Hello, and welcome to Bank of California's Fourth Quarter 2025 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 Fourth Quarter Earnings Call. Today's call is being recorded, and a copy of the recording will be available later today on our Investor Relations website. Today's presentation will also include non-debt measures. The reconciliations through these measures and additional required information is available in the earnings press release and earnings presentation, which are available on our investor relations website. Before we begin, we would also like to remind everyone that today's call will include forward-looking statements, including statements about our targets, goals, strategies, and outlook for 2026 and beyond, which are subject to risks, uncertainties, and other factors outside of 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 10K. 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, and good morning, everyone. I have a prepared script here, but let me go off script for a minute. This was a really great quarter and end to the year. I really couldn't be more pleased with the execution of our team. And as you all know, we spent 2024 integrating the merger that was completed at the end of 23, and so 2025 was supposed to be business as usual. Well, in my view, there really was nothing usual about what we did in 2025. It really represented very strong performance by our teams on both sides of the balance sheet, solid credit management, great expense controls, and we did a great job bringing new high-quality relationships to the bank. Our production these last several quarters has been particularly good. And as I frequently say, you know, we try to move the ball down the field each quarter, and sometimes it's a lot of plays that work. Other times, it's just a long pass that gets us there. But at least this quarter, it felt like we played a ton of offense, our time of possession was very long, and we strung together a lot of good plays. In my view, we did this very well throughout all of 25, expanding our core earnings power and profitability, strengthening our balance sheet, and creating a ton of value for our So let me highlight a few of our many accomplishments for the full year of 25. You know, our loan production disbursements were $9.6 billion, up 31% from 2024. We added nearly 2,500 new NIB deposit accounts and nearly 530 million of new NIB deposit balances, getting us close to that 30% NIB percent on a percent of total deposits. Our margin expanded 30 basis points, driven by a 47 basis point decline in deposit costs. Expenses came down 7% year-over-year, and our adjusted efficiency ratio dropped nearly 900 basis points. Our adjusted pre-tax pre-provision grew 39%, and adjusted EPS of 135 was 69% year-over-year, up 69% year-over-years. And we had tangible value per share growth of 11%, including a pretty substantial growth in tangible value per share in the fourth quarter. And opportunistically, importantly, we returned significant capital to our shareholders by repurchasing 13.6 million shares, or 8% of our common stock outstanding, at a weighted average price of $1,359, far below where it's trading today, as we all know. If we turn to the specifics of the fourth quarter, our Q4 earnings per share grew 11% sequentially to $0.42, reflecting strong positive operating leverage and great momentum across our core earning drivers. During the quarter, we grew pre-tax, pre-provisioned income by 10% and generated annualized loan and non-faring deposit growth of 15% and 11% respectively. We also achieved double-digit return on average tangible common equity of 10.75% and increased a 319 basis points since the start of the year. This quarter, like, you know, the complete 2025 year, as I said, there was nothing usual about it. I think our teams did a phenomenal job. Q4 core deposit trends were very positive, as we saw a continuation of the strong growth in non-industrial deposit balances that we had in Q3. And for the second half of 25, as a whole, we achieved 10.5% annualized growth in NIB deposits, which was broad-based across our businesses and attributable to both new accounts as well as average balance growth. This growth reflects the continued success of our relationship-driven deposit strategy and our ability to attract and deepen very high-quality client relationships. Loan production and disbursements were very strong in Q4 at $2.7 billion, up 32% quarter-over-quarter, resulting in total loan growth at 15% annualized. As we said in our materials, loan growth was heavily weighted toward the end of Q4 and actually had a very limited impact on fourth-quarter financial results. The late quarter loan growth positions us very well for earnings expansion in 2026 and beyond. Unfunded new commitments also grew significantly, up 90% quarter over quarter to $1.7 billion, providing an additional tailwind for further balance sheet growth. Loan growth during the quarter was driven by C&I generally, as well as in venture, equipment finance, warehouse, fund finance, and our lender finance businesses. and we saw strong production from all of our business units, including construction, LIHTC, and mini-perm financing. We also continue to complement our origination activity with selective single-family loan purchases. Our pipelines remain strong, and we expect loan production activity to remain healthy in 26 across all of our business units. As we sit here today, so far in the quarter, deposit activity has continued to remain strong, and our pipelines look very, very good. We'll see where we end the quarter, but as of right now, things look very, very good. The average rate on new production in the quarter remained healthy at 6.83%, well above the rate of loans that have been maturing. And we expect to continue benefiting from the remixing of our balance sheet as our higher rate loan production more than offsets maturities of lower yielding loans. We continue to see positive trends in credit quality as well, with most credit metrics improving during the quarter. Importantly, non-performing and special mention loan balances each decreased 9% quarter over quarter. Classified loan balances increased partially, driven by a nearly 50 million CRE loan, due to a delay in the closing of the loan. That closing actually happened yesterday. Excluding this loan, our adjusted classified loan ratio would have declined 17 basis points quarter over quarter to 3%, and as I mentioned, that loan paid off yesterday. Our delinquency rate increased during the quarter due to two loans totaling $36 million, which became current in the first week of January. So excluding these loans, the adjusted delinquency ratio would have declined about one basis point to 66 basis points. Our coverage ratios were stable with our allowance for credit losses at 1.12% of total loans and our economic coverage ratio at 1.62%. We believe our reserve coverage remains appropriate, reflecting both loan growth and portfolio mix, as net charge-offs remained very minimal in the quarter. Our strong Q4 and full-year results underscore the strength of our franchise and our consistent execution across the organization by a truly phenomenal team that we have here. The momentum we achieved is broad-based, spanning both loan and deposit growth, margin expansion, and positive operating leverage credit performance, and obviously generated a fair amount of capital. Our team is firing on all cylinders, and we believe we are very well positioned to continue delivering consistent, high-quality earnings growth and long-term value for our shareholders in 26 and beyond. Let me turn it over to Joe, who's going to talk about some of the details and give some comments on what we expect for 2026, and then I'll come back with some comments and we'll go to questions.

