Banc of California, Inc.: Form 10-Q for the period ended Sep 30, 2025

The following is management's discussion and analysis of the major factors that influenced our results of operations and financial condition as of and for the three and nine months ended September 30, 2025. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2024 (the "Form 10-K") and with the unaudited condensed consolidated financial statements and notes thereto set forth in this Quarterly Report on Form 10-Q.

Forward-Looking Information

This Quarterly Report on Form 10-Q contains certain “forward-looking statements” about the Company and its subsidiaries within the meaning of the Private Securities Litigation Reform Act of 1995, including certain plans, strategies, goals, and projections and including statements about our expectations regarding our operating expenses, profitability, allowance for credit losses, net interest margin, net interest income, deposit growth, loan and lease portfolio growth and production, acquisitions and related integrations, maintaining capital adequacy, liquidity, goodwill, and interest rate risk management. All statements contained in this Quarterly Report on Form 10-Q that are not clearly historical in nature are forward-looking, and the words “anticipate,” “assume,” “intend,” “believe,” “forecast,” “expect,” “estimate,” “plan,” “continue,” “will,” “should,” “look forward” and similar expressions are generally intended to identify forward-looking statements. All forward-looking statements (including statements regarding future financial and operating results and future transactions and their results) involve risks, uncertainties, and contingencies, many of which are beyond our control, which may cause actual results, performance, or achievements to differ materially from anticipated results, performance, or achievements. Actual results could differ materially from those contained or implied by such forward-looking statements for a variety of factors, including without limitation:

• changes in general economic conditions, either nationally or in our market areas, including the impact of tariffs, supply chain disruptions, and the risk of recession or an economic downturn;
• changes in the interest rate environment, including the recent and potential future changes in the FRB benchmark rate, which could adversely affect our revenue and expenses, the value of assets and obligations, the realization of deferred tax assets, the availability and cost of capital and liquidity, and the impacts of continuing or renewed inflation;
• the credit risks of lending activities, which may be affected by deterioration in real estate markets and the financial condition of borrowers, and the operational risk of lending activities, including the effectiveness of our underwriting practices and the risk of fraud, any of which may lead to increased loan delinquencies, losses, and non-performing assets, and may result in our allowance for credit losses not being adequate;
• fluctuations in the demand for loans, and fluctuations in commercial and residential real estate values in our market area;
• the quality and composition of our securities portfolio;
• our ability to develop and maintain a strong core deposit base, including among our venture banking clients, or other low cost funding sources necessary to fund our activities particularly in a rising or high interest rate environment;
• the rapid withdrawal of a significant amount of demand deposits over a short period of time;
• the costs and effects of litigation;
• risks related to the Company's acquisitions, including disruption to current plans and operations; difficulties in customer and employee retention; fees, expenses and charges related to these transactions being significantly higher than anticipated; and our inability to achieve expected revenues, cost savings, synergies, and other benefits;
• results of examinations by regulatory authorities of the Company and the possibility that any such regulatory authority may, among other things, limit our business activities, restrict our ability to invest in certain assets, refrain from issuing an approval or non-objection to certain capital or other actions, increase our allowance for credit losses, result in write-downs of asset values, restrict our ability or that of our bank subsidiary to pay dividends, or impose fines, penalties or sanctions;
• legislative or regulatory changes that adversely affect our business, including changes in tax laws and policies, accounting policies and practices, privacy laws, and regulatory capital or other rules;
• the risk that our enterprise risk management framework may not be effective in mitigating risk and reducing the potential for losses;
• errors in estimates of fair values of certain of our assets and liabilities, as well as the value of collateral supporting our loans, which may result in significant changes in valuation or recoveries;
• failures or security breaches with respect to the network, applications, vendors, and computer systems on which we depend, including due to cybersecurity threats;
• our ability to attract and retain key members of our senior management team;
• the effects of climate change, severe weather events, natural disasters such as earthquakes and wildfires, pandemics, epidemics, and other public health crises, acts of war or terrorism, and other external events on our business;
• the impact of bank failures or other adverse developments at other banks on general depositor and investor sentiment regarding the stability and liquidity of banks;
• the possibility that our recorded goodwill could become impaired, which may have an adverse impact on our earnings and capital;
• our existing indebtedness, together with any future incurrence of additional indebtedness, could adversely affect our ability to raise additional capital and to meet our debt obligations;
• the risk that we may incur significant losses on future asset sales or may not be able to execute anticipated asset sales; and
• other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and the other risks described in our Form 10-K and from time to time in other documents that we file with or furnish to the SEC.

