.

Speaker #1: 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.

Jared Wolff: 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. That's why over time, we expect to see benefits not only from those projects, but other projects in those categories.

Speaker #1: We also have visibility to other projects in those classifications that we expect to be upgraded. And so that's why, over time, we expect to see benefits not only from those projects but other projects in those categories.

Speaker #3: 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.

David Chiaverini: Got it. Very helpful. Shifting over to the net interest margin. It sounds like you have some good tailwinds in place, especially with the 665 production versus the 47 rolling off. The 3 to 4 basis points of quarterly expansion, how linear should that be? Remind us of the sensitivity to rate cuts to the extent we do get some rate cuts later this year.

Speaker #3: 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.

Speaker #1: Yeah. I'll start and then I'll let Joe jump in. So we sit today relatively neutral. And we believe, as Joe mentioned, we have the ability to pivot depending on the rate environment.

Jared Wolff: Yeah. I'll start and then I'll 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've already seen that in a down rate environment, our net interest margin expands. In an up rate environment, we would expect to have deposit increases trail and go much more slowly, and we'd benefit from rising rates in our floating rate loan portfolio and new production. We would expect to benefit in a rising rate environment as well. We think that those benefits would more than offset any sort of contribution that ECR would take in an up rate environment in that case. Joe, do you want to comment specifically on how linear our NIM should move?

Speaker #1: We've already seen that in a down rate environment, our net interest margin expands. In an up rate environment, we would expect to have deposit increases trail and go much more slowly, and we'd benefit from rising rates in our floating rate loan portfolio and new production.

Speaker #1: And so we would expect to benefit in a rising rate environment as well. And we think that those benefits would more than offset any sort of contribution that ECR would take in an up-rate environment in that case.

Speaker #1: Joe, do you want to comment specifically on how linear our NIMS should move?

Speaker #4: Yes.

Joseph Kauder: Yes.

Speaker #1: You're on mute. Yep, there you go.

Jared Wolff: There you go.

Speaker #4: Yep. So in theory, it should be pretty linear through the year picking up as the year goes on with as we grow our balance sheet and as we add more higher-yielding loans and continue to manage our credit cost.

Joseph Kauder: Yep. 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 cost, the NIM improvement and benefit will expand as the year goes on.

Speaker #4: The NIM improvement and benefit will expand as the year goes on.

Speaker #3: Very helpful.

Speaker #1: David, what we don't have in there is accelerated accretion. And so we have this $8 billion of loans, which we know we're going to pay off or pay down at some point.

Jared Wolff: David, what we don't have in there is accelerated accretion. We have these $8 billion of loans, which we know are going to pay off or pay down at some point. When that happens, we will get the accelerated accretion from the portion that was marked during the merger.

Speaker #1: And when that happens, we will get the accelerated accretion from the portion that was marked during the merger.

Speaker #3: Thank you.

David Chiaverini: Thank you.

Speaker #1: Yep.

Jared Wolff: Yep.

Speaker #3: The next question comes from Matthew Clark with Piper Sandler. Please go ahead.

Operator 3: The next question comes from Matthew Clark with Piper Sandler. Please go ahead.

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

Speaker #5: Hey, good morning.

Matthew Clark: Hey, good morning.

Speaker #1: Good morning.

Jared Wolff: Morning.

Speaker #5: Just on the expense run rate, you're on pace to be flattish relative to last year, and you maintain the 3 to 3.5 percent growth guide.

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

Speaker #5: I guess one of the things coming online that we should think about that would cause that run rate to grow from here? This year?

Speaker #1: As we look into the next couple of quarters, you'll see a little bit of an increase—continued increase—in compensation expense, as the year-end inflation adjustments and those things kick in.

Joseph Kauder: As we look into the next couple of quarters, you'll see a little bit of an increase, continued increase in compensation expense as the year-end inflation adjustments and those things kick in. They'll be somewhat mitigated by the payroll taxes and the other benefit adjustments coming in. They should step up just a little bit. Also, we're probably making some more investments in our platform. You'll 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.

Speaker #1: There'll 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'll probably be making some more investments in our platform.

Speaker #1: So you'll 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.

Speaker #5: Okay. Great. And then.

Matthew Clark: Okay. Great.

Speaker #1: Matthew, I would just say on that, that we're going to continue to be disciplined. I think it's normal to expect those increases through the year.

Jared Wolff: I would just say on that we're going to continue to be disciplined. I think it's normal to expect those increases through the year. If we find ways to offset them, we will do that just because we believe that we can keep finding efficiencies. This AI stuff is real.

Speaker #1: If we find ways to offset them, we will do that just because we believe that we can keep finding efficiencies. I mean, this AI stuff is real, and we're seeing some early signs and some early wins.

Matthew Clark: Yes

Jared Wolff: ... we're seeing some early signs and some early wins. We won't lose the opportunity to manage expenses as we always have.

Speaker #1: And so we won't lose the opportunity to manage expenses as we always have.

Speaker #4: Absolutely.

Matthew Clark: Absolutely.

Speaker #5: Yep. Okay. And then just on the ECR deposit balances, understand the sensitivity to rate. But with no rate cuts, this year, assuming there's no rate cuts, is there any effort to try to remix away from those deposits or try to incrementally push those costs down?

Jared Wolff: Yep.

Matthew Clark: Okay. Just on the ECR deposit balances, I understand the sensitivity to rates, but with no rate cuts this year, assuming there's no rate cuts, is there any effort to try to remix away from those deposits or try to incrementally push those costs down?

Speaker #1: We're looking for ways to improve our deposit costs across the board. The biggest and most important way to do that is to bring in non-insuring deposits that have no expectation of yield that rely on our services.

