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Banc of California, Inc. Reports Second Quarter Results and 9% Annualized Loan Growth

LOS ANGELES--(BUSINESS WIRE)-- Banc of California, Inc. (NYSE: BANC):

Banc of California, Inc. (NYSE: BANC) (鈥淏anc of California鈥� or the 鈥淐ompany鈥�), the parent company of wholly-owned subsidiary Banc of California (the 鈥淏ank鈥�), today reported financial results for the second quarter ended June 30, 2025. The Company reported net earnings available to common and equivalent stockholders of $18.4 million, or $0.12 per diluted common share, for the second quarter of 2025. On an adjusted basis, net earnings available to common and equivalent stockholders were $48.4 million for the quarter, or $0.31 per diluted common share.⁽¹⁾ This compares to net earnings available to common and equivalent stockholders of $43.6 million, or $0.26 per diluted common share, for the first quarter of 2025. The second quarter included provision expense, net of tax, of an additional $20.2 million taken during the quarter as a result of transferring $506.7 million of loans to held for sale at their estimated fair value. The second quarter also included a one-time non-cash income tax expense of $9.8 million primarily due to the revaluation of deferred tax assets related to California state tax changes passed as part of the 2025 California budget.

Second Quarter of 2025 Financial Highlights:

• Total revenue of $272.8 million increased 3% and pre-tax pre-provision income of $87.0 million increased 6% from 1Q25 driven by solid loan growth combined with continued prudent expense management.
• Total loans of $24.7 billion increased by 2%, or 9% annualized, from 1Q25 driven by growth in lender finance, fund finance, and purchased single-family residential loans.
• Strong loan originations totaled $2.2 billion including production, purchased loans, and unfunded new commitments with a weighted average interest rate on production of 7.29%.
• Total deposits of $27.5 billion increased by 1%, and interest-bearing deposits of $20.1 billion increased by 2% from 1Q25.
• Net interest margin up 2 basis points vs 1Q25 to 3.10% driven by a higher average yield on loans and leases increasing by 3 basis points and flat cost of funds from 1Q25.
• Commenced sale process for $506.7 million of loans with expected proceeds net of reserve release of 95%. Completed sales for $30.5 million of such loans. The remaining $476.2 million was transferred to held for sale at a lower of cost or market value of $441.2 million.
• Credit quality metrics improved substantially primarily due to the transfer of loans to held for sale in connection with the pending strategic loan sales. Nonperforming, classified, and special mention loans and leases, as a percentage of total loans and leases held for investment, declined by 19 basis points, 46 basis points, and 115 basis points, respectively, from 1Q25.
• Results include $9.8 million of one-time non-cash income tax expense largely driven by the reevaluation of deferred tax assets due to California state tax changes enacted under the 2025 budget.
• Repurchases of 8.8 million shares of common stock at a weighted average price per share of $12.65, or $111.5 million in the aggregate, during the second quarter, and 11.5 million shares of common stock at a weighted average price per share of $13.05, or $150.0 million in the aggregate, in the first half of the year. As of June 30, 2025, the Company had $150.0 million remaining under the current stock repurchase authorization.
• Strong capital ratios⁽²⁾ well above the regulatory thresholds for "well capitalized" banks, including an estimated 12.30% Tier 1 capital ratio and 9.92% CET 1 capital ratio and continued growth in book value per share to $18.58, up 2% vs 1Q25 and tangible book value per share⁽²⁾ to $16.46, up 2% vs 1Q25.

Jared Wolff, President & CEO of Banc of California, commented, 鈥淥ur second quarter results reflect the strength of our core earnings engine and our disciplined execution. We delivered double digit growth in adjusted earnings per share, our third consecutive quarter of strong loan growth, expanded net interest income, and grew pre-tax pre-provision profitability, all while proactively managing credit risk. The decisive actions we took to reposition a portion of our balance sheet鈥攖hrough the opportunistic sale of select CRE loans鈥攈ave enhanced our credit profile and strengthened our balance sheet, positioning us to continue generating consistent and high quality earnings. We have increased tangible book value per share for five straight quarters. With a healthy capital base, improving credit metrics, and a robust pipeline of high-quality loan originations, we are confident in our ability to drive long-term value for our shareholders.鈥�

Mr. Wolff continued, 鈥淥ur second quarter results demonstrate our strong growth trajectory and our continued success growing market share in our key verticals. Our teams continue to work tirelessly to deliver strong results as they win new high quality relationships. As we look ahead, we expect to deliver durable, profitable growth through a combination of our strong market position, disciplined risk management, operational efficiency, and a relentless focus on serving our clients.鈥�

INCOME STATEMENT HIGHLIGHTS

Net Interest Income and Margin

Q2-2025 vs Q1-2025

Net interest income increased by $7.9 million to $240.2 million for the second quarter from $232.4 million for the first quarter attributable primarily to the following:

• An increase of $16.2 million in interest income from loans due primarily to a higher average balance in the second quarter, higher day count, and higher average yield driven by higher yield on loan production.

