Banc of California(BANC) - 2025 Q2 - Quarterly Results

Banc of California, Inc. Second Quarter 2025 Results Financial and Operational Highlights The company reported strong loan growth and improved credit quality, though earnings were impacted by a loan sale provision and a one-time tax expense Q2 2025 Key Metrics | Metric | Value | | :--- | :--- | | Earnings Per Share (GAAP) | $0.12 | | Adjusted Earnings Per Share (Non-GAAP) | $0.31 | | Book Value Per Share | $18.58 | | Tangible Book Value Per Share (Non-GAAP) | $16.46 | | CET1 Ratio | 9.92% | | Annualized Loan Growth | 9% | - Total revenue increased 3% QoQ to $272.8 million, and pre-tax pre-provision income grew 6% QoQ to $87.0 million, driven by solid loan growth and prudent expense management[6] - Total loans grew by 2% (9% annualized) from Q1 2025 to $24.7 billion, with strong originations of $2.2 billion at a weighted average interest rate of 7.29%[6] - Initiated the sale of $506.7 million in loans, transferring $476.2 million to held for sale, which substantially improved credit quality metrics[6] - Repurchased 8.8 million shares of common stock for $111.5 million during the quarter, with $150.0 million remaining under the current repurchase authorization[6] - Results include a one-time, non-cash income tax expense of $9.8 million from the revaluation of deferred tax assets due to California state tax changes[3][6] CEO Commentary The CEO emphasized strong core earnings, disciplined execution, and an enhanced credit profile from strategic actions - The CEO noted double-digit growth in adjusted EPS, the third consecutive quarter of strong loan growth, and expanded net interest income[7] - The opportunistic sale of select CRE loans was a key action taken to enhance the credit profile and strengthen the balance sheet for consistent, high-quality earnings[7] - Tangible book value per share has increased for five straight quarters, reflecting the company's positive trajectory[7] Income Statement Analysis Q2 results show increased net interest income, a higher provision due to a loan sale, and a one-time tax expense Q2 2025 Income Statement Summary (in thousands) | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Net Interest Income | $240,216 | $232,364 | $229,488 | | Provision for Credit Losses | $39,100 | $9,300 | $11,000 | | Total Noninterest Income | $32,633 | $33,650 | $29,792 | | Total Noninterest Expense | $185,869 | $183,653 | $203,643 | | Net Earnings Available to Common Stockholders | $18,438 | $43,621 | $20,386 | | Diluted EPS | $0.12 | $0.26 | $0.12 | Net Interest Income and Margin Net interest income and margin expanded due to loan growth and a stable cost of funds Net Interest Margin Analysis (Q2-2025 vs Q1-2025) | Metric | Q2 2025 | Q1 2025 | Change | | :--- | :--- | :--- | :--- | | Net Interest Margin | 3.10% | 3.08% | +2 bps | | Average Yield on Loans & Leases | 5.93% | 5.90% | +3 bps | | Average Total Cost of Funds | 2.42% | 2.42% | 0 bps | - The QoQ increase in net interest income was primarily driven by a $16.2 million rise in interest income from loans due to higher average balances and yields[10] Net Interest Margin Analysis (YTD 2025 vs YTD 2024) | Metric | YTD 2025 | YTD 2024 | Change | | :--- | :--- | :--- | :--- | | Net Interest Margin | 3.09% | 2.73% | +36 bps | | Average Yield on Interest-Earning Assets | 5.41% | 5.60% | -19 bps | | Average Total Cost of Funds | 2.42% | 2.99% | -57 bps | - The year-over-year improvement in NIM was mainly due to a 57 basis point decrease in the average cost of funds, reflecting deposit rate repricing and payoff of higher-cost borrowings[16][17] Provision For Credit Losses The provision for credit losses increased significantly, driven by the strategic transfer of loans to held for sale - The Q2 provision for credit losses of $39.1 million included $26.3 million specifically related to loans transferred to held for sale (HFS)[22][23] - The remaining $12.3 million in provision for loan losses was driven by net charge-offs, an updated economic forecast, and higher qualitative reserves for office-secured loans[23] - For the first six months of 2025, the provision was $48.4 million, compared to $21.0 million for the same period in 2024, with the HFS transfer being the primary driver of the increase[25][26] Noninterest Income Noninterest income decreased slightly due to fair value losses on equity investments - Q2 noninterest income was $32.6 million, down from $33.7 million in Q1[28] - The decrease was primarily caused by fair value losses on Small Business Investment Company (SBIC) investments, compared to gains in the previous quarter[28] Noninterest Expense Noninterest expense increased modestly quarter-over-quarter but showed significant year-over-year improvement from merger efficiencies - Q2 noninterest expense rose to $185.9 million from $183.7 million in Q1, mainly due to a $2.1 million increase in insurance and assessments and a $1.9 million increase in compensation expense[31] - For the first six months of 2025, noninterest expense fell by $44.6 million year-over-year, primarily due to a $30.2 million decrease in insurance and assessments and cost savings post-merger[32] Income Taxes A one-time, non-cash expense related to California tax changes resulted in an unusually high effective tax rate - The effective tax rate for Q2 2025 was 40.7%, significantly higher than 26.7% in Q1 2025[33] - The high rate was driven by a one-time, non-cash expense of $9.8 million related to the revaluation of deferred tax assets (DTA) due to new California state tax legislation[34] - The company anticipates that this state tax rule change will be beneficial to its tax rate in future periods[34] Balance Sheet Analysis The balance sheet expanded with loan growth, improved credit quality, and higher deposits, offset by equity reduction from buybacks Selected Balance Sheet Items (in thousands) | Item | June 30, 2025 | March 31, 2025 | QoQ Change | | :--- | :--- | :--- | :--- | | Total Assets | $34,250,453 | $33,779,918 | +$470,535 | | Total Loans | $24,711,464 | $24,152,324 | +$559,140 | | Total Deposits | $27,528,433 | $27,193,191 | +$335,242 | | Total Stockholders' Equity | $3,426,843 | $3,521,656 | -$94,813 | Securities The securities portfolio experienced minor changes, primarily driven by principal paydowns in the available-for-sale portfolio - Securities available-for-sale (AFS) decreased by $87.9 million to $2.2 billion, primarily due to $109.3 million in principal paydowns[38] - Securities held-to-maturity (HTM) increased by $4.8 million to $2.3 billion[39] Loans and Leases Total loans grew, led by residential real estate and venture capital, with strong origination volume - Loans held for investment grew by $119.4 million during Q2 to $24.2 billion[41] - Growth was led by other residential real estate mortgage, venture capital, and asset-based loan portfolios[41] - Loan originations, including new commitments, totaled $2.2 billion in Q2 with a weighted average interest rate of 7.29%[41] - Loans held for sale increased by $439.8 million to $465.6 million, driven by the transfer of $476.2 million in loans related to the pending strategic sale[41][42] Credit Quality Credit quality metrics improved substantially as a direct result of transferring problem loans to held for sale Key Credit Quality Ratios | Ratio | Q2 2025 | Q1 2025 | Change | | :--- | :--- | :--- | :--- | | NPLs to Loans HFI | 0.69% | 0.88% | -19 bps | | Classified Loans to Loans HFI | 2.71% | 3.17% | -46 bps | | Special Mention Loans to Loans HFI | 2.73% | 3.88% | -115 bps | | NPAs to Total Assets | 0.51% | 0.65% | -14 bps | - The improvement in credit metrics was primarily due to the transfer of loans to held for sale (HFS) in connection with pending strategic loan sales[44] - Nonperforming loans and leases (NPLs) decreased by $46.0 million during the quarter to $167.5 million[46] Allowance for Credit Losses – Loans The allowance for credit losses decreased as charge-offs related to the loan sale outpaced the quarterly provision Allowance for Credit Losses (ACL) - Loans (in millions) | Item | Q2 2025 | | :--- | :--- | | Beginning ACL | $264.6 | | Net Charge-offs | ($44.2) | | Provision for Credit Losses | $38.2 | | Ending ACL | $258.6 | - The transfer of $506.7 million of loans to HFS resulted in charge-offs of $36.9 million and a related provision impact of $26.3 million[50] - The ACL to total loans ratio was 1.07% at June 30, 2025, down from 1.10% at March 31, 2025, due to the improved credit metrics of the portfolio post-transfer[49][53] - The 'economic coverage ratio', a non-GAAP measure including credit-linked notes and unearned credit marks, was 1.61% of total loans[54] Deposits and Client Investment Funds Total deposits increased, driven by growth