Jared Wolff: We were looking for ways to improve our deposit costs across the board. The biggest and most important way to do that is to bring in non-interest-bearing deposits that have no expectation of yield, that rely on our services. We have a lot of efforts underway. We continue to make progress there. I'm really pleased with what our teams are doing. I see stories every day of clients coming to the bank, bringing more. I get really jazzed by the stories that my team shares with me. Even this morning, hearing about a client that got acquired, and then 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. They brought more deposits in.

Speaker #1: And we have a lot of efforts underway. We continue to make progress there. I'm really pleased with what our teams are doing. I see stories every day of clients coming to the bank, bringing more.

Jared Wolff: I see stories every day of clients coming to the bank, bringing more. I get really jazzed by the stories that my team shares with me. Even this morning, hearing about a client that got acquired, and then 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. They brought more deposits in.

Speaker #1: I mean, I have I get really jazzed by the stories that my team shares with me even this morning hearing about a client that got acquired.

Speaker #1: And then the company that acquired them decided that they were going to keep all of the deposits at our bank because we were getting better service than—giving better service than they were.

Speaker #1: And they brought more deposits in. And then there was another story about a customer that had left after the merger to a large bank, wasn't getting the service that they expected, and brought back $3 million in deposits.

Jared Wolff: There was another story about a customer that had left after the merger to a large bank, wasn't getting the service that they expected, brought back $3 million in deposits. These stories are meaningful. The first thing we can do is bring back operating accounts and grow operating accounts. We're doing it in a really, I think our teams are doing a great job. The second is to be very proactive on deposit costs, whether or not there are rate adjustments from Fed rate cuts or Fed rate increases, and see how we can manage our deposit costs. As it relates to ECR, those contracts that we have generally come up annually, and when they come up, depending upon our deposit flexibility, we will negotiate with them to improve our positioning.

Speaker #1: I mean, these stories are meaningful. And so for the first thing we can do is bring back operating accounts and grow operating accounts. And we're doing it in a really I think our teams are doing a great job.

Speaker #1: The second is to be very proactive on deposit costs. Whether or not there are rate adjustments, from Fed rate cuts or Fed rate increases, and see how we can manage our deposit costs.

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

Speaker #1: As it relates to ECR, those contracts that annually. And in those when they come up, depending upon our deposit flexibility, we will negotiate with them to improve our positioning.

Speaker #1: And that's been the case the last two years, as our deposit positioning has been better, and we've been able to negotiate those accounts to our benefit.

Jared Wolff: That's been the case for the last two years, as our deposit positioning has been better, and we've been able to negotiate those accounts to our benefit.

Speaker #5: Okay. Great. Thank you.

Matthew Clark: Okay, great. Thank you.

Speaker #1: Thank you.

Jared Wolff: Thank you.

Speaker #3: The next question comes from David Feaster with Raymond James. Please go ahead.

Operator 3: The next question comes from David Feaster with Raymond James. Please go ahead.

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

Speaker #6: Hey. Good morning.

David Feaster: Hey, good morning.

Speaker #1: Good morning.

Jared Wolff: Good morning.

Speaker #6: Jared, I wanted to follow up on some of your commentary that you talked about on the capital side. Just with the regulatory capital relief, could you talk about what your top priorities might be at this point?

Operator 2: Jared, I wanted to follow up on some of your commentary that you talked about on the capital side, just with the regulatory capital relief. Could you talk about what your top priorities might be at this point? Obviously, buybacks are extremely attractive, but curious whether there's any other capital deployment or optimization opportunities that you'd be considering or that are on the table.

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

Speaker #6: Obviously, buybacks are extremely attractive, but curious whether there's any other capital deployment or optimization opportunities that you'd be considering or that are on the table.

Speaker #1: Look, I think we run a lot of different scenarios. And obviously, buybacks are a big part of it. Using it to redeem preferred.

Jared Wolff: Look, I think we run a lot of different scenarios, and obviously buybacks are a big part of it. Using it to redeem preferred are things that we have in plans. We wouldn't need other funding sources if we did that. We would obviously look at our balance sheet and look at low-hanging fruit and look at things that are sub-optimally priced and see what we could do with that and what the earn back might be. The $150 to 160 million is, I would say, a very conservative estimate of what we could achieve under these new rules. We're still doing the analysis, but the initial analysis, we had a third party look at it, and they think we're going to get more than that. I feel very good about that opportunity for us specifically. There are a number of things that we could do.

Speaker #1: Things that we have in plans, we wouldn't need other funding sources if we did that. We would obviously look at our balance sheet and look at low-hanging fruit, and look at things that are suboptimally priced, and see what we could do with that and what the earnback might be.

Speaker #1: But the $150 to $160 million is, I would say, a very conservative estimate of what we could achieve under these new rules. We're still doing the analysis, but the initial analysis—we had a third party look at it—and they think we're going to get more than that.

Jared Wolff: The $150 to 160 million is, I would say, a very conservative estimate of what we could achieve under these new rules. We're still doing the analysis, but the initial analysis, we had a third party look at it, and they think we're going to get more than that. I feel very good about that opportunity for us specifically. There are a number of things that we could do.

Speaker #1: So I feel very good about that opportunity for us specifically. And there are a number of things that

Speaker #6: Okay. That's helpful. That's a nice windfall. And maybe switching gears to the loan growth side. I mean, appreciate that you guys reiterated the loan growth guide.