This was offset partially by:

• An increase of $4.4 million in interest expense on deposits due primarily to higher average interest-bearing deposit balances in the second quarter and higher day count, offset partially by lower interest rates.
• A decrease of $2.1 million in interest income from deposits in financial institutions driven mainly by a lower average balance as cash was utilized to fund strong loan growth.
• An increase of $1.6 million in interest expense on our borrowings driven primarily by a higher average balance to support loan funding activity and higher day count.

The net interest margin was 3.10% for the second quarter, up 2 basis points from 3.08% for the first quarter primarily driven by a higher average yield on interest-earning assets. The average yield on interest-earning assets increased to 5.42% from 5.39%, reflecting a 3 basis point increase in the average yield on loans and leases to 5.93%, due to strong growth in higher yielding loan categories and new loan production at a higher weighted average rate of 7.29%. Average loans and leases also increased by $715.7 million to $24.5 billion, supported by strong loan growth.

The average total cost of funds remained flat at 2.42% for the second quarter. The average cost of borrowings declined by 41 basis points to 4.93%, driven by the redemption of $174 million of 5.25% Senior Notes and replacement with lower-cost long-term Federal Home Loan Bank of San Francisco ("FHLB") borrowings at a weighted average rate of 3.81%. The average cost of deposits increased slightly to 2.13% from 2.12%. Average deposits increased by $384.0 million, with a $515.0 million increase in interest-bearing deposits, offset partially by a $130.9 million decline in noninterest-bearing deposits as the need to fund strong loan growth drove a mix shift towards interest-bearing deposits. Average noninterest-bearing deposits represented 27.8% of average total deposits in the second quarter and 28.7% in the first quarter.

YTD June 30, 2025 vs YTD June 30, 2024

Net interest income increased by $14.0 million to $472.6 million for the six months ended June 30, 2025 from $458.6 million for the six months ended June 30, 2024 attributable primarily to the following:

• A decrease of $95.4 million in interest expense on deposits due primarily to lower interest paid on interest-bearing deposits as a result of deposit rate repricing driven by the 100 basis points of federal funds rate cuts in the second half of 2024 and lower average balance due mainly to the paydown of brokered deposits.
• A decrease of $30.0 million in interest expense on borrowings driven by lower average balance resulting from the payoff of higher-cost Bank Term Funding Program ("BTFP") borrowings in 2024, which were partially replaced with lower-cost long-term FHLB advances and lower market interest rates.
• An increase of $7.3 million in interest income from investment securities reflecting the benefits from 2024 balance sheet repositioning actions and reinvestment in higher-yield securities.

This was offset partially by:

• A decrease of $65.9 million in interest income from loans due primarily to a lower average balance attributable mainly to the sale in July 2024 of $1.95 billion of Civic loans, lower net loan discount accretion, and lower market interest rates reflective of the federal funds rate cuts.
• A decrease of $55.6 million in interest income from deposits in financial institutions driven by lower balances, as we maintained a lower cash target level, and lower market interest rates.

The net interest margin was 3.09% for the six months ended June 30, 2025, up 36 basis points from 2.73% for the six months ended June 30, 2024. The year-over-year improvement was primarily driven by a 57 basis point decrease in the average total cost of funds to 2.42%, offset partially by a 19 basis point decrease in the average yield on interest-earning assets to 5.41%.

The average total cost of funds decreased by 57 basis points to 2.42%, driven by lower market interest rates and a shift in mix. The average cost of deposits declined 51 basis points to 2.12%, reflecting the impact of federal funds rate cuts in the second half of 2024. Average total deposits decreased by $2.0 billion year over year, including a $1.9 billion reduction in average interest-bearing deposits and a $134.3 million decrease in average noninterest-bearing deposits. Average noninterest-bearing deposits represented 28.2% of average total deposits for the six months ended June 30, 2025 compared to 26.7% for the comparable period in 2024. The average cost of borrowings also decreased by 49 basis points to 5.12%, reflecting the paydown of higher-cost BTFP borrowings in the prior year and their replacement with lower-cost long-term FHLB advances.

