Banc of California, Inc. Reports Second Quarter 2026 Financial Results and Announces Strategic Balance Sheet Repositioning to Enhance Long-Term Earnings

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

Banc of California, Inc. (NYSE: BANC) (“Banc of California” or the “Company”), the parent company of wholly-owned subsidiary Banc of California (the “Bank”), today reported financial results for the second quarter ended June 30, 2026.

During the second quarter, the Company completed a strategic reallocation of capital toward higher return opportunities to further strengthen long-term earnings, expand net interest margin, and increase balance sheet flexibility. The Company took three specific actions including (i) the repositioning of $2.3 billion of lower-yielding securities, (ii) initiating the sale of $827.0 million of selected commercial real estate and multi-family construction loans, and (iii) the retirement of $385.0 million of subordinated debt prior to higher contractual interest reset.

The Company transferred $2.3 billion of lower-yielding held-to-maturity securities to available-for-sale, and subsequently sold and redeployed a portion of the proceeds into higher-yielding, shorter-duration available-for-sale securities. The securities repositioning generated a 276 basis point yield pickup on redeployed balances, reduced portfolio duration, and improved the risk-weighted asset profile of the securities portfolio, all while maintaining capital ratios significantly above “well capitalized” regulatory thresholds.

The Company also commenced a targeted sale process of $827.0 million of commercial real estate and multi-family construction loans to reduce selected credit exposures and lower the potential for future credit-related earnings volatility. Following a competitive loan sale process, the Company has entered into purchase and sale agreements for the loans transferred to held-for-sale during the quarter and expects the transactions to close in the third quarter. In addition, the Company retired $385.0 million of subordinated debt prior to a significantly higher interest rate reset. Taken together, these actions are expected to immediately improve net interest margin, support higher recurring earnings, and accelerate organic capital generation.

The Company reported a net loss available to common and equivalent stockholders of $251.3 million, or $(1.61) per diluted common share, reflecting the near-term impact of these strategic actions.

Jared Wolff, Chairman & CEO of Banc of California, commented, “During the second quarter, we made a strategic decision to reallocate capital toward opportunities that we believe will enhance long-term returns for our shareholders. We implemented that strategy through three complementary actions including a securities repositioning, a targeted loan sale and the retirement of higher-cost subordinated debt, that together create a more efficient balance sheet and position the Company for even stronger long-term financial performance.”

Mr. Wolff continued, “These actions resulted in significant one-time charges, but they increase our long-term earnings power, improve capital efficiency and provide greater financial flexibility to support future growth. Just as importantly, they allow us to focus our capital on the businesses, clients and markets where we see the greatest opportunities to create shareholder value.”

Second Quarter 2026 Financial Highlights:

• Executed a securities repositioning to drive higher recurring earnings power, including the sale of $2.3 billion of lower-yielding securities and partial redeployment of $1.7 billion into higher-yielding shorter-duration securities, with the remaining proceeds expected to be invested in the third quarter of 2026. The repositioning generated a 276 basis point yield pickup on redeployed balances and resulted in a $256.7 million pre-tax loss on securities.

• Commenced a targeted loan sale process involving $827.0 million of loans to reduce selected exposures, enhance capital efficiency, and improve the risk profile of the loan portfolio. Total provision expense of $161.8 million includes the impact of transferring these loans to held for sale at the lower of cost or market value.

• Retired $385.0 million of subordinated debt prior to a significantly higher interest rate reset, reducing future funding costs and supporting stronger pre-tax pre-provision earnings.

• Average loans increased $556.1 million, or 2.3%, during the quarter, driven by $2.8 billion of loan production and disbursements with a weighted average interest rate on production of 6.39%.

• Total deposits increased $799.0 million, or 2.9% during the quarter, with average noninterest-bearing deposits comprising 28.5% of average total deposits.

• Loan-to-deposit ratio decreased 235 basis points to 89.3%.

• Credit quality trends were favorable, as classified loans and leases and special mention loans and leases as a percentage of total loans and leases held for investment declined by 99 basis points, and 154 basis points, respectively.

• Capital ratios⁽¹⁾ exceeded the regulatory thresholds for "well capitalized" banks, including an estimated 11.67% Tier 1 capital ratio and 9.25% CET 1 capital ratio. The CET 1 ratio is expected to increase to approximately 9.45-9.50% upon closing of the targeted loan sale and to approximately 9.50-9.60% at the end of the third quarter.

• Book value per share and tangible book value per share⁽²⁾ were $18.38 and $16.44, respectively, reflecting the near-term impact of the strategic balance sheet repositioning actions completed during the quarter.