Operator 2: Okay. That's helpful. That's a nice windfall. Maybe switching gears to the loan growth side. I appreciate that you guys reiterated the loan growth guide. I wanted to dig in. How do you get to your mid-single-digit pacing growth this year? Obviously, warehouse is seasonally weaker, but production was solid. It was diversified this quarter. I'm just kind of curious, how do you think about production over the course of the year, some of the key drivers behind that, and how do ongoing payoffs and pay downs play into some of those expectations?

David Feaster: Okay. That's helpful. That's a nice windfall. Maybe switching gears to the loan growth side. I appreciate that you guys reiterated the loan growth guide. I wanted to dig in. How do you get to your mid-single-digit pacing growth this year? Obviously, warehouse is seasonally weaker, but production was solid. It was diversified this quarter. I'm just kind of curious, how do you think about production over the course of the year, some of the key drivers behind that, and how do ongoing payoffs and pay downs play into some of those expectations?

Speaker #6: I wanted to dig in. How do you get to your mid-single-digit basic growth this year? Obviously, warehouses seasonally weaker. But production was solid. It was diversified this quarter.

Speaker #6: I'm just kind of curious. How do you think about production over the course of the year? What are some of the key drivers behind that, and how do ongoing payoffs and paydowns play into some of those expectations?

Speaker #6: And the competitiveness.

Jared Wolff: Yep.

Operator 2: The competitive landscape.

David Feaster: The competitive landscape.

Speaker #1: Thanks, David. So yeah. So we put a new chart in the deck. I'm sure folks will focus on, which is on page 14. Excuse me.

Jared Wolff: Thanks, David. We put a new chart in the deck that I'm sure folks will focus on, which is on page 14. Excuse me, it's on page 15. That shows production and disbursements as well as pay downs and payoffs, so that people could 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 that our weighted average rate on loans, since Q1 of last year, despite the declining rate environment, has stayed flat, which is exactly what we talk about. That 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 that will continue to be true.

Speaker #1: It's on page 15 that shows production and disbursements, as well as paydowns and payoffs, so that people could break down and see how heavy the production was and how broad-based it actually was.

Speaker #1: And the average rate. And one of the best things about that chart is it shows that our weighted average rate on loans, since the first quarter of last year, despite the declining rate environment, has stayed flat.

Jared Wolff: One of the best things about that chart is it shows that our weighted average rate on loans, since Q1 of last year, despite the declining rate environment, has stayed flat, which is exactly what we talk about. That 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 that will continue to be true.

Speaker #1: Which is exactly what we talk about—that remixing our portfolio as deposit costs have dropped has resulted in our margin expansion and making more money on a flat balance sheet.

Speaker #1: And we know that that will continue to be true. So whether or not we have net growth or just remixing from our high production, we will continue to make more money.

Jared Wolff: 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, we're going to make the money faster. Earnings will grow even faster than what we've projected. We have in our budget hitting our numbers with a balance sheet that doesn't need to grow as fast, and if we grow faster, we're going to make even more money. We feel very confident about that. We have line of sight into kind of what the payoffs were and where they are, and we think that they were elevated, and by historical means, they were in the Q1. Whether they remain elevated is kind of hard to know.

Speaker #1: If we grow the balance sheet as well, we're going to make money faster. We're going to make earnings grow even faster than what we've projected.

Speaker #1: We have in our budget hitting our numbers with a balance sheet that doesn't need to grow as fast. And if we grow faster, we're going to make even more money.

Speaker #1: So we feel very confident about that. We have line of sight into kind of what the payoffs were and where they are. And we think that they were elevated and historically by historical means, they were.

Speaker #1: In the first quarter. Whether they remain elevated is kind of hard to know. But right now, it looks like production is going to outpace payoffs and paydowns for the foreseeable future.

Jared Wolff: Right now it looks like production is going to outpace payoffs and pay downs for the foreseeable future, and we hope that's the case. There are certain loan pools that we can buy to improve the balance sheet if we think it's necessary. Overall, we still expect mid-single-digit loan growth. It's just one quarter. This happened last year as well, where we had lower production early on or in certain quarters, but we still ended up pretty much at our targets. It's too early to say that we're not going to hit our targets based on everything we see. Even if, for example, we had lower net growth, by our estimates, we still hit our earnings targets based on our ability to remix the balance sheet. That's why we put it in there, because we think the power of that is pretty important.

Speaker #1: And we hope that's the case. There are certain loan pools that we can buy to improve the balance sheet if we think it's necessary.

Speaker #1: But overall, we still expect mid-single-digit loan growth. It's just one quarter. This happened last year as well, where we had lower production early on or in certain quarters, but we still ended up pretty much at our targets.

Speaker #1: And so it's too early to say that we're not going to hit our targets based on everything we see. But even if, for example, we had lower net growth by our estimates, we still hit our earnings targets.

Speaker #1: Based on our ability to remix the balance sheet, and that's why we put it in there, because we think the power of that is pretty important.

Speaker #3: That's helpful. Thanks.

David Feaster: That's helpful. Thanks.

Speaker #1: Thank you.

Jared Wolff: Thank you.

Speaker #3: The next question comes from Jared Shaw with Barclays. Please go ahead.

Operator 3: The next question comes from Jared Shaw with Barclays. Please go ahead.

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

Speaker #5: Hey, everybody. Thanks. Hey, I guess just sticking with that, when we look at the production, numbers staying relatively stable down a little bit, but relatively stable.

Jared Shaw: Hey, everybody. Thanks.

Jared Wolff: Hi.

Jared Shaw: Hey. I guess just sticking with that, 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? Jared, you've spoken about the strength of the economies that you're working in and the competitive disruption that's happened. What's keeping that production from really growing more?

Speaker #5: What would have to happen to really see that grow? Jared, you've spoken about the strength of the economies that you're working in and the competitive disruption that's happened.