in interest-bearing accounts that offset a decline in noninterest-bearing deposits - Total deposits grew by $335.2 million to $27.5 billion at quarter-end[57] - The increase was driven by higher brokered time deposits (+$317.3 million) and interest-bearing checking accounts (+$227.4 million)[57] - Noninterest-bearing checking deposits decreased by $152.8 million to $7.4 billion, representing 27% of total deposits[57][58] - Off-balance sheet client investment funds, including those managed by BofCal Asset Management, totaled $1.5 billion[59][60] Borrowings Total borrowings increased as the company added favorable long-term FHLB advances while paying off higher-cost senior notes - Borrowings increased by $246.4 million to $1.9 billion, mainly due to higher FHLB borrowings[61] - The company paid off $174.0 million of Senior Notes and added $400.0 million in long-term FHLB advances at a weighted average rate of 3.81%[61] Equity Stockholders' equity decreased due to significant share repurchases, which in turn boosted book value per share - Stockholders' equity decreased by $94.8 million, mainly due to $111.5 million in common stock repurchases[62] - Book value per common share increased to $18.58 from $18.17 in Q1 2025[62] - Tangible book value per common share (a non-GAAP measure) increased to $16.46 from $16.12 in Q1 2025[62] - The company repurchased 8.8 million shares at a weighted average price of $12.65 per share during the quarter[62] Capital and Liquidity The company maintained robust capital ratios well above regulatory requirements and strong total available liquidity Preliminary Capital Ratios (June 30, 2025) | Ratio | Banc of California, Inc. | | :--- | :--- | | Total risk-based capital | 16.32% | | Tier 1 risk-based capital | 12.30% | | Common equity tier 1 capital | 9.92% | | Tier 1 leverage | 9.74% | - Total available liquidity stood at $14.8 billion at the end of Q2, consisting of $2.2 billion in immediately available cash, $10.6 billion in borrowing capacity, and $2.1 billion in unpledged AFS securities[65] Appendix This section provides supplementary details including conference call information, non-GAAP reconciliations, and financial statements Conference Call Information The company will host a conference call to discuss its Q2 2025 financial results - A conference call is scheduled for 10:00 a.m. PT on July 24, 2025, to discuss the quarterly results[67] About Banc of California, Inc. Banc of California is a premier relationship-based business bank serving small to middle-market businesses - Banc of California is a bank holding company with over $34 billion in assets, headquartered in Los Angeles[68] Forward-Looking Statements This section contains standard safe-harbor language regarding risks and uncertainties that could affect future results - The press release includes forward-looking statements subject to risks and uncertainties as defined by the Private Securities Litigation Reform Act of 1995[69] - Key risk factors include changes in economic conditions, interest rate environment, credit risks, regulatory changes, and cybersecurity threats[71] Non-GAAP Financial Measures The report provides reconciliations for non-GAAP measures used to supplement the analysis of the company's performance - The company uses non-GAAP measures like tangible common equity, adjusted net earnings, pre-tax pre-provision income, and economic coverage ratio to analyze performance[72][89] Reconciliation of Book Value to Tangible Book Value Per Share (June 30, 2025) | Metric | Value (per share) | | :--- | :--- | | Book Value (GAAP) | $18.58 | | Tangible Book Value (Non-GAAP) | $16.46 | Reconciliation of Diluted EPS to Adjusted Diluted EPS (Q2 2025) | Metric | Value (per share) | | :--- | :--- | | Diluted EPS (GAAP) | $0.12 | | Adjusted Diluted EPS (Non-GAAP) | $0.31 | Consolidated Financial Statements This section presents the detailed unaudited consolidated financial statements and related tables for the reported periods - Presents the unaudited Consolidated Statements of Financial Condition as of June 30, 2025, and comparative periods[76] - Presents the unaudited Consolidated Statements of Earnings for the three and six months ended June 30, 2025, and comparative periods[78] - Includes detailed tables on average balances, yields earned, and costs paid for interest-earning assets and interest-bearing liabilities[83][86]