INCOME STATEMENT HIGHLIGHTS

Net Interest Income and Margin

Second Quarter of 2026 Compared to First Quarter of 2026

Net interest income decreased by $1.1 million to $250.5 million for the second quarter, from $251.6 million in the first quarter. This decrease was driven by an $8.3 million increase in total interest expense, offset partially by a $7.2 million increase in total interest income. The increase in interest expense was due to a $4.0 million increase in interest expense on deposits, attributable to higher average balances, and a $4.2 million increase in interest expense on our borrowings driven by higher average balances to fund loan growth and replace subordinated debt funding, following the redemption of the 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031 during the second quarter. The increase in interest income was driven by a $10.4 million increase from higher average loan balances and an additional day in the quarter, and a $2.3 million increase from investments and deposits in financial institutions driven by higher average balances as a result of the securities repositioning. These increases were offset partially by a $4.6 million reduction primarily related to loans placed on nonaccrual status.

Net interest margin was 3.13% for the second quarter, down 11 basis points from 3.24% for the first quarter. Upon closing of the targeted loan sale, net interest margin is expected to increase to approximately 3.30%. The decrease was primarily driven by nonaccrual interest impacts and an increase in short-term funding associated with strong loan growth and the redemption of subordinated debt, while core deposit growth strengthened toward quarter-end, improving the Company's funding profile entering the third quarter. The average total cost of funds increased to 2.14% from 2.10%, as a result of a 2 basis point increase in the average total cost of deposits to 1.80%, and a 19 basis point decrease in the average cost of borrowings to 4.44%. The average yield on interest-earning assets decreased to 5.18% from 5.25%, as a result of a 11 basis point decrease in the average yield on loans and leases to 5.63%.

Average total deposits increased by $299.1 million, with a $323.5 million increase in average interest-bearing deposits, offset partially by a $24.4 million decrease in average noninterest-bearing deposits. Average noninterest-bearing deposits represented 28.5% of average total deposits in the second quarter, down from 28.9% in the first quarter.

YTD June 30, 2026 vs YTD June 30, 2025

Net interest income increased $29.5 million to $502.1 million for the six months ended June 30, 2026, from $472.6 million for the six months ended June 30, 2025. The increase was primarily driven by a $41.0 million decrease in interest expense on deposits primarily due to lower interest rates following federal funds rate cuts, and an $8.8 million increase in interest income from investment securities reflecting the benefits of prior balance sheet repositioning actions and reinvestment into higher-yielding assets. These benefits were offset partially by a $10.3 million decrease in interest income from deposits in financial institutions due to lower balances and lower market interest rates, a $6.3 million increase in borrowing costs associated with funding loan growth and the subordinated debt redemption in the second quarter of 2026, and a $3.6 million decrease in loan interest income primarily attributable to a reversal of previously accrued interest on loans placed on nonaccrual status, offset partially by the benefit of higher average loan balances.

The net interest margin was 3.18% for the six months ended June 30, 2026, up 9 basis points from 3.09% for the six months ended June 30, 2025. The year-over-year improvement was primarily driven by a 30 basis point decrease in the average total cost of funds to 2.12%, offset partially by a 20 basis point decrease in the average yield on interest-earning assets to 5.21%.

The average total cost of funds decreased by 30 basis points to 2.12%, driven mainly by lower market interest rates. The average cost of deposits declined by 33 basis points to 1.79%, reflecting the impact of federal funds rate cuts in the second half of 2025. Average total deposits increased by $356.0 million year over year, as a result of a $229.2 million increase in average noninterest-bearing deposits and a $126.8 million increase in average interest-bearing deposits. Average noninterest-bearing deposits represented 28.7% of average total deposits for the six months ended June 30, 2026, up from 28.2% for the comparable period in 2025. The average cost of borrowings also decreased by 60 basis points to 4.52%, reflecting the paydown of higher-cost borrowings in the prior year and their replacement with lower-cost long-term Federal Home Loan Bank ("FHLB") advances.

The average yield on interest-earning assets declined by 20 basis points to 5.21%, due primarily to a 23 basis point decline in the average yield on loans and leases.

Provision For Credit Losses

Second Quarter of 2026 Compared to First Quarter of 2026

The provision for credit losses was $161.8 million for the second quarter compared to $9.8 million for the first quarter. The increase was primarily driven by $161.6 million of charge-offs, the impact of loan growth and higher loss given default rates on commercial real estate and multi-family construction loans, offset partially by improved risk ratings for our held for investment ("HFI") portfolio. The increase in net charge-offs in the quarter related primarily to the transfer of $827.0 million of loans to held for sale ("HFS") in connection with the targeted loan sale process. The transfer required the loans to be recorded at lower of cost or market value, resulting in charge-offs and additional provision expense during the quarter.

The first quarter provision for loan losses and unfunded loan commitments was primarily driven by net charge off activity and changes in loan risk ratings including specific reserves, offset partially by lower balances in the HFI portfolio and lower qualitative reserves.