Thank you, Jared. For the fourth quarter, we reported net income available to shareholders of $67.4 million, or $0.42 per diluted share, which was up 11% from $0.38 per diluted share in the third quarter. Net interest income of $251.4 million was down modestly from the prior quarter as the benefit of lower deposit costs was muted by the timing of our loan growth occurring late in the quarter. Lower loan income in Q4 was also driven by the impact of rate cuts on floating rate loans and lower accretion income, which was elevated in Q3 due to loan prepayments. While the fourth quarter loan growth had minimal impact on Q4 financial results, we expect this growth to be a tailwind for net interest income in Q1. A full quarter impact of the strong loan growth we had in Q4 represents about $13 million in loan interest income before any associated funding costs. As we look ahead, we expect 2026 full-year net interest income to increase 10% to 12% from 2025. Our net interest margin in Q4 was 3.20%, while our spot NIM at December 31st was 3.22%, which was up four basis points from the September 30th spot NIM of 3.18%, driven mainly by lower cost of deposit. We expect NIM to expand throughout the year, as margin expansion should come from both sides of the balance sheet. We expect to continue to drive deposit costs lower, and our loan production continues to originate at rates higher than loans expected to pay off. We do not assume any additional Fed rate cuts in our outlook. Average yield on loans declined to 5.83% versus the Q3 loan yield of 6.05% and versus the September 30 spot yield of 5.90%, which normalizes for the elevated accretion income and rate cut that we had in the third quarter. The Q4 loan yield reflects the impact of the two FED rate cuts on the rates for new production and on our floating rate loan portfolio, which has grown to 39% of total loans. Spot loan yield at the end of Q4 was 5.75%. As a reminder, our strong loan growth had minimal impact to net interest income and yields in Q4 given the late timing of when those loans came on. And as a result, we expect to see a more pronounced benefit to our results as we move into the first quarter of 26 and beyond. Total loan balances of $25.2 billion were up 15% on an annualized basis for the quarter and 6% for the year. Total average loan balances were essentially flat quarter over quarter given the timing of the loan growth. In 26, we expect full-year loan growth in mid-single digits, dependent upon broader economic conditions. For now, we expect that growth to be broad-based across all our C&I and real estate lending areas that meet our credit criteria. Deposit trends were generally favorable with a continuation of strong NIB balance growth in the quarter. We temporarily increased short-term broker deposits during the quarter to support our strong late-quarter loan growth. Cost of deposits declined 19 basis points quarter over quarter to 1.89%, driven by growth in non-interest-sparing deposits combined with the benefit of Fed rate cuts. We remained disciplined around our deposit pricing and achieved a 60% beta on interest-sparing deposits following the recent rate cuts. FOT cost of deposits at the end of Q4 was 1.81%. Looking ahead into 26, we are forecasting another good year of deposit growth in the mid-single digits. The interest rate sensitivity of our balance sheet for net interest income remains largely neutral, although the proportion of floating rate loans has increased. The net interest income impact is largely neutral when adjusting for deposit repricing betas. From a total earnings perspective, we remain liability-sensitive due to the impact of rate-sensitive ECR costs on HOA deposits, which are reflected in non-interest expense. Should rate cuts occur, every 25 basis points currently represents about $6 million of ECR pre-tax savings. We expect fixed-rate asset repricing to continue to benefit an interest margin as we remix the balance sheet with higher quality and higher yielding loans. We have $2.5 billion of total loans maturing or resetting over the next year, with a weighted average coupon rate of 4.7%, which is way below our Q4 average rate, a new production of 6.83%. Our multifamily portfolio, which represents about a quarter of our loan portfolio, has approximately $3.2 billion repricing or maturing over the next two and a half years at a weighted average rate that offers significant repricing upside. Non-interest income of $41.6 million was up 21% sequentially, driven by gain on the sale of a lease residual as well as higher market-sensitive income. Commissions and fees income increased 16% year-over-year, primarily due to our stronger loan production. While non-interest income can be lumpy at times, we still expect normal run rate for non-interest income of about $11 to $12 million per month. Non-interest expense of $180.6 million declined 3% from the prior quarter, largely due to lower compensation expense from hitting tax and benefit accrual limits and other adjustments, a reversal from a prior quarter FDIC special assessment expense of around $2 million, and lower customer-related expenses related to impact of the Q3 Fed rate cut. As a result, our adjusted efficiency ratio improved to 55.6 percent, down 266 basis points from the prior quarter. We remain focused on managing expenses prudently while continuing to invest selectively in talent and technology to support long-term growth. In 2026, we are targeting full-year expenses to increase 3 to 3.5 percent from 2025. Note that for Q1, we expect lower customer-related expenses as the impact of Q4 rate cuts flow through. Also, the first quarter typically includes some seasonality around recess of compensation expense accruals, so expenses in Q1 should be seasonally higher in a few categories. Provision expense of $12.5 million was largely driven by the strong loan portfolio growth and updates to risk ratings. We maintained our allowance for credit losses at 1.12% of total loans, and net charge-offs were minimal, and as Jared mentioned earlier, overall credit performance trends were mostly positive. We are very pleased with the strong progress we made in 2025, scaling our franchise and delivering positive operating leverage while protecting our balance sheet and generating significant returns to our shareholders. In 2026, we are projecting pre-tax, pre-provisioned income to grow 20% to 25%, reflecting our ability to drive earnings growth while maintaining disciplined expense management. As we continue into 2026, we believe we are well-positioned to continue building on our momentum and delivering high-quality, consistent results. And with that, I'll turn the call back over to Jared.