Speaker #5: I guess, why not? What's keeping that production from really growing more?

Speaker #1: Well, I mean, the production is I think first quarter is generally a little bit lower. It can be. So we were 2.1 versus 2.2 last year.

Jared Wolff: Well, I think Q1 is generally a little bit lower. It can be. We were at 2.1 versus 2.2 last year. In the Q4, we were at $2.7 billion. Those are pretty good numbers on a loan portfolio that's $24 billion, to grow $8 billion of production on a $24 billion loan portfolio. Are there things that we could move faster? We probably could. I think we could ask various of our business units to increase sizes and to take larger positions and make more capital available. We really believe that it's necessary to grow on balance. We look at deposit flows. We look at our balance sheet overall. We are obviously at a loan-to-deposit ratio which is very comfortable. We can move that up. I'm not looking to necessarily just grow as fast as we can.

Speaker #1: In the fourth quarter, we were at $2.7 billion. Those are pretty good numbers on a loan portfolio that's $24 billion—to grow $8 billion of production on a $24 billion loan portfolio.

Speaker #1: Are there things that we could move faster? We probably could, but and I think we could ask various of our business units to increase sizes and to take larger positions.

Speaker #1: And make more capital available. But we really believe that it's necessary to grow in balance. And we look at deposit flows, we look at our balance sheet overall.

Speaker #1: We are obviously at a loan-to-deposit ratio which is very comfortable. We can move that up, but I'm not looking to necessarily just grow as fast as we can.

Speaker #1: We're looking to do it in a very sustainable, reliable way, so that earnings are repeatable, and that they are consistent, reliable, high-quality earnings.

Jared Wolff: We're looking to do it in a very sustainable, reliable way, and so that earnings are repeatable and that they are consistent, reliable, high-quality earnings. I guess, Jared, I would say that we could move faster. It feels like we're at a pretty good pace right now, and we're moving a little bit faster than the economy around us, and it feels like a good pace.

Speaker #1: So, I guess, Jared, I would say that we could move faster. It feels like we're at a pretty good pace right now, and we're moving a little bit faster than the economy around us.

Speaker #1: And it feels like a good pace.

Speaker #5: Okay. All right. Thanks. And then on the 8 billion of sort of identified target runoff, what's the how long does that take to move through the system?

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

Speaker #1: So we have $6 billion of multifamily loans that will reprice or mature. Half of those $6 billion mature or reprice in the next two and a half years.

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

Speaker #1: That's the bulk of it. And so we have a chart on page 16 of our deck that kind of walks through the repricing of those loans.

Speaker #1: But there are some pretty big groups of multifamily loans that mature or reprice in less than one year: that's $1.7 billion. And then $1.1 billion is in one to two years.

Speaker #1: And then there's a big chunk that's more than three years. That's $2.3 billion. So we see $2.8 billion in the next one and a half to two years.

Speaker #1: And then there's about a billion that's the next two to three years. That's how you get to the $3.2 billion over two and a half years.

Speaker #5: Yeah. Okay. All right. Good. And then on the deposit side, do you have any—how have flows been sort of early in the second quarter?

Jared Shaw: Yeah. Okay. All right, good. On the deposit side, how have flows been sort of early in Q2? I know there's obviously a lot of seasonality with some of the Q1 flows, but looking at end of period versus average-

Speaker #5: I know there's obviously a lot of seasonality with some of the first quarter flows. But looking at end-of-period versus average, any color there?

Jared Wolff: Yep.

Jared Shaw: Any color there?

Speaker #1: Yeah. We're up this quarter relative to last quarter at the same time. So inflows have been higher early in this quarter relative to last quarter.

Jared Wolff: Yeah. We're up this quarter relative to last quarter at the same time. Inflows have been higher early in this quarter relative to last quarter, and last quarter our averages were pretty up. End of Q1, oftentimes, in Q1, things come out for taxes and things like that. I didn't really think that much about it. It just our averages are what move the balance sheet, and it felt like we had a really good quarter. So far we're up higher this quarter than last quarter at this point in time.

Speaker #1: And last quarter, our averages were pretty up. End of the first quarter, oftentimes, in the first quarter, things come out for taxes and things like that.

Speaker #1: I didn't really think that much about it. It's just our averages are what move the balance sheet. And it felt like we had a really good quarter, but so far, we're up higher this quarter than last quarter.

Speaker #1: At this point in time.

Speaker #5: Okay. If I could just squeeze one more in. The allowance ratio—you talked about utilizing more of the adverse scenario to prevent more reserve releases.

Jared Shaw: Okay. If I could just squeeze one more in. 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 sort of a good level, assuming that there's no broader economic backdrop change. Is that a good level to expect for the rest of the year?

Speaker #5: With the loan book the way it is right now, it's 96 basis points. Sort of a good level to assume, assuming that there's no broader economic backdrop change.

Speaker #5: Is that a good level to expect for the rest of the year?

Speaker #1: Yeah, I think so. Our ACL is 1.12%, and our economic coverage is about 160%. And I think that feels very comfortable. That assumes we continue provisioning around this level that we did this quarter—9, 9 and a half.

Jared Wolff: Yeah, I think so. Our ACL is 1.12, and our economic coverage ratio is about 160, and I think that feels very comfortable. That assumes we continue provisioning around this level that we did this quarter, $9, $9.5, and I guess depending on production, could get up to $10 or $11. It feels like it's the right level.

Speaker #1: And I guess depending on production, it could get up to 10 or 11. But it feels like it's the right level.

Speaker #5: Great. Thank you.

Jared Shaw: Great. Thank you.

Speaker #1: Thank you.

Jared Wolff: Thank you.