The average yield on interest-earning assets declined 19 basis points to 5.41%, primarily due to a 101 basis point decrease in the average yield on deposits in financial institutions, and a 21 basis point decline in average yield on loans and leases, offset partially by a 30 basis point increase in the average yield on investment securities. The average yield on deposits in financial institutions decreased to 4.41% from 5.42% driven by the federal funds rate cuts described above, while the average yield on loans and leases decreased to 5.92% from 6.13%, driven by lower net loan discount accretion and market rates. The average yield on investment securities increased to 3.22% from 2.92%, reflecting continued benefits from 2024 balance sheet repositioning actions and reinvestment in higher-yield assets. Average deposits in financial institutions decreased by $1.7 billion to $2.0 billion, as we maintained a lower cash position.

Provision For Credit Losses

Q2-2025 vs Q1-2025

The provision for credit losses was $39.1 million for the second quarter compared to $9.3 million for the first quarter. The second quarter provision included a provision of loan losses of $38.6 million, offset partially by a $0.4 million reversal of the provision for unfunded loan commitments, and a provision for credit losses on investment securities of $0.9 million.

The second quarter provision of loan losses included $26.3 million related to loans transferred to held for sale ("HFS") for the pending strategic loan sales. The remaining $12.3 million increase in provision for loan losses was primarily driven by net charge-off activity experienced during the quarter, an increase in the quantitative reserve driven by the updated economic forecast, and an increase in the qualitative reserve related to loans secured by office properties.

The first quarter provision included a $9.7 million provision for loan losses and a $0.5 million provision for unfunded loan commitments, offset partially by a $0.9 million reversal of the provision for credit losses related to investment securities. The first quarter provision for loans and unfunded loan commitments was primarily driven by net charge-off activity experienced during the quarter, offset partially by lower specific reserves and changes in portfolio mix driven by growth in loan segments with low expected credit losses.

YTD June 30, 2025 vs YTD June 30, 2024

The provision for credit losses was $48.4 million for the six months ended June 30, 2025 compared to $21.0 million for the six months ended June 30, 2024. The provision for the 2025 period primarily included a provision for loan losses of $48.3 million and a provision for unfunded loan commitments of $0.2 million.

The provision for the 2025 period included $26.3 million related to loans transferred to HFS. The remaining increase in the provision for loans and unfunded loan commitments was primarily driven by net charge-off activity experienced in the first half of the year, with additional impacts from risk rating migration activity. These were offset partially by lower specific reserves and a favorable shift in the portfolio mix due to growth in loan segments with lower expected credit losses.

The provision for loans and unfunded loan commitments for the 2024 period included a $23.0 million provision for loan losses and a $2.0 million reversal of the provision for unfunded loan commitments. The provision for the 2024 period was generally due to higher net charge-offs and higher qualitative reserves, offset partially by the reserves released for the Civic loans transferred to HFS in the second quarter of 2024.

Noninterest Income

Q2-2025 vs Q1-2025

Noninterest income decreased by $1.0 million to $32.6 million for the second quarter from $33.7 million for the first quarter due mainly to a $2.4 million decrease in dividends and gains on equity investments, offset partially by a $1.5 million increase in warrant income. The decrease in dividends and gains on equity investments was primarily related to fair value losses in the second quarter on Small Business Investment Company (鈥淪BIC鈥�) investments compared to fair value gains in the first quarter. The increase in warrant income was driven by higher gains from warrant exercises.

YTD June 30, 2025 vs YTD June 30, 2024

Noninterest income increased by $2.7 million to $66.3 million for the six months ended June 30, 2025 from $63.6 million for the six months ended June 30, 2024 due mainly to increases of $4.0 million in other income and $2.8 million in commissions and fees, offset partially by decreases of $2.2 million in leased equipment income and $2.0 million in dividends and gains on equity investments. The increase in other income was due mainly to a $2.6 million increase in the fair value mark on the credit-linked notes and a $1.1 million increase in gain on termination of leases. The increase in commissions and fees was due principally to higher loan-related fee income and higher customer service fees. The decrease in dividends and gains on equity investments was due mostly to lower fair value net gains in the first half of 2025 on SBIC investments compared to the same period in 2024.