Thank you, Joe. So, Q4 was a strong finish to a great year for Bank of California. As we look ahead, we believe we are in a superior position to continue building on this momentum, and we have meaningful tailwinds to help accelerate our growth in 26 and beyond. The consistency of our results, the strength of our balance sheet, the momentum in our business, and the quality of our people reinforce our confidence in the path ahead. Our focus remains on growing high-quality, consistent, and sustainable earnings. We plan to achieve this by continuing to scale our franchise, maintaining disciplined expense management, while investing in technology and talent to support long-term growth, as Joe mentioned, protecting the balance sheet through prudent risk management and deploying capital strategically to drive long-term value. Our markets and niche businesses offer compelling opportunities as we continue to capitalize on the dislocation in the California banking landscape and beyond. Recent bank M&A activity has provided further disruption in our markets with good opportunities to attract new clients and talent. Our relationship-driven approach and best-in-class franchise continues to resonate with clients, and our teams are executing at a very high level. Our fourth-quarter loan and deposit growth reflect the talent of our teams and position us well for further earning growth as we continue in 2026. I'm excited about the opportunity ahead, and I want to thank our talented employees who accomplished so much in 25 and set the stage for a successful 26. I'm incredibly proud of our team's hard work and dedication and look forward to all the great accomplishments we can achieve together in 26. With that, operator, let's go ahead and open up the line for questions.

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

Hi, thanks for taking the question. So I wanted to start out on net interest income and the net interest margin. The guide you gave does not include rate cuts. Just curious about the NIM trajectory as well as NII. What could happen if the Fed does cut rates?

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

Yeah, so, you know, I think we said earlier in the call that, you know, 25 basis point cut is $6 million annually in lower ECR costs. But I agree with Jared. When we do our technical ALM calculation, we come out to be neutral, and that's what I believe we are in our pure net interest income, we're neutral. However, when you have rate cuts, you tend to have a lot of times improved economic activity. You have more things that are happening to your balance sheet. that are advantageous to banks. So I think we would benefit a little bit in our pure and interest margin from lower rates.