YTD June 30, 2026 vs YTD June 30, 2025

The provision for credit losses was $171.6 million for the six months ended June 30, 2026, compared to $48.4 million for the six months ended June 30, 2025. The provision for 2026 included a provision for loan losses of $171.8 million, including the impact of the proposed targeted loan sale process, offset by a $2.0 million reduction in provision for unfunded loan commitments.

The provision for the six months ended June 30, 2025 included the impact of $506.7 million of loans transferred to HFS and recorded at the lower of cost or market value. The remaining increase in the provision for loan losses and unfunded loan commitments was primarily driven by net charge-off activity experienced in the first half of the year, with additional impacts from changes in loan risk ratings, and higher unfunded commitments. These were offset partially by lower qualitative reserves, lower specific reserves, and a favorable shift in the portfolio mix due to growth in loan segments with lower expected credit losses.

Noninterest Income

Second Quarter of 2026 Compared to First Quarter of 2026

Noninterest income decreased by $269.4 million, resulting in a loss of $234.1 million for the second quarter, compared to noninterest income of $35.3 million for the first quarter. The decrease was primarily driven by a $256.7 million pre-tax loss recognized as part of the securities repositioning, and a $12.5 million loss recorded as part of the lower of cost or market adjustment on HFS loans. Also included in noninterest income was a $3.1 million loss related to the redemption of $385.0 million aggregate principal amount of subordinated notes during the quarter. The loss was offset partially by a $3.8 million gain recognized on the sale of the Company's single-family mortgage servicing rights portfolio, which serviced approximately $1.35 billion of underlying loans.

YTD June 30, 2026 vs YTD June 30, 2025

Noninterest income decreased by $265.1 million to a loss of $198.8 million for the six months ended June 30, 2026, compared to income of $66.3 million for the same period 2025. The year-to-date decrease was primarily attributable to the $256.7 million pre-tax loss recognized as part of the securities repositioning, and a $12.5 million lower of cost or market adjustment on the HFS loans, as discussed above.

Noninterest Expense

Second Quarter of 2026 Compared to First Quarter of 2026

Noninterest expense increased by $8.5 million to $189.9 million for the second quarter from $181.4 million for the first quarter, primarily reflecting a $7.7 million increase in insurance and assessment due to a higher FDIC assessment rate resulting from the balance sheet repositioning and its effect on assessment-related metrics and a $5.0 million increase in other expense related mainly to software obsolescence charges. These increases were offset partially by a $6.0 million decrease in compensation expense due to seasonal payroll related costs recognized in the first quarter.

YTD June 30, 2026 vs YTD June 30, 2025

Noninterest expense increased by $1.7 million to $371.3 million for the six months ended June 30, 2026 from $369.5 million for the six months ended June 30, 2025. The increase is primarily due to a $6.3 million increase in other expense related mainly to software obsolescence charges, a $4.6 million increase in insurance and assessment due to the higher assessment rate resulting from the balance sheet repositioning, and a $2.5 million increase in loans expense related to legal fees. These increases were offset partially by a $6.5 million decrease in customer related expenses primarily due to federal fund rate cuts in the fourth quarter of 2025 and a $3.0 million decrease in leased equipment depreciation.

Income Taxes

Second Quarter of 2026 Compared to First Quarter of 2026

Income tax benefit of $93.9 million was recorded for the second quarter, resulting in an effective tax rate of 28.0%, compared to income tax expense of $23.8 million and an effective tax rate of 24.9% for the first quarter. The second quarter tax rate reflects the effects of the Company's balance sheet repositioning actions. Due to the significant impact of these actions on projected annual earnings, the Company calculated its second quarter income tax provision using a year to date effective tax rate approach rather than the estimated annual effective tax rate method.

YTD June 30, 2026 vs YTD June 30, 2025

Income tax benefit of $70.1 million was recorded for the six months ended June 30, 2026, resulting in an effective tax rate of 29.3%, compared to income tax expense of $39.0 million and effective tax rate of 32.2% for the same period 2025. The decrease in effective tax rate from 2025 to 2026 is due primarily to the impact of deferred tax asset revaluation recorded following the California state tax changes passed as part of the 2025 California budget enacted on June 30, 2025.

BALANCE SHEET HIGHLIGHTS

Securities

As part of the securities repositioning, the Company reclassified its entire held-to-maturity ("HTM") securities portfolio with an aggregate amortized cost basis of $2.3 billion to available-for-sale ("AFS") securities and subsequently sold primarily all of the securities. The $2.3 billion of securities sold had an average yield of approximately 2.1% and were sold at a pre-tax loss of $251.3 million.

Investor Relations Inquiries:
Banc of California, Inc.
(855) 361-2262
Jared Wolff, (310) 424-1230
Joe Kauder, (310) 844-5224
Ann DeVries, (646) 376-7011

Media Contact:
Debora Vrana, Banc of California
(213) 533-3122
Deb.Vrana@bancofcal.com