Speaker #3: The next question comes from Andrew Terrell with Stevens. Please go ahead.

Operator 3: The next question comes from Andrew Terrell with Stephens. Please go ahead.

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

Speaker #6: Hey. Good morning.

Andrew Terrell: Hey, good morning.

Speaker #1: Good morning.

Jared Wolff: Morning.

Andrew Terrell: I want to ask a question on the broker time deposits. It looks like over the past year, those are up $500 million or so. Just curious, I hear some of your comments about early kind of Q2 flows on the deposits. Just as we think about mid-single-digit deposit growth for this year, should we expect more broker deposit addition throughout the year to support that growth? Do you think there's, on the other side, opportunity to kind of remix the broker position this year?

Speaker #6: I want to ask a question on the broker time deposits. It looks like, over the past year, those are up $500 million or so.

Speaker #6: And just curious, I hear some of your comments about early kind of Q2 flows on the deposits. But just 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?

Speaker #6: Or do you think there's, on the other side, opportunity to kind of remix the broker position this year?

Speaker #1: Well, I'll let Joe go into detail on it. But my initial answer is that we focus on overall deposit cost and keep brokered within a band.

Jared Wolff: Well, I'll let Joe go into detail on it, but my initial answer is that we focus on overall deposit costs and keep brokered within a band, and we will opportunistically use it, especially when we see that we have pay downs coming in certain areas where we have big chunks of deposits that are running off, and we will selectively go into the brokered market when we find that it's got better pricing than some other things that we might be seeing relative to deposits that are coming off. We continue to move our cost of deposits down, and so we don't mind selectively using brokered. Joe, do you have more detail on that?

Speaker #1: And we will opportunistically use it, especially when we see that we have paydowns coming in certain areas where we have big chunks of deposits that are running off.

Speaker #1: And we will selectively go into the brokered market when we find that it's got better pricing than some other things that we might be seeing relative to deposits that are coming off.

Speaker #1: So we continue to move our cost of deposits down. And so we don't mind selectively using brokered. Joe, do you have more detail on that?

Speaker #4: Yeah. So, we were at brokerage was 9.3% of total fundings this quarter compared to 9.7% in the fourth quarter. Pretty flat when I look at it year over year.

Joseph Kauder: Yeah. Our brokered was 9.3% of total funding this quarter compared to 9.7% in the Q4. Pretty flat when I look at it year over year. The other thing I would say is brokered also depends just a little bit on loan growth. If we do see some of the pickup in loan growth and it accelerates and we're able to put really good high-quality loans on the books, we do need to keep it in balance with deposits, but sometimes we're 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.

Joseph Kauder: Yeah. Our brokered was 9.3% of total funding this quarter compared to 9.7% in the Q4. Pretty flat when I look at it year-over-year. The other thing I would say is brokered also depends just a little bit on loan growth. If we do see some of the pickup in loan growth and it accelerates and we're able to put really good high-quality loans on the books, we do need to keep it in balance with deposits, but sometimes we're 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.

Speaker #4: The other thing I would say is brokered is also it depends. It's a little bit on loan growth. So if we do see some of the pickup in loan growth and it accelerates and we're able to put really good high-quality loans on the books, I mean, we do need to keep it in balance with deposits.

Speaker #4: But sometimes we're 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.

Speaker #1: Yeah. We actually—to that point—I mean, we saw that loans were coming in late, and we saw average balances moving down. And we said, "Okay."

Jared Wolff: Yeah. We actually, to that point, we saw that loans were coming in late, and we saw average balances moving down, and we said, "Okay, let's keep our loan deposit ratio in balance and let's grab some brokered, and that way we can make sure that we keep things in balance. And if we have access, we'll just invest it." I think our team is pretty good at balance sheet management. We can let our loan deposit ratio float up as well if we want to.

Speaker #1: Let's grab some—let's keep our loan-to-deposit ratio in balance. And let's grab some brokered. And that way, we can make sure that we keep things in balance.

Speaker #1: And if we have excess, we'll just invest it. And so, just kind of—I think our team is pretty good at balance sheet management.

Speaker #1: We can let our loan-to-deposit ratio float up as well if we want to.

Speaker #6: Yep. Yep. Makes sense. I know you've got some term on the borrowing side. But is there any term in the brokered deposit portfolio that's at all shorter or floating rate?

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

Jared Wolff: Go ahead, Joe.

Speaker #1: We have go ahead, Joe.

Jared Wolff: Go ahead, Joe.

Speaker #4: I was just going to say, we do a little bit of term. It's mostly—it's largely—let's put it this way: it's all less than a year.

Joseph Kauder: I was just going to say, we do a little bit of term. Let's put it this way, it's all less than a year, but it's largely within 3 to 6 months, and then there's a little bit of it that goes out a little bit further to 9 months or 12 months.

Speaker #4: But it's largely within three to six months, and then there's a little bit of it that goes out a little bit further—to nine months or twelve months.

Speaker #6: Okay, great. Thanks for taking the questions.

Andrew Terrell: Okay, great. Thanks for taking the questions.

Speaker #1: Thank you.

Jared Wolff: Thank you.

Speaker #3: The next question comes from Chris McGrady with KBW. Please go ahead.

Operator 3: The next question comes from Chris McGratty with KBW. Please go ahead.

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

Speaker #4: Hey, great. Jared, on the credit—I mean, you guys went through a similar, I’m interested in kind of the portfolio downgrades last year, where you ultimately worked things through.

Chris McGratty: Hey, great. Jared, on the credit, you guys went through a similar. I'm interested in kind of the comparison when you made some portfolio downgrades last year where you ultimately worked things through. What's different or similar this year as you kind of go through this process?

Christopher McGratty: Hey, great. Jared, on the credit, you guys went through a similar. I'm interested in kind of the comparison when you made some portfolio downgrades last year where you ultimately worked things through. What's different or similar this year as you kind of go through this process?

Speaker #4: What's different or similar this year as you kind of go through this process?

Speaker #1: Yep. So it's pretty similar, in that at various times, first of all, these are some larger legacy relationships, where we were trying to migrate them down to more manageable levels.

Jared Wolff: Yep. It's pretty similar in that at various times, first of all, 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, it did not get in the way of earnings, and we just continued to earn through it, and gradually our ratios improved. Is this the last chunk of it? Probably. It's pretty close. You never say never because something else pops up the moment you say that. But I feel pretty good about where we are, and it was just time to kind of move stuff around. You have conversations and relationships and you say, "Look, we don't want these relationships to be this large anymore. We'd like you to move these things faster." That was the case in a couple of the loans.

Speaker #1: Similar to last year, we migrated this. It did not get in the way of earnings, and we just continued to earn through it. And gradually, our ratio has improved.

Speaker #1: Is this the last chunk of it? Probably. It's pretty close. I mean, you never say never, because something else pops up the moment you say that.

Jared Wolff: You never say never because something else pops up the moment you say that. But I feel pretty good about where we are, and it was just time to kind of move stuff around. You have conversations and relationships and you say, "Look, we don't want these relationships to be this large anymore. We'd like you to move these things faster." That was the case in a couple of the loans.

Speaker #1: But I feel pretty good about where we are. And it was just time to kind of move stuff around. You have conversations and relationships.

Speaker #1: And you say, 'Look, we don't want these relationships to be this large anymore. We'd like you to move these things faster.' That was the case in a couple of the loans.

Speaker #1: In some of the other loans, I think they just didn't manage it well. And we were watching them, and we kind of held their feet to the fire and said, "Look."

Jared Wolff: In some of the other loans, I think they just didn't manage it well. We were watching them, and we kind of held their feet to the fire and said, "Look, you guys need to do this differently, and we're going to hold you to it." As we mentioned, we got personal guarantees and plenty of support. These LIHTC loans are very valuable loans, and they're really good projects, and they're housing that's sorely needed, and there are tax benefits to it. I'm not worried about the outcome, but sometimes this is just the right thing to do. I would say there's similarities to how we did it last year in that we expect the ratios to migrate better over several quarters. They're large relationships.

Speaker #1: You guys need to do this differently. And we're going to hold you to it. And as we mentioned, we got personal guarantees and plenty of support.

Speaker #1: And these LIHTC loans are very valuable loans. And they're really good projects. And they're housing that is sorely needed. And there are tax benefits to it.

Speaker #1: And so I'm not worried about the outcome. But sometimes this is just the right thing to do. And so I would say there's similarities to how we did it last year, in that we expect the ratios to migrate better over several quarters.

Jared Wolff: I'm not worried about the outcome, but sometimes this is just the right thing to do. I would say there's similarities to how we did it last year in that we expect the ratios to migrate better over several quarters. They're large relationships. I think we just kind of set expectations a little bit more aggressively than maybe they had been set in the past for the borrowers.

Speaker #1: They're large relationships. And I think we just kind of set expectations a little bit more aggressively than maybe they had been set in the past for the borrowers.

Jared Wolff: I think we just kind of set expectations a little bit more aggressively than maybe they had been set in the past for the borrowers.

Speaker #4: Okay, thanks for that. And then, maybe, could you speak—while we're talking about credit—could you just speak about the legacy Square 1 book from PacWest?

Chris McGratty: Okay. Thanks for that. Maybe while we're talking about credit, could you just speak about the legacy Square 1 book from PacWest? Obviously, software is a big topic, but just remind us overall the makeup of the book. I know it changed over the years.

Christopher McGratty: Okay. Thanks for that. Maybe while we're talking about credit, could you just speak about the legacy Square 1 book from PacWest? Obviously, software is a big topic, but just remind us overall the makeup of the book. I know it changed over the years.

Speaker #4: Obviously, software is a big topic. But just remind us overall of the makeup of the book. I know it changed over the years.

Jared Wolff: Sure

Speaker #1: Sure.

Chris McGratty: When we were independent, but just how you're viewing about tech?

Speaker #4: When they were independent. But just how you're viewing it about tax.

Christopher McGratty: When we were independent, but just how you're viewing about tech?

Jared Wolff: Here's our venture ecosystem generally, which is outlined in our deck, because the whole Square 1 was more than just "tech." I think it's important to kind of lay out what everything is. We have fund finance, which is capital call lines of credit to private equity venture capital firms. That's approximately $1.4 billion, and its deposits is about the same amount. Okay? $1.4 billion of deposits and $1.4 billion of loans. Those are fund finance. The rest of our venture and Square 1 ecosystem is about $950 million of loans split evenly between tech and life sciences. Call it $450 or $475 of tech and $475 of life sciences. They have $5 billion of deposits against that $950 million of loans.

Speaker #1: So here's the—our venture ecosystem generally, which is outlined in our deck, is because the whole Square 1 was more than just, quote, 'tech.' So I think it's important to kind of lay out what everything is.

Speaker #1: So we have fund finance, which is capital call lines or credit to private equity and venture capital firms. That's approximately $1.4 billion. And its deposits are about the same amount.

Speaker #1: Okay? So 1.4 billion of deposits and 1.4 billion of loans. Those are fund finance. The rest of our venture and square one ecosystem is about 950 million of loans split evenly between fund finance, excuse me, split evenly between tech and life sciences.