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

We've achieved in excess of 50% data, I think, every single quarter. It's hard to maintain that momentum. We obviously started from a much higher place, but I think we're also very good at managing our deposits on a very granular basis. And so my expectations for the time being is that we would achieve a 50% deposit beta until, you know, and hopefully outperform that. Until we modify it, that's kind of what our expectation is, and hopefully we get into the high 50s, low 60s. Great. Thank you. Thank you, David.

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

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

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

We haven't had – we really haven't had any. Matthew, just to stay on that for a second, it's been one of those things that just hasn't shown up, and it's going to show up because we have all these loans that are going to mature, and so it's going to force itself on the balance sheet, and it's going to be a great kind of annuity for our shareholders when it happens. It just hasn't been happening, and it's got to eventually. And so when that happens, it'll be good.

Yep, good. Okay, great. And then within the PPNR growth guide of 20% to 25%, can you just clarify the base that you're using for fee income and non-assurance expense? Just make sure we're on the same page because there's –

Yeah, the base is the year-end 2025 results.

So it's off the fourth quarter run rate or it's off the full year? 25. Full year, okay. But in terms of dollars, I don't know if you have it offhand. We can follow up. But just curious what base you're using in terms of dollars for fees and expenses because there's now recurring items, obviously.

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

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

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

Yeah, that was right. And we expect to continue SFR for a while. We want that – that portfolio is doing really, really well. The prepayment speeds are much lower than what we model, and so the returns have been very good with really limited credit noise at all. These are very strong loans, and we are fortunate to have access to them, and our team does a great job sourcing them. And we buy a lot of them off our warehouse lines with our clients, and so it's a very good program that we have. And our balance of SFR, which are fixed rate, 30-year fixed rate, most of them, are mostly owner-occupied as opposed to investor. And they're well-distributed geographically throughout California. So in some ways it's a hedge to other floating rate portfolios that we have. And so we like that portfolio for that reason. So we'll try to continue it in moderation. But it probably will continue to grow a little bit, Matthew. In terms of loan growth overall, you know, our teams have just been hitting the streets and have done a really good job being out in front of clients, and pipelines take a while to build. And, you know, at the end of the year, it kind of came together really, really well. And you can't really control the timing. So it was a lot of – we saw the pipeline in Q4. We weren't sure when it was going to hit, and it really – a lot of it hit pretty late, and then some stuff picked up in the beginning of this year. So it seems just broad-based, and our teams are doing a really, really good job.

Okay, great.

Thank you.

The next question comes from Christopher McGrady with KBW. Please go ahead.

Jared, on the expense growth, the three, three-and-a-half, you made a couple points in the remarks about investing in technology. I'm wondering if you could just unpack it a little bit, whether you think this is kind of a 2026 little bit of a push, or is this kind of a new rate of investments required?

Yeah, so, you know, just let me say as a starting point, Chris, you and I have talked about this, but maybe others might, you know, find it interesting. I mean, we're a growth company at this point, and we're spending to support the growth that we have in our company. It's very positive, in my view. Like we're not going to spend – we're going to keep expanding earnings, and earnings are going to grow hopefully pretty fast. But we're going to make sure that we have the right infrastructure to give this company the talent and the technology that we need to do it the right way. We are getting benefits from AI. We've deployed AI across the company in a couple different ways, and I've challenged our team to manage to that and figure out where we can deploy it better. We don't think about it as a way to shrink our employee base. We think about it as a way to maybe slow the growth of employment and also to redeploy our employees to do things that are more upskilled. And so AI is something that we're leaning into. In terms of technology projects overall, there's a couple that I think will be ongoing. One is just back-end and workflow technology, whether it's Encino or Salesforce or less Salesforce, but more in Sino and we have, you know, ServiceNow and some other things. We have a project to improve our data, a major project in the company where we're looking at how to, you know, optimize the data that we have and streamline it and make sure that it is, you know, it is organized in a way that our employees can self-serve around it and build reports and, you know, kind of know what's coming ahead. And so that's a really important project for us, including kind of our back office finance modernization as a project. We are investing in our payments business. We continue to do that, although that's a smaller portion of spend. We have our HOA platform, which we're investing in, to make sure that it's really a top-tier platform that we have in Smart Street so we can really serve our clients well. And other client-facing technologies. So there's a number of things, Chris, that are kind of here, but we all think that there's a good return on them, and some of them are back-office and some of them are client-facing.