Noninterest Expense

Q2-2025 vs Q1-2025

Noninterest expense increased by $2.2 million to $185.9 million for the second quarter from $183.7 million for the first quarter due mainly to increases of $2.1 million in insurance and assessments and $1.9 million in compensation expense, offset partially by a decrease of $2.0 million in information technology and data processing expenses. Insurance assessments increased mainly due to lower FDIC assessment and FDIC expense true-ups in the first quarter. Compensation expense increased mainly driven by higher incentive and equity compensation reversals related to staff exits in the prior quarter. Information technology and data processing decreased mainly driven by lower software subscription costs and certain expense true-ups.

YTD June 30, 2025 vs YTD June 30, 2024

Noninterest expense decreased by $44.6 million to $369.5 million for the six-month period ended June 30, 2025 due mainly to decreases of $30.2 million in insurance and assessments, $9.0 million in customer related expenses, $4.9 million in occupancy, $3.4 million in compensation expense, and $13.1 million in all of the other expense categories, offset partially by an increase of $12.7 million in acquisition, integration and reorganization costs, as the prior-year period included a reversal of previously accrued merger-related costs due to lower actual expenses and there are no merger-related costs in the current year. Insurance and assessment decreased primarily due to incremental FDIC special assessments recorded in the first quarter of 2024, resulting from higher assessment rates. Customer related expense decreased due to lower earnings credit rate expenses, which were impacted by the lower federal funds rate. Occupancy decreased reflecting cost savings from branch consolidations following the merger. Compensation expense decreased primarily driven by reduced headcount following the merger.

Income Taxes

Q2-2025 vs Q1-2025

Income tax expense of $19.5 million was recorded for the second quarter resulting in an effective tax rate of 40.7% compared to income tax expense of $19.5 million and an effective tax rate of 26.7% for the first quarter.

The 40.7% effective tax rate in the second quarter of 2025 included a one-time non-cash income tax expense of $9.8 million due primarily to the revaluation of deferred tax assets ("DTA") related to the California state tax changes passed as part of the 2025 California budget enacted on June 30, 2025 and effective retroactively to January 1, 2025. We expect our tax rate going forward to be positively impacted by this state tax rule change.

YTD June 30, 2025 vs YTD June 30, 2024

Income tax expense of $39.0 million was recorded for the six-month period ended June 30, 2025 resulting in an effective tax rate of 32.2% compared to income tax expense of $25.9 million and an effective tax rate of 29.7% for the comparable period in 2024. The higher 2025 year-to-date effective tax rate was due primarily to the one-time non-cash tax expense DTA revaluation recorded in the second quarter of 2025.

BALANCE SHEET HIGHLIGHTS

Securities

Securities available-for-sale ("AFS") decreased by $87.9 million during the second quarter to $2.2 billion at June 30, 2025. The decrease was primarily driven by $109.3 million of principal paydowns, $2.5 million of maturities, and $1.8 million of net amortization, offset partially by $18.3 million of purchases and an $8.2 million increase in the fair value of AFS securities. As of June 30, 2025, AFS securities had aggregate unrealized net after-tax losses in accumulated other comprehensive income (loss) ("AOCI") of $166.6 million. These AFS unrealized net losses related primarily to slightly lower interest rates quarter-over-quarter and the resulting impact on valuations.

The balance of securities held-to-maturity ("HTM") increased by $4.8 million in the second quarter to $2.3 billion at June 30, 2025. As of June 30, 2025, HTM securities had aggregate unrealized net after-tax losses in AOCI of $145.9 million remaining from the balance established at the time of transfer from AFS.

Loans and Leases

The following table sets forth the composition, by loan category, of our loan and lease portfolio held for investment as of the dates indicated:

Total loans and leases held for investment increased by $119.4 million in the second quarter and totaled $24.2 billion at June 30, 2025. The increase in loans and leases held for investment was due primarily to increased balances in the other residential real estate mortgage, venture capital, and asset-based loan portfolios, offset partially by decreases in the real estate construction and land segment and the commercial real estate mortgage loan portfolio partly driven by the transfer of loans to held for sale. In the second quarter, $30.5 million of loans were sold and $476.2 million transferred to held for sale at a lower of cost or market value of $441.2 million. While many of the loans being sold have sufficient collateral values, they have attributes that drive credit migration, and as a result we have commenced sales process for these loans. Loan originations including production, purchased loans, and unfunded new commitments were $2.2 billion in the second quarter with a weighted average interest rate on production of 7.29%.