Jared Wolff: Okay? $1.4 billion of deposits and $1.4 billion of loans. Those are fund finance. The rest of our venture and Square 1 ecosystem is about $950 million of loans split evenly between tech and life sciences. Call it $450 or $475 of tech and $475 of life sciences. They have $5 billion of deposits against that $950 million of loans.

Speaker #1: So call it $450 or $475 million of tech and $475 million of life sciences. And they have $5 billion of deposits against that $950 million of loans.

Speaker #1: Of the 450 in tech, we did an analysis of where we thought software might be disrupted by AI, or any of our tech clients might be disrupted by AI in a negative way—such that their business model was disrupted or their funding potential was disrupted.

Jared Wolff: Of the $450 in tech, we did an analysis of where we thought software might be disrupted by AI or any of our tech clients might be disrupted by AI in a negative way such that their business model was disrupted or their funding potential was disrupted. We ran this a couple different ways, and we came up with a handful of loans and a little over $4 million of outstanding loans that we thought were kind of on the watchlist, on the high-risk watchlist. That's it. I would say that while we keep monitoring this and we have to keep looking at it's not something that we see as something that is materially disrupting our portfolio today, although we're going to continue watching it.

Speaker #1: And we ran this a couple of different ways. And we came up with loans in a little over $4 million of outstanding loans that we thought were kind of on the watch list, on the high-risk watch list.

Speaker #1: That's it. So, I would say that while we keep monitoring this, we have to keep looking at it. It's not something that we see as materially disrupting our portfolio today.

Jared Wolff: That's it. I would say that while we keep monitoring this and we have to keep looking at it's not something that we see as something that is materially disrupting our portfolio today, although we're going to continue watching it. It's important to remember, out of our $24 billion of loans, that tech group is $450 million, $475 million, of which a small portion would be attached to what people think about as software that could be disrupted. $5 billion of deposits between tech and life sciences.

Speaker #1: Although we're going to continue watching it, it's important to remember that, out of our $24 billion of loans, that tech group is $450 million—$475 million, of which a small portion would be attached to what people think about as software that could be disrupted.

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

Speaker #1: And $5 billion of deposits between tech and life sciences.

Speaker #4: That's great, Collin. Thank you.

Chris McGratty: That's great, Colin. Thank you.

Christopher McGratty: That's great, Colin. Thank you.

Speaker #1: Thank you.

Jared Wolff: Thank you.

Speaker #3: The next question comes from Gary Tenner with D.A. Davidson. Please go ahead.

Operator 3: The next question comes from Gary Tenner with D.A. Davidson. Please go ahead.

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

Speaker #4: Thanks. Good morning. I had a follow-up on the NIM question, Joe. You had mentioned the kind of pace of NIM expansion over the course of the year.

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

Speaker #4: Just wondering, is that expansion and your projections pretty exclusively driven by the asset side and the yield side, or is there any material contribution from further reduction in funding costs over the course of the year?

Speaker #5: Well, I would say that there's a combination of both. There's definitely benefit from loans continuing to grow. But as we have deposit growth in conjunction with our loan growth.

Joseph Kauder: Well, I would say that there's a combination of both. There's definitely benefit from loans continuing to grow. As we have deposit growth in conjunction with our loan growth, and then that deposit growth is hopefully, we really focus on bringing in non-interest-bearing deposits. It's our life's blood, and we continue to try to grow that. There's few things we can do that's more profitable to us than add a non-interest-bearing deposit. You saw the NIB percentage grow slightly this quarter, and we expect that to continue to hopefully grow towards this year. As our mix of our deposits grows to be more heavily weighted towards the NIB and other lower cost interest-bearing, we expect to pick up a little bit of NIM from that as well as from the loan growth.

Speaker #5: And then that deposit growth is—hopefully, we really focus on bringing in non-interest-bearing deposits. It's our lifeblood. And we continue to try to grow that.

Speaker #5: And every time, there are a few things we can do that are more profitable to us than grow a non-interest-bearing, add a non-interest-bearing deposit. So, as that, you saw the NIB percentage grow slightly this quarter.

Joseph Kauder: There's few things we can do that's more profitable to us than add a non-interest-bearing deposit. You saw the NIB percentage grow slightly this quarter, and we expect that to continue to hopefully grow towards this year. As our mix of our deposits grows to be more heavily weighted towards the NIB and other lower cost interest-bearing, we expect to pick up a little bit of NIM from that as well as from the loan growth.

Speaker #5: We expect that to continue to hopefully grow towards this year. And as our mix of our deposits grows to be more heavily weighted towards the NIB and other lower-cost interest-bearing, we expect to pick up a little bit of NIM from that as well as from the loan growth.

Speaker #1: Gary, I think this quarter it was mostly Gary, I think this quarter we saw more contribution from the full quarter benefit of deposit cost reduction from the Fed cuts in the fourth quarter.

Jared Wolff: Gary, I think this quarter.

Gary Tenner: Fair enough.

Jared Wolff: Gary, I think this quarter we saw more contribution from the full quarter benefit of deposit cost reduction from the Fed cuts in Q4. The fact that our loan portfolio loan yield is flat in the declining rate environment is pretty powerful. I think in an uptick environment, you'd see a lot more from the loan yield than I think in a downtick environment, you see a lot more from the deposit side.

Speaker #1: And, but the fact that our loan portfolio loan yield is flat in a declining rate environment is pretty powerful. And so I think in an uptick environment, you'd see a lot more from the loan yield.

Speaker #1: And I think in a downtick environment, you'd see a lot more from the deposit side.