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

Sure. Yeah, without putting a specific date on anything, we obviously liked the progress that we made in the fourth quarter on our return in a tangible comment, which, you know, was a pretty big clip up. It doesn't stay steady, so it'll back up a little bit, and then it'll move forward again. In Q1, I think it probably drops a little bit, and then it moves back up as we get through the year. But we're making really, really good progress. And, I mean, if you look at how much we're clipping in tangible book value quarter over quarter, that's one of the things I think that people also don't really focus on is how much extra tangible value we're putting on the table every quarter, which feels really good. I'm not going to put a date out there, Chris, for that, but we have line of sight into our targets, and we feel very, very good about them.

And then maybe, Joe, just to clarify two quick ones. The FDIC benefit you can do is $2 million, and then any help on the tax rate going forward?

Yeah, so $2 million is, yeah, that's about what the FDIC benefit was in the fourth quarter. And then, you know, 24.5%, 25%, probably 25% is a good tax rate to go forward. All right.

Hey, Chris, also, you know, on kind of our profitability targets, you know, one thing that people should also remember is we have preferred stock. That's a $40 million tax on the common. It's, you know, $10 million a quarter that comes out before we pay the common after tax. That matures next year. And so pre-tax, you know, it's a pretty big number. And after tax, it represents, before you figure out what the funding cost would be to replace it, it's over 20 cents a share, 20 cents of earnings. And so it should be, you know, maybe it's 16 or 17 cents of earnings that paying off that preferred stock is going to contribute to our company in 2027, which we feel really good about. So that's going to be an accelerant along with a whole bunch of other things.

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

Yeah, it matures.

Yep, it matures. We have a couple of ways. I think it's September 27th.

Yep, yeah, so we've already planned for how we're going to handle that preferred stock. And, you know, there's a lot of ways we could take it out, but it's going to be, it's expensive. It's seven and three quarters. And so, you know, we have much lower ways to fund that. So even if you put up 3.5% funding costs on it, you're saving 4.5-plus percent, and that contributes, you know, $0.20, $0.15 to $0.20 earnings.

And powerful.

The next question comes from Ben Gerlinger with Citi. Please go ahead. Okay.

I just wanted to double-check. I know we talked through the guidance here on NII. Is that fair to say the same thing as well for the expense growth of 3 to 3 now? That implies no cut?

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

forecast numbers. But what the expense guns does pick up is that the cuts that occurred in the fourth quarter don't benefit us until the first quarter of 26. So yes, it does. Right. Yeah.

Yeah, your HOA cost is going to be lower than 1-2,

which it should be, obviously, the fourth quarter cost. I'm just thinking, like, if there's a cut in June or something, that's not contemplated in the forward expense. Yeah, not contemplated. Got it. Okay, so this could be a little downside there. In terms of just the longer-term strategic, it seems like you, like you said, Jared, you went from defense to a lot more offense than 25. When you think about 25 going into 26, the hirings that you've made and kind of personnel and balance sheet cleanup has been pretty tremendous throughout the year of 25. Is there anything on 26 that really hasn't even left the starting blocks yet? Or is it momentum from things we currently see today and then just continuing that game plan?

I think it's more momentum. You know, I'd love to point to something that says, God, this is low-hanging fruit. We haven't even grabbed it yet. You know, I think that preferred stock is probably a good example. But in terms of kind of our core operations and what we're doing, Ben, it's just blocking and tackling and building on. You know, our marketing team has done a superb job. We had a client. We have a client that's in Vegas, and he was out here. I'm just sharing this as an anecdote. He was out here for a Laker game for his son, and he's, like, driving to downtown. And his wife takes a photo of our new building downtown, and he says, God, that's great signage. And I'm like, we haven't even moved in yet, and our sign's already up. And then he's driving the next day to Orange County because he's going to Newport. He sees our building on the 405, and then he sees three billboards on the most trafficked highway in the country for Bank of California, and he's driving. Our name is out there a lot, and that's representative of all of our markets, not just Southern California. And so we are really capitalizing on that. I like to say that our marketing and branding opens the door before we get to the building. It allows our teams to show up. People know who they are. They know the bank. They know the reputation of the bank. And it helps, I guess, grease the opportunity for us to be successful with clients. It gets us in the door for sure. But our team is the one that have to do the hard work of talking to the clients about the opportunity that they have here versus where they are and why we can deliver a better solution in a more reliable way and in a cost-effective way. And it takes really talented people to do that well, and we keep hiring them. And we do plan to do significant hiring in 26 to support our teams, both in the front office and the back office, and that's going to continue to, I guess, support the momentum that we have. It is more momentum than, you know, kind of finding an opportunity that we haven't really latched onto yet.

Was there a follow-up, Mr. Gerlinger? Thank you. The next question comes from Andrew Terrell with Stevens. Please go ahead.