Total loans and leases held for sale increased by $439.8 million in the second quarter and totaled $465.6 million at June 30, 2025. The increase in loans held for sale was primarily driven by the transfer as discussed above related to pending strategic loan sales commenced in the second quarter.

Credit Quality

The overall quality of our loan portfolio remains strong, supported by disciplined underwriting, borrower strength, and robust credit metrics. Credit quality metrics improved from the first quarter, primarily due to the transfer of loans to HFS in connection with the pending strategic loan sales. These sales and transfers contributed to broad-based improvements across key credit quality metrics. Nonperforming, classified, and special mention loans and leases as a percentage of total loans and leases held for investment decreased 19 basis points, 46 basis points, and 115 basis points, respectively.

At June 30, 2025, total delinquent loans and leases were $149.5 million, compared to $200.6 million at March 31, 2025. The $51.2 million decrease in total delinquent loans was due mainly to a decrease in the 30 to 89 days delinquent category of $48.9 million in commercial real estate mortgage loans, offset partially by an increase of $5.7 million in other residential real estate mortgage loans. In the 90 or more days delinquent category, there were decreases of $8.4 million in other residential real estate mortgage loans and $3.8 million in other commercial loans, offset partially by an increase of $9.0 million in commercial real estate mortgage loans. Total delinquent loans and leases as a percentage of loans and leases held for investment decreased to 0.62% at June 30, 2025 from 0.83% at March 31, 2025.

At June 30, 2025, nonperforming loans and leases were $167.5 million, compared to $213.5 million at March 31, 2025. During the second quarter, nonperforming loans and leases decreased by $46.0 million due to transfers to accrual status of $16.3 million, charge-offs of $7.2 million, transfers to loans HFS of $5.7 million, and payoffs and paydowns of $29.3 million, offset partially by additions of $12.5 million.

Nonperforming loans and leases as a percentage of loans and leases held for investment decreased to 0.69% at June 30, 2025 from 0.88% at March 31, 2025.

At June 30, 2025, nonperforming assets were $175.3 million, or 0.51% of total assets, compared to $219.0 million, or 0.65% of total assets, as of March 31, 2025. At June 30, 2025, nonperforming assets included $7.8 million of foreclosed assets, consisting primarily of single-family residences.

Allowance for Credit Losses 鈥� Loans

The allowance for credit losses - loans, which includes the reserve for unfunded loan commitments, totaled $258.6 million, or 1.07% of total loans and leases, at June 30, 2025, compared to $264.6 million, or 1.10% of total loans and leases, at March 31, 2025. The $6.0 million decrease in the allowance was due to net charge-offs of $44.2 million, offset partially by a $38.2 million provision.

During the second quarter, $506.7 million of loans were either sold or transferred to HFS in anticipation of being sold. As a result of the transfer, we recognized charge-offs totaling $36.9 million. When taking into consideration the reserve associated with these loans at March 31, 2025, the second quarter provision impact from the transfer was $26.3 million.

During the second quarter, we also recorded a provision of $11.9 million that consisted of a $12.3 million provision associated with the ALLL, offset partially by a $0.4 million reversal of the RUC commitments.

At June 30, 2025, ACL ratio was 1.07% compared to 1.10% at March 31, 2025. The decrease in the ACL coverage ratio was driven by the transfer of loans to HFS which improved the overall credit metrics of the portfolio, lower specific reserves, and improved portfolio mix driven by growth in loan segments with lower expected credit losses.

Our ability to absorb credit losses is also bolstered by (i) $112.9 million of loss coverage from the credit-linked notes, pursuant to which the bank sold the first 5% of any losses on $2.3 billion of single-family residential mortgage loans in our portfolio; and (ii) unearned credit marks of $19.2 million on approximately $1.5 billion of purchased loans without credit deterioration. When the loss coverage from the credit-linked notes and unearned credit marks is added to our allowance for credit losses, this provides additional economic coverage on top of our ACL ratio. We refer to this adjusted ACL ratio as our economic coverage ratio⁽¹⁾, which equaled 1.61% of total loans and leases at June 30, 2025 compared to 1.66% at March 31, 2025.

The ACL coverage of nonperforming loans and leases was 154% at June 30, 2025 compared to 124% at March 31, 2025.

Net charge-offs were 0.72% of average loans and leases (annualized) for the second quarter, compared to 0.24% for the first quarter. The increase in the second quarter was primarily attributable to $36.9 million of net charge-offs from loans transferred to HFS for the pending sale.

Deposits and Client Investment Funds

The following table sets forth the composition of our deposits at the dates indicated: