Banc of California Charts Profitable Path Into 2026

Banc of California Inc. ((BANC)) has held its Q4 earnings call. Read on for the main highlights of the call.

Banc of California Earnings Call Signals Momentum Despite Near-Term Friction

Banc of California’s latest earnings call struck an overall confident tone, underscoring broad-based operating momentum and progress on key strategic priorities. Management highlighted strong loan production, expanding margins, improved efficiency, and robust earnings and tangible book value growth, while acknowledging some short-term noise from timing effects on net interest income (NII), temporary funding actions, and a modest uptick in provisioning and expenses as the bank scales. Overall, the message was that structural improvements and clear 2026 guidance outweigh the near-term headwinds.

Loan Production Accelerates Across Diverse Lending Verticals

The bank reported full-year 2025 loan production disbursements of $9.6 billion, up 31% year-over-year, signaling strong origination momentum. Growth was broad-based across key lending verticals, including commercial and industrial (C&I), venture, equipment finance, warehouse, fund finance and lender finance. Management framed this as evidence that the combined franchise is gaining traction with clients and that new business capabilities are translating into tangible balance sheet growth. The mix also positions the bank for diversified revenue streams rather than relying heavily on any single asset class.

Fourth-Quarter Loan Growth and Pipeline Set Up 2026 Expansion

Fourth-quarter loan disbursements reached $2.7 billion, up 32% from the prior quarter, equating to roughly 15% annualized loan growth for the period. Importantly, the unfunded pipeline strengthened significantly: new commitments climbed 90% quarter-over-quarter to $1.7 billion. Because much of this production occurred late in the quarter, it did not fully benefit Q4 earnings but sets the stage for higher interest income in 2026 as those loans season on the balance sheet.

Non-Interest-Bearing Deposits Drive Funding and Liquidity Gains

On the funding side, Banc of California delivered notable progress in lower-cost deposits. The bank added nearly 2,500 new non-interest-bearing (NIB) accounts and approximately $530 million in NIB balances during 2025, supporting about 10.5% annualized NIB growth for the year and 11% annualized growth in the fourth quarter alone. These deposits are critical in reducing overall funding costs and improving liquidity, and management presented this growth as evidence of strengthening primary banking relationships with clients.

Margin Expansion Fueled by Lower Deposit Costs

Net interest margin (NIM) continued to improve. Spot NIM reached 3.22% at year-end, with Q4 NIM at 3.20%, representing roughly 30 basis points of margin expansion for the full year. This was largely driven by a 47 basis-point decline in deposit costs, with the cost of deposits falling 19 basis points in Q4 alone to 1.89% (1.81% on a spot basis). Management emphasized that disciplined pricing and a better funding mix are starting to show through in earnings, even amid a shifting rate environment.

Profitability and EPS Climb on Positive Operating Leverage

The bank’s profitability improved meaningfully in 2025. Adjusted earnings per share rose to $1.35, a 69% increase from the prior year. In the fourth quarter, net income available to common shareholders was $67.4 million, or $0.42 per share, up from $0.38 in Q3. Management highlighted this as evidence of positive operating leverage: revenues and margin gains are outpacing expense growth, even with some deliberate investment in the franchise.

Efficiency Ratio Improves as Expenses Decline

Cost control was another bright spot. Full-year expenses declined 7% year-over-year, and Q4 non-interest expense fell 3% sequentially to $180.6 million. The adjusted efficiency ratio—a key measure of cost versus revenue—improved sharply, with the full-year figure down nearly 900 basis points and Q4’s adjusted efficiency ratio at 55.6%, a 266 basis-point improvement from Q3. Management portrayed this as validation of integration efforts and ongoing simplification of the operating platform.

Credit Quality Remains Solid with Conservative Reserves

Credit metrics remained healthy despite a more challenging macro backdrop. Nonperforming and special mention loan balances both declined 9% quarter-over-quarter, and net charge-offs were described as very minimal in Q4. The allowance for credit losses stood at 1.12% of total loans, with economic coverage at 1.62%, reflecting a conservative buffer. Management reiterated a disciplined approach to provisioning in light of loan growth and selective risk-rating refinements.

Capital Returns and Tangible Book Value Growth Support Shareholder Value

Capital management remained shareholder-friendly. Banc of California repurchased 13.6 million shares, or about 8% of its common stock, at an average price of $13.59 per share. Tangible book value per share grew 11% for the year, with a strong contribution from the fourth quarter. Management pointed to this combination of buybacks and tangible book value growth as evidence that the franchise is generating capital at a healthy rate while still returning cash to investors.

Portfolio Repricing Creates Embedded Margin Upside

The bank highlighted meaningful embedded earnings potential from loan repricing. Roughly $2.5 billion of loans will mature or reset over the next year, with a weighted average coupon of 4.7%, versus a Q4 average new production rate of 6.83%. In addition, the multifamily portfolio—about 25% of total loans, or roughly $3.2 billion—has sizable maturities and repricing opportunities over the next 2.5 years. This gap between existing coupon levels and current production yields points to further margin upside if credit conditions remain stable.

Diversification Through Single-Family Residential Portfolio

Single-family residential (SFR) lending is emerging as a useful diversification tool. The bank purchased slightly more than $250 million of SFR loans in the fourth quarter, leading to a net increase of around $216 million in the SFR portfolio. These loans are largely 30-year fixed-rate and owner-occupied, and management reported that performance remains strong. This helps balance the bank’s exposure to floating-rate loans and reduces sensitivity to short-term rate volatility.

Timing and Rate Cuts Weigh on Q4 Loan Yields and NII

Despite strong loan growth, Q4 net interest income was muted by timing and rate dynamics. Because much of the quarter’s loan production closed late, it had only a limited impact on Q4 interest income. At the same time, average loan yield slipped to 5.83% from 6.05% in Q3, with spot yield at 5.75%, pressured by Federal Reserve rate cuts and a higher share of floating-rate loans. These factors temporarily dampened NII but are expected to reverse as new, higher-yielding loans contribute for a full period.

Growing Floating-Rate Exposure and Balance Sheet Rate Sensitivity

Floating-rate loans now represent 39% of total loans, increasing the portfolio’s sensitivity to future Fed moves. While management described its asset-liability profile as broadly neutral for NII under its baseline scenario, the balance sheet remains somewhat liability-sensitive due to rate-sensitive earnings credit rate (ECR) costs on homeowners association (HOA) deposits. This means that rate cuts can pressure asset yields but may also reduce certain funding costs, making interest rate management a key focus for 2026.

Credit Noise from One-Off Delinquencies and Classifications

Some fourth-quarter credit metrics were temporarily distorted by idiosyncratic items. Delinquencies increased due to two loans totaling $36 million, both of which became current in January. Classified loans also ticked up, driven largely by a nearly $50 million commercial real estate loan with a delayed closing that has since been paid off. Management stressed that these were one-off events rather than signs of broad deterioration, and subsequent resolutions support that view.

Provisioning and Expense Growth as the Bank Scales

Provision expense in Q4 was $12.5 million, reflecting robust loan growth and some risk-rating updates. Looking ahead, management expects expenses to rise by 3–3.5% in 2026 as the bank continues to invest in talent and technology. While this adds some near-term cost pressure, executives framed it as necessary to support sustainable growth, strengthen risk management, and enhance the bank’s competitive position.

Short-Term NII Headwinds in Q4

Net interest income declined modestly quarter-over-quarter in Q4, driven by lower loan income and reduced accretion compared with an unusually strong Q3. The combination of late-quarter loan funding, rate cuts impacting floating-rate loans, and normalized accretion levels weighed on reported NII. Management’s message was that these factors are largely timing-related and not reflective of the underlying earnings power implied by the loan pipeline and repricing opportunities.

Temporary Use of Short-Term Broker Deposits

To support elevated loan originations late in the quarter, the bank temporarily increased its use of short-term brokered deposits. This move signaled some short-term funding pressure during a peak origination period, but management characterized it as a tactical choice rather than a structural reliance. As core deposit growth continues and NIB balances build, the bank expects to depend less on such higher-cost, less-sticky funding sources.

Non-Interest Income Remains Volatile

Non-interest income remains a swing factor in quarterly results. In Q4, non-interest income rose 21% sequentially to $41.6 million, driven by a lease residual gain and other market-sensitive items. While this provided a boost this quarter, management acknowledged that such items can be lumpy, introducing an element of earnings volatility that investors should factor into their expectations.

Preferred Stock Continues to Weigh on EPS

The company’s outstanding preferred stock continues to act as a drag on earnings until it reaches maturity. Management estimated that retiring this preferred capital would add approximately $0.15–$0.20 to annual EPS once it rolls off. Until then, the associated funding cost remains a headwind, partially offsetting the operating gains being generated elsewhere in the business.

Forward Guidance Points to Solid 2026 Earnings Growth

Management’s 2026 guidance was notably constructive. The bank expects net interest income to rise 10–12% (including baseline accretion) and projects pretax, pre-provision income growth of 20–25%, supported by mid-single-digit loan and deposit growth. With spot NIM at 3.22% exiting the year and typical quarterly NIM gains of about 3–4 basis points, modest further margin expansion is assumed. The full-quarter impact of Q4 loan originations alone is expected to contribute about $13 million of additional loan interest income before funding costs. New loan production in Q4 carried an average yield of 6.83%, well above the 5.75% spot loan yield, creating further room for uplift as the book reprices. Non-interest income is guided to a run-rate of roughly $11–12 million per month, expenses are expected to grow a controlled 3–3.5%, and reserves start from a solid base with a 1.12% allowance (1.62% economic coverage). The baseline outlook assumes no further Fed cuts, with management noting that each 25 basis-point cut would reduce certain pretax deposit expenses and that deposit betas should moderate from recent levels.

In summary, Banc of California’s earnings call painted a picture of a bank steadily strengthening its core franchise. Strong loan growth, improving deposit mix, margin expansion, better efficiency, and tangible book value growth all point to rising earnings power, even as timing issues, funding tactics, and planned investments create some short-term noise. For investors, the key takeaway is that management’s 2026 targets suggest meaningful upside in net interest income and pre-provision profitability, with the current transitory headwinds framed as part of a broader, positive trajectory.