Speaker #5: Yeah, no, that all makes sense. I mean, just thinking about a perspective-neutral environment, perhaps for the rest of the year—kind of just trying to get a sense of room on one side versus the other.

Gary Tenner: Yeah. No, that all makes sense. I mean, just thinking about a prospective neutral environment for the rest of the year.

Jared Wolff: Yep

Gary Tenner: kind of just trying to get a sense of room on one side versus the other.

Speaker #1: Yeah, I think in a neutral environment, a lot of it, to your point, is probably loan-based, because the loans we're putting on are at such higher rates than the loans coming off.

Jared Wolff: Yeah. I think in a neutral environment, a lot of it, to your point, is probably loan-based because the loans we're putting on are such higher rate than the loans coming off. I think that's probably a fair way to think about it. Yep.

Speaker #1: So, I think that's probably a fair way to think about it. Yep.

Speaker #5: Yep, makes sense. And then I just wanted to ask if you have any updated thoughts you could share on the BankEdge product, having brought on Chris Healy a couple of months ago to kind of head that business.

Gary Tenner: Yep, makes sense. I just wanted to ask if you have any updated thoughts you could share on the Banc Edge product, having brought on Chris Healy a couple months ago to kind of head that business.

Speaker #1: Yeah, thanks for asking. And Chris is doing a great job with the team. I'm actually getting an updated budget this week, where we're talking, where we're looking at kind of the expectations for our BankEdge—which is our merchant acquiring platform—as well as our card products, where we're issuing.

Jared Wolff: Yeah, thanks for asking. Chris is doing a great job with the team, and I'm actually getting an updated budget this week where we're looking at the expectations for our Banc Edge, which is our merchant acquiring platform, as well as our card products where we're issuing. Both are doing extremely well. We expect H2 to provide more guidance on how we think these things will contribute going forward. I'm really pleased with our focus here, and I think Chris is going to bring some ideas to the bank that he brought 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.

Speaker #1: And both are doing extremely well. We expect the back half of the year to have to provide more guidance on how we think these things will contribute going forward.

Jared Wolff: We expect H2 to provide more guidance on how we think these things will contribute going forward. I'm really pleased with our focus here, and I think Chris is going to bring some ideas to the bank that he brought 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.

Speaker #1: But I'm really pleased with our focus here. And I think Chris is going to bring some ideas to the bank that he brought to his prior that he brought to his prior institution about how they accelerated growth and on both the card side and the merchant acquiring side through partnerships and direct selling.

Speaker #1: And so, more to come on that.

Speaker #5: Great. Thank you.

Gary Tenner: Great. Thank you.

Speaker #1: Thank you.

Jared Wolff: Thank you.

Speaker #3: The next question comes from Anthony Elion at JPMorgan. Please go ahead.

Operator 3: The next question comes from Anthony Elian and J.P. Morgan. Please go ahead.

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

Speaker #6: 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?

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?

Speaker #6: And can you talk about the cadence of NII over the course of this year?

Speaker #5: Yes, we're still feeling pretty comfortable about all of our guidance we provided at the end of '25. Which we'll see as loans pick up and as, definitely, Gary's already mentioned, we do have some seasonality—the first quarter has usually, historically, been one of our weaker quarters.

Joseph Kauder: Yes. We're still feeling pretty comfortable about all of our guidance we provided at the end of 2025. What you'll see is as loans pick up and as we definitely, as Jared's already mentioned, we do have some seasonality. Q1 has historically been one of our weaker quarters. It usually picks up a bit in Q2 and continues throughout the year. We still feel pretty confident about those numbers, and that those will be coming in.

Speaker #5: We usually pick up a bit in the second quarter, and it continues throughout the year. So we still feel pretty confident about those numbers, and that those will be coming in.

Speaker #1: Okay. And then on comp expense, Joe, can you quantify how much the seasonal research contributed to one Q, and how much of that you expect to come out of two Q and going forward?

Anthony Elian: Okay. On comp expense, Joe, can you quantify how much the seasonal resets contributed to Q1 and how much of that you expect to come out of Q2 and going forward? Thank you.

Speaker #1: Thank you.

Joseph Kauder: Well, I think you can just look at on the non-interest expense page, and you can just see that the amount of the compensation increase from Q4 to Q1, that's substantially all driven by the resets. I'm sorry, what was the second part of the question?

Speaker #5: Well, I think you can just look at the non-interest expense page, and you can just see that the amount of the compensation increase from the fourth quarter to the first quarter—that's almost, that's substantially all driven by the resets.

Speaker #5: And I'm sorry, what was the second part of the question?

Anthony Elian: I think you answered it. Just how much is expected to come out?

Speaker #1: I think you answered it. Just how much is expected to come out?

Joseph Kauder: Oh, well, not all of it will come out. Over the year, maybe half to two-thirds of it, those increases come out over the course of the year. As people hit their Social Security limits or they hit their 401 match limits, those will roll off.

Speaker #5: Oh, well, not all of it will come out. So, over the year, maybe half to two-thirds of it will then come out. Those increases come out over the course.

Speaker #5: You guys, as people hit their Social Security limits or they hit their 401(k) match limits, those will roll off.

Anthony Elian: Thank you.

Speaker #1: Thank you.

Operator 3: This concludes our question and answer session and Banc of California's Q1 2026 earnings conference call. Thank you for attending today's presentation. You may now disconnect.

Operator: This concludes our question and answer session and Banc of California's Q1 2026 earnings conference call. Thank you for attending today's presentation. You may now disconnect.

Speaker #3: This concludes our question and answer session. And Bank of California's first quarter 2026 earnings conference call. Thank you for attending today's presentation. You may now disconnect.

Q1 2026 Banc of California Inc Earnings Call

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