Banc of California, Inc.

Hello and welcome to Bank of California's first quarter 2026 earnings conference call. If you need operator assistance, please press star then zero. I'll now turn it over to Anne DeVries, head of investor relations at Bank of California. Please go ahead.

Good morning and thank you for joining Bank 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. Today's presentation will also include non-GAAP measures, the reconciliations for these measures, and additional required information is available in the earnings press release and earnings presentation, which are available on our investor relations website. Before we begin, we would also like to remind everyone that today's call will include forward-looking statements, including statements about our targets, goals, strategies, and outlook for 2026 and beyond. We are subject to risks, uncertainties, and other factors outside of our control, and actual results may differ materially. For 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 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. I would like to now turn the conference call over to Jared.

Thanks, Anne. Good morning, everybody. We're pleased to report another strong quarter for Bank of California with year-over-year earnings growth, net interest margin expansion, and continued positive operating leverage. First quarter earnings per share grew 50% from a year ago to $0.39, driven by continued net interest margin expansion and positive operating leverage. 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. In the first quarter, we repurchased 1.7 million shares and also extended our buyback program through March 27 and increased our dividend from 10 cents per share to 12 cents 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-industrial sparing deposits of 4% annualized quarter over quarter, and improvement in deposit mix, with NIB representing about 29% of total average deposits. We continue to steadily attract new business relationships and are also seeing non-inspiring deposit balances ramp up in previously opened accounts, with average balances per account of 2.5% from the prior quarter. That reflects the quality of the relationships our teams are bringing in and the strength of our relationship-based deposit strategy. Loan production and disbursements 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. New production in Q1 came in at a rate of 6.65%. while fixed rate and hybrid loan repricing, or 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. 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 long-standing customer where we've had a relationship for more than 20 years with no historical losses. The loans have low loan-to-values and personal guarantees in place and strong collateral values, and we expect them to be made current before the end of the second quarter. Classified inflows were tied mainly to two multifamily loans in a single relationship tied to a longstanding customer of the company. These loans were restructured with credit enhancements and are not expected to result in any losses. Overall, we do not expect losses to appear with migrated loans based on a 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 the first quarter of 25 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. 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 CT1. 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 Bank 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?