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

Yeah, it was probably around $5 million for the quarter, four to $5 million.

Great. And I guess just overall on expenses, I'm trying to kind of bridge.

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

got it yeah okay that's awful um yeah and i'm i guess i'm just overall trying to bridge the gap for the you know the three and a half percent growth off of you know 735 million was the the baseline the 2025 reported at kind of the midpoint that's you know 190 million a quarter in expense in 2026 but you've got you know a little bit of headwind from the the comp picking up but you'll get the benefit back on on ucr costs that should drop in the first quarter as well so i guess i'm just trying to get a sense of of what's what's driving the kind of list of expenses

into 2026. well we continue to remain conservative and i think one of the things that we did and joe and the team did a really good job of last year is is guide conservatively and have the opportunity to have some things that come up to make sure that we don't get caught and then you You know, if things don't come in and our teams manage their budgets well, we come in lower. One of the successes that we had last year was we actually distributed – we decentralized some of our expense management. I gave to all of our business unit leaders and functional leaders their own budgets and said, you guys manage your budgets. I'm going to stop approving everything. And so they did that really, really well. They have the authority to hire who they need to hire to move the company forward, And so there's some of it that we're letting people do. So part of our guide in being conservative is that we're going to let our teams do what they think is right because they did a great job last year. And if it comes in higher a single quarter, it's going to show up in a benefit later in the year, and we're comfortable with that. So we feel like we're in a really good spot, and part of this is, you know, less science and more art in terms of knowing where we're going to go. you know, if the growth isn't there, we're not going to spend the money. But if the growth is there, we plan to spend the money. And so we're going to get some efficiencies, too. But we are being conservative, Andrew, for those reasons. Yeah, no, it makes total sense. And you guys

did a great job this year on expenses. Okay, that's it for me. Thank you. Thank you.

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

hey good morning um maybe just going back to the loan growth you know in the past you've you've sounded really optimistic about some of the the tailwinds in the market from you know whether it's the world cup or the olympics or even rebuilding coming out of the fires but when we look at the expectation for loan growth what how do you view sort of the you know the local markets versus some of the national lines and how should we be thinking about sort of the appetite or CRE going forward as well, just as you sort of, you know, maybe look at those as three different areas?

Well, starting with on real estate and specifically construction, one of the things that happened in 25 is we had a lot of payoffs of construction loans, and we also offloaded some long-term fixed-rate financing that comes with our LIHTC deals. Oftentimes when you do LIHTC, you get construction up front, and then you have a long-term fixed-rate loan that can be 30 years. That's at rates that, you know, might not be too desirable. Our team did a great job of figuring out a way to do the front end at good rates and have other people do the takeout. Because we can't really use the tax credit. And so that's one thing that happened. So that reduced our balances in an area where I think we're going to grow going forward because what they've figured out is two things. One is we can do the front end, which gives us the opportunity to kind of build that back up without taking a long-term risk. But second of all, on the longer-term loans that I have seen, the pricing has been really good. So, like, we just approved a 17-year loan that was for the permanent piece of a tax credit deal, but it was at 6%, which felt like, you know, these were in the past they were like 3.5% or 4%, just to give you some context. And we get a lot of good deposits, and we have good relationships. So I think on the real estate side, specifically speaking to construction, we're going to have some opportunity to kind of build and grow that business, and I think that will provide some balances. The permanent piece obviously sticks around, and the construction financing is, you know, two to three years generally. In terms of bridge financing, some of that stuff went down. We're still seeing opportunities. And as I mentioned in my prepared remarks, we're still doing mini-perm. We're just being careful about it. Pricing can be a little thin, and we want to make sure that we are putting on good loans at good rates. We have a lot of opportunities to use our balance sheet, and our teams have been disciplined to say, are we getting the right returns to use our balance sheet for this type of loan? But we absolutely want to support our clients that have their deposits with us and have been long-term clients that do repeat business with us. Those are the clients we want to, you know, support, and we try to be competitive on the rate side. Our other business lines that are not kind of geography-based are niches. One more thing on that, Jared. So I would say that what we think about is our commercial and community bank, which is kind of not only our branch network but our regional teams that are throughout California and Colorado. They did a really good job last year, and as I mentioned, we had a lot of runoff. But I think we're still grounding ourselves with the right, you know, focus. And I think that our expectations this year is that that part of the business is going to grow faster than it did last year. It grew slower last year than other kind of our niche verticals that are not geography-based. This year, I think we expect more balance, and we expect to see our kind of our geographic teams growing pretty much at the same pace. Some of our other teams like Lender Finance, Fund Finance, Warehouse grew a lot faster last year. I think the growth in those teams this year, my expectation is it will be good, but they don't need to grow as fast as we're going to get contribution from other parts of the company.

