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    BANC
    Earnings call· Jun 2026(Q2 FY26)

    BANC OF CALIFORNIA Q2 FY26 earnings call BANC

    Jul 29, 2026 Source

    Executive summary

    Banc of California Q2 FY26 — Strategic Balance Sheet Repositioning Drives Enhanced Earnings Power

    Banc of California executed a significant balance sheet repositioning in Q2 FY26, selling $2.3 billion in lower-yielding securities and $825 million in select loans, alongside retiring $385 million in subordinated debt. These actions, while impacting reported earnings this quarter, are designed to enhance recurring earnings power, expand net interest margin, and accelerate organic capital generation. The company maintains strong underlying franchise momentum with robust loan and deposit growth, positioning it for a higher earnings profile in the second half of the year.

    Highlights

    5

    • Annualized loan growth of 9% and deposit growth of 12% in Q2 FY26.

    • Securities repositioning generated a 276 basis point yield pickup, expected to drive NIM above 3.30%.

    • CET1 ratio expected to build to 9.8%-9.9% by year-end FY26 and above 10% in early FY27.

    • Cumulative new noninterest-bearing deposits from relationships opened in the last 2 years reached approximately $1.2 billion.

    • Targeted loan sale reduced special mention loans by 56%, classified loans by 31%, and delinquent loans by 50%.

    Concerns

    5

    • Reported a net loss of $251.3 million or $1.61 per diluted share due to strategic actions.

    • Securities repositioning resulted in a $256.7 million pretax loss on sale.

    • Provision expense of $161.8 million driven by the transfer of $827 million of select loans to held for sale.

    • Noninterest income was a loss of $234.1 million for the quarter, primarily due to the securities loss and a $12.5 million lower of cost or market adjustment on loans held for sale.

    • Elevated FDIC assessment expenses and a nonrecurring software obsolescence charge contributed to higher noninterest expense.

    Guidance & targets

    11
    CategoryTargetConfidence
    Net Interest Margin (NIM)
    above 3.30%
    high materiality
    High
    Net Interest Margin (NIM)
    3.30% to 3.40%
    high materiality
    High
    Return on Tangible Common Equity (ROTCE)
    11.5% to 12.5%
    high materiality
    Medium
    Pretax Pre-Provision Income (PTPP)
    $125 million to $130 million
    high materiality
    Medium
    CET1 Ratio
    approximately 9.5%
    high materiality
    High
    CET1 Ratio
    9.5% to 9.6%
    high materiality
    High
    CET1 Ratio
    9.8% to 9.9%
    high materiality
    High
    CET1 Ratio
    above 10%
    high materiality
    High
    Loan Growth
    mid-single-digit
    medium materiality
    Medium
    Total Operating Expenses
    well below 3% increase
    medium materiality
    High
    Preferred Stock Redemption
    redeem
    high materiality
    High

    Operational metrics

    26
    Net Loss Available to Common Shareholders
    $251.3 million
    Q2 FY26

    Reported net loss available to common and equivalent shareholders.

    Diluted EPS
    $1.61
    Q2 FY26

    Reported diluted EPS.

    Securities Repositioning Pretax Loss
    $256.7 million
    Q2 FY26

    Pretax loss on sale from the $2.3 billion securities repositioning.

    Securities Reinvested Proceeds
    $1.7 billion
    As of June 30

    Proceeds from securities sale reinvested at a higher yield.

    Securities Proceeds Remaining to Invest
    $100 million
    As of call date

    Remaining proceeds from the securities repositioning to be invested.

    Tangible Book Value Earn-back Period
    1.4 years
    Q2 FY26

    Expected earn-back period for tangible book value dilution from securities repositioning.

    Nonaccrual Loan Interest Impact on NII
    $5 million
    Q2 FY26

    Negative impact on interest income from nonaccrual loan interest reversals.

    NII Increase Excluding Nonaccrual Impact
    $3.9 millionQoQ
    Q2 FY26

    Quarter-over-quarter NII increase excluding the nonaccrual interest impact.