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

Well, I will say that I've been pleasantly surprised by the acceleration of NIB. And we did a pretty big, you know, analysis of where that's coming from, what it looks like. Some of it is operating accounts. It's all relationship-based. Some of it is operating accounts for businesses that use a lot of services of our company. Some of it is part of our venture and fund finance business where they put it in an IB because that's what they do, but it might be a little bit more volatile and it moves up and down. But it's all relationship-based based on clients that are – they have their deposits here and they're not somewhere else. They're operating accounts and they're, you know, the bulk of their deposits. So it's hard for me to say – it depends on the pace at which we grow loans. I've been very pleased that we've been able to maintain, you know, our NIB rate at 28% to 29% while our loans have been growing that fast because usually it's going to cause you to have to dip into other sources of funds and it's going to dilute the percentage of NIB. Our loan and deposit ratio has creeped up to about 91%, which is fine. We can manage it there, and, you know, we'll continue to manage it. But the answer is I don't know. Like, it would be great to get NIB percentages up to 30%. That would mean that those deposits have to grow at the same speed or faster than our loans. So I don't know if that's reasonable. It could happen on a given quarter. We could get a whole bunch of success from pipelines that have built up, and it just happens that we got a really good quarter. So it's possible. But I think loans are growing faster than we expected, so the likelihood is that it won't stay at that rate, at that percentage.

And just finally, for me, just on capital and the buybacks, you didn't do anything this quarter, but you were busy earlier in the year. I mean, is 10% really a floor for CET1 here, or should we think that the buyback is opportunistic around that, or how should we think about sort of incremental purchases with capital right here?

So I think both are true. I think that we expect to have an active buyback program that we'll use opportunistically. You know, we're still not trading at pure median for tangible book, right? So we're trading at a discount there, and we like where we see where we're going. So we like, you know, the opportunity to buy our stock, given where it's trading and where we think we're headed and how much tangible value we're building up, et cetera. But I also think that 10% should be considered a floor of sorts for CT1, and I think our shareholders appreciate that, that we're not going to run this company within capital and we're going to be good stewards. So hopefully we'll build up capital at a rate where it gives us the flexibility to buy back stock opportunistically when we can. We have our buyback program is for a year. It's still active. We're ahead of it. We're applying for approval for renewal of the buyback program, and so hopefully that will stay live, and we'll always have the opportunity to be in the market for it.

Great.

Thank you.

The next question comes from David Feaster with Raymond James. Please go ahead. Hey. Good morning, everybody.

You touched on we spent a lot of time on the expense side, And, you know, obviously, we've talked about that the benefits from Fed cuts on the ECR deposits is not embedded in your guidance. To the extent that we do get cuts, how do you – you know, we've talked about a lot of investments that you guys have on the horizon, a lot of disruption in the marketplace for potential hires, and you've got a lot of things going. Would you expect that incremental expense savings to flow to the bottom line and beat your expense guide? Or would you maybe accelerate some investment in hiring or anything else that you're considering?

No, I think we can achieve the efficiencies of those. I think our expense guide is appropriate. I don't think we're going to need to, you know, dip into it more than what we – you know, you never know. But right now we feel like our expense guide is reasonable for all the things that we foresee. and there is some upside in our numbers from rate cuts. Because what you're asking, if I understand, is would we absorb those rate cuts by spending more money, and therefore we wouldn't get the – it wouldn't drop to the bottom line. And I think the way we see it now, it would drop to the bottom line.

Okay.

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

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

Absolutely. And on that, the guidance slide that you have, one of the bullets there talked about growing fee income and the rollout of the payments products. You know, it's something we haven't spent a lot of time talking about recently. It sounds like we're closer to a rollout of that. How, I guess, where are we in the build-out of the product? How has early reception been, the timeline for revenue growth, and to the extent that you can help us maybe quantify the potential impact from that business?

I'll be prepared to do that mid this year. But let me just say that we are fully committed to our payments business, our issuing and acquiring businesses are going very well. We've been rolling it out to our existing clients and some new clients. I was just reviewing the budget the other day. We are very committed to this business, and I'm excited about it, and I hope mid-year I can lay out some big successes.

And so that's kind of the timeline for that rollout is more mid this year.

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

Okay. Thanks, everybody.

Thank you.

The next question comes from Anthony Elion with J.P. Morgan. Please go ahead.