    Noninterest Income (Adjusted)
    $35.2 millionstable QoQ
    Q2 FY26

    Noninterest income excluding the $256.7 million securities loss and $12.5 million LCM adjustment on loans held for sale.

    Noninterest Income Monthly Run Rate
    $11 million to $12 million
    Monthly

    Normal monthly run rate for noninterest income.

    Noninterest Expense Increase Drivers
    —
    Q2 FY26

    Primarily driven by temporarily elevated FDIC assessment expenses and a nonrecurring charge for software obsolescence, partially offset by lower compensation expenses.

    Loan Sale Lower of Cost or Market Adjustment
    $12.5 million
    Q2 FY26

    Adjustment on loans held for sale in connection with the pending loan sale process.

    Loan Portfolio Mix in Lower Loss Categories
    37%up from 34% in Q1 FY26
    Q2 FY26

    Percentage of loans held for investment in historically lower loss categories.

    Risk Weighting Profile of Securities Portfolio
    9.5%down from 19.5%
    Q2 FY26

    Risk weighting profile of the overall securities portfolio after repositioning.

    Securities Portfolio Duration
    4 yearsdown from 5 years
    Q2 FY26

    Duration of the overall securities portfolio after repositioning.

    Risk Weighted Assets (RWA) Impact from Loan Sale
    100%
    Q2 FY26

    The $827 million of loans sold were mostly 100% or more risk-weighted, providing an immediate benefit to capital.

    Adjusted EPS Estimate (Q2 FY26)
    $0.39-$0.40
    Q2 FY26

    Management's estimate of core earnings power for the quarter, after adjusting for one-time items.

    Preferred Stock Net Income Impact
    $40 million
    Annual

    Annual net income after tax paid on preferred stock, which management aims to redeem.

    Preferred Stock Redemption Pickup
    50%
    Annual

    Expected pickup in net income to common shareholders from preferred stock redemption.

    Loan Production
    $2.8 billion
    Q2 FY26

    Strong loan production in the quarter.

    New Loan Production Yield
    6.39%
    Q2 FY26

    Attractive pricing on new loan production.

    New Loan Production Yield (approximate)
    6.4%-6.5%
    Q2 FY26

    Approximate yield on new loan production, higher than sold loans.

    Cumulative New Noninterest-Bearing Deposits
    $1.2 billion
    Q2 FY26

    From relationships opened in the last 2 years.

    Average Loan Yield
    5.78%-5.8%up from 5.74% in Q1 FY26
    Q2 FY26

    Weighted average loan yield for the quarter.

    Sold Loans Average Interest Rate
    4.6%
    Q2 FY26

    Blended interest rate of the $825 million of loans sold.

    Securities Sold Average Yield
    2.1%
    Q2 FY26

    Average yield of the securities sold in the repositioning.

    Industry KPIs

    13
    MetricValueDetails
    Loans$24 billionUSD
    Deposits—
    Rotce ROE—
    Cet1 ratio9.25%%
    Capital returns—
    Fee income lines—
    Allowance reserves1.14%%
    Net interest income$250.5 millionUSD
    Net interest margin3.13%%
    Net charge offs npls—
    Total operating expenses$189.9 millionUSD
    Provision for credit losses$161.8 millionUSD
    Efficiency ratio operating leverage—

    Deals & partnerships

    2
    Multiple buyersSale of select commercial real estate and multifamily construction loans.$825 million

    Comprised of $300 million in construction loans to a single borrower and $525 million in performing CRE loans with lower interest rates. Executed purchase and sale agreements for the entire amount.

    Subordinated debt holdersRetirement of subordinated debt ahead of a significantly higher contractual reset rate.$385 million

    Retired $385 million of subordinated debt.

    Risks & headwinds

    4
    Economic environment uncertaintyH2 FY26 and beyond

    Not quantified

    Mitigation: Maintaining a relatively neutral interest rate sensitivity, disciplined expense management, and focus on high-quality client relationships.

    Credit-related volatilityOngoing

    Mitigated by targeted loan sale

    Mitigation: Targeted loan sale of $825 million of select loans to reduce concentration risk and lower the risk of future credit-related volatility. Credit metrics improved meaningfully quarter-over-quarter.

    Regulatory capital reform (Basel III Endgame)Not specified, but assumed to be future

    Expected to increase capital by roughly 60 basis points if implemented

    Mitigation: Management assumes no regulatory capital reform in current CET1 projections, but notes potential positive impact if implemented.

    Non-performing assets (NPAs)Q2 FY26, resolved in Q3 FY26

    One loan of $34 million temporarily increased NPAs

    Mitigation: The specific loan that caused the temporary increase in NPAs has since been sold at par and will be off the books in Q3 FY26.

    What to watch in Q3 FY26

    5

    NIM expansion

    Q3 FY26
    Current3.13%
    Targetaround 3.30%

    Why it matters

    NIM expansion is a key driver of recurring earnings power and profitability following the balance sheet repositioning.

    As the remaining securities proceeds are invested and the targeted loan sale closes, we expect the go-forward margin to come in around 3.30%.

    Q&A highlights

    6

    Could you break down the loan sale charge-off between rate and credit? Also, why were non-performing assets (NPAs) still up despite the changes?

    Management clarified that one loan from the sale was temporarily held for sale but has since been sold at par and will reduce NPAs by $34 million in Q3. They couldn't precisely split the loan sale discount between rate and credit but noted conservative marking and strong bids. The $300 million construction loans were to a single borrower showing weakness, while $525 million were performing CRE loans with lower rates.

    “In terms of NPAs, there was one loan that was part of the loan sale that got kicked out that we moved that came out of held for sale. That loan has since been sold. It will be off our books this quarter. So NPAs will drop by about $34 million, which is the reflection of that increase.”

    asked by Benjamin Gerlinger · answered by Jared Wolff

    2 min read5 chapters

    Detailed Narrative

    01

    Strategic Balance Sheet Repositioning

    Banc of California undertook three complementary actions in Q2 FY26 to enhance long-term shareholder returns: repositioning $2.3 billion of lower-yielding securities, selling $825 million of select loans, and retiring $385 million of subordinated debt. The securities sale generated a 276 basis point yield pickup, with $1.7 billion reinvested at a 4.87% weighted average yield. The loan sale included $300 million in construction loans to a single borrower and $525 million in performing CRE loans with lower interest rates, blended at 4.6%.

    02

    Capital Generation and Efficiency

    The strategic actions are expected to create a more efficient balance sheet, increase recurring earnings power, and accelerate capital generation. The securities repositioning reduced the portfolio's duration from 5 years to 4 years and lowered risk weighting from 19.5% to 9.5%. The loan sale is expected to immediately add up to 30 basis points to CET1. Management anticipates a tangible book value earn-back period of approximately 1.4 years from the securities repositioning.

    03

    Credit Quality Improvement

    Credit metrics improved meaningfully quarter-over-quarter following the strategic actions. Special mention loans declined by 56%, classified loans by 31%, and delinquent loans by 50%. One non-performing loan, which was part of the loan sale but lagged, has since been sold at par and will reduce NPAs by approximately $34 million in Q3 FY26. The allowance for credit losses (ACL) ratio increased 2 basis points to 1.14%.

    04

    Franchise Momentum and Deposit Strategy

    The underlying franchise continues to perform strongly, with 9% annualized loan growth and 12% annualized deposit growth. New noninterest-bearing deposits from relationships opened in the last two years reached approximately $1.2 billion. The company employs a 'Project Stay' initiative to retain rate-sensitive depositors, actively manages deposit rates with clients, and leverages institutional relationships for less expensive funding. Investments in APIs are also making the bank more attractive to clients.

    05

    Future Initiatives and Capital Allocation

    Beyond the current balance sheet optimization, Banc of California is developing new initiatives, including a payments strategy focused on cards and acquiring, and a private banking offering for high-net-worth individuals. Management views the preferred stock redemption in Q3 FY27 as a significant accelerant to common shareholder earnings, expecting at least a 50% pickup in net income after tax. Future capital allocation will consider buybacks once CET1 is consistently above 10%.

    AI-generated summary of the company’s earnings call. Not investment advice.