Hi. On the balance sheet growth, so in 4Q, you grew loans 15% annualized, deposits up 10% annualized. But the guide for 26 is up mid-single digits for each. I'm curious. It seems like you have a lot of momentum, especially on the loan side. What's keeping you from having a stronger loan and deposit growth outlook for this year?

I think just there's a lot of noise on the market. I mean, you know, your chairman, who I'm a fan of, I think would say that, you know, the outlook is very cloudy. and it's just hard, man. It's hard to be that bullish. First of all, even if we did do that, Tony, if we gave – I mean, would anybody believe it? If we said we're going to grow 15% for the year, 10% for the year, would anybody believe it? We had to pull – we got a little bit criticized. We were mid to upper single digits, and then we pulled it back to mid-single digits, even though I thought it was just like, okay, well, this is just what we're seeing, even though we had a really strong year. So I think we want to avoid doing things that have only downside and no upside, if that makes sense.

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

It doesn't mean I'm any less bullish, just to be clear. Like, I feel great about where we're going for all the reasons you mentioned. And I hope to outperform the numbers that we put on the table. But I don't want to be so bullish that people say, well, there's only downside from there. So that's to complete my answer. Sorry about that.

That's clear, Jared. Joe, for my follow-up, you gave some puts and takes to interest income and NIM. I'm wondering where you think the 1Q printed NIM could come in at, inclusive of the loan growth you saw late in 4Q. I think last quarter you gave a jumping-off point for 26, somewhere in the 325 to 335 percent range.

Yeah, well, as I said earlier, our step-off is 322. And I think we can expect it to increase quarter over quarter, or a few basis points. We don't give a specific NIM guide. We give our PTPP target. But I think if you assume, you know, a few basis point expansion every quarter, I think you'd be in the right range.

One of the things that – let me add to that. One of the things that we have – that Joe and I have run a couple models on, and Ann has led this, is do we make more money growing loans at what rates, letting the margins slip, high-quality loans. So the margin for us really is an output. It's pretty dynamic, optimizing everything for, like, what's the right balance of loans and yield to grow earnings in a sustainable way in a variety of interest rate environments. You know, we've got floating rate loans on right now. Rates could drop. We still think we're going to put on loans at higher rates because of our production level, but at some point that's going to flatline and rates aren't going to drop anymore and they're going to go back up, and how are we setting ourselves up to continue to make money and continue to expand the margin? I'm okay if our margin doesn't expand as long as we're moving in the right direction and we're making more money reliably, meaning that we're not going to give it back another quarter. We made it this quarter, but it's not going to show up again. So I'm comfortable with our margin clipping a few basis points every quarter in a reliable way, and then like this quarter, you know, the loan showed up late so we didn't get the margin benefit. It'll come in early next quarter, but the spot was pretty good at the end of the quarter. But the average was, you know, only a couple basis points. So we know people care about the margin. It's a reflection of profitability. But we also have other tools to – it's not the sole thing that we think about. We think about how do we mix our loans and deposits in a way that's going to optimize earnings and see what that means for the margin.

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

Thank you.

The next question comes from Tim Coffey with Jannie. Please go ahead.

Morning, everybody. Morning, Tim. Jare, the beginning of the call, you talked about some of the disruption that you're seeing in the marketplace across your footprint. And I'm wondering, on the commercial side of the business, does that – you're looking at – if you do any hires on that side from the disruption, Would you be looking to add to existing business lines or exploring new opportunities?

No, I think we're well covered in terms of the business lines that we have. And this is bringing in leaders and teams and people to complement the business that we have. You know, we are constantly – like some of it's outbound and some of it's inbound. We reach out to people that we think would be able to have a strong contribution here and they'd be a fit for our culture. And we also get phone calls. People that I know from other organizations that I've been at or just who I or our teams know from their relationships, you know, tell me what's going on at Banking California. It seems like you guys are doing really well. I'd love to learn more. And next thing you know, they're like, hey, you know, I'm thinking about making a move. Can we talk? And so it really does work both ways. But there's no big lines that we're looking to add currently. It's not to say that we wouldn't, but that's not on the table today. It's mostly to fill in our teams and products that we have today.

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

Yes, it would.

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

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

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

Yeah, I don't know that there's anything that makes sense for us today. You know, like everything, we keep our ear to the ground, and we have a good channel with, you know, the talented investment bankers from all the shops that are connected to those opportunities, and we want to make sure that we're in front of them and that we see them. And so we will always be willing to look at stuff. But I think the bar is pretty high for us to divert from our organic story right now. It's pretty good.

All right. Those are my questions. Thank you.

Thanks, Tim. Appreciate it.

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