All forward-looking statements included in this Quarterly Report on Form 10-Q are based on information available at the time the statement is made. We are under no obligation to (and expressly disclaim any such obligation to) update or alter our forward-looking statements, whether as a result of new information, future events or otherwise except as required by law.

Overview

Banc of California, Inc., a Maryland corporation, was incorporated in March 2002 and serves as the holding company for its wholly owned subsidiary, Banc of California (the “Bank”), a California state-chartered bank and member of the FRB. When we refer to the “holding company," we are referring to Banc of California, Inc., the parent company, on a stand-alone basis. When we refer to “we,” “us,” “our,” or the “Company,” we are referring to Banc of California, Inc. and its consolidated subsidiaries including the Bank, collectively. The Bank is a premier relationship-based business bank, providing banking and treasury management services to small-, middle-market, and venture-backed businesses. The Bank offers a broad range of loan and deposit products and services through full-service branches throughout California and in Denver, Colorado, and Durham, North Carolina, as well as through regional offices nationwide. The Bank also provides full-service payment processing solutions to its clients and serves the Community Association Management industry nationwide with its technology-forward platform, SmartStreet™.

Recent Events

Stock Repurchase Program

On March 17, 2025, we announced that our Board of Directors authorized the repurchase of up to $150.0 million of our common stock. On April 23, 2025, the Company announced an upsize of its stock repurchase program from $150.0 million to $300.0 million and expanded the program to cover both the Company's common stock and depositary shares representing its preferred stock. The repurchase authorization expires in March 2026.

During the nine months ended September 30, 2025, the Company repurchased a total of 13.6 million shares of common and common equivalent stock for $185.5 million, at a weighted-average price of $13.59 per share. This included the repurchase of 2.7 million shares in the first quarter, 8.8 million in the second quarter, and 2.2 million in the third quarter. As of September 30, 2025, the Company had $114.5 million remaining under the stock repurchase authorization. For further information on the stock repurchase program, see Note 15. Stockholders' Equity, of our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Strategic Loan Sales Process

During the second quarter of 2025, the Company commenced a strategic loan sale process, reclassifying approximately $506.7 million of loans as held for sale. While many of the loans being sold have sufficient collateral values, they have attributes that drive credit migration, and as a result we commenced the sales process for these loans in the second quarter. As a result of the transfer, the Company recognized charge-offs totaling $36.9 million resulting in an incremental impact to provision expense of $26.3 million in the second quarter of 2025.

As of September 30, 2025, the Company had liquidated $292.0 million of these loans through the sale of $236.4 million of loans and the repayment of an additional $55.6 million prior to sale. The Company also recognized a loss of $0.4 million on the loans sold. As of September 30, 2025, $180.9 million of loans remained to be sold relating to the strategic loan sale.

Key Performance Indicators

Among other factors, our operating results generally depend on the following key performance indicators:

The Level of Net Interest Income

Net interest income is the excess of interest earned on our interest-earning assets over the interest paid on our interest-bearing liabilities. Net interest margin is net interest income (annualized if related to a non-annual period) expressed as a percentage of average interest-earning assets.

Net interest income is affected by changes in both interest rates and the volume of average interest-earning assets and interest-bearing liabilities. Our primary interest-earning assets are loans and investment securities, and our primary interest-bearing liabilities are deposits and borrowings. While our deposit balances will fluctuate depending on our customers’ liquidity and cash flow, market conditions, and competitive pressures, we seek to minimize the impact of these variances by attracting a high percentage of noninterest-bearing deposits. We continue to focus on growing granular relationship-based deposits as a key component of our core deposit strategy, which supports a stable funding base and strengthens our client franchise.

Loan and Lease Production

We actively seek new lending opportunities under an array of lending products. Our lending activities include real estate mortgage loans, real estate construction and land loans, commercial loans and leases, and a small amount of consumer lending. Our commercial real estate loans and real estate construction loans are secured by a range of property types. Our commercial loans and leases portfolio is diverse and generally includes various asset-secured loans, lender finance loans, equipment-secured loans and leases, venture capital loans to support venture capital firms’ operations and the operations of entrepreneurial and venture-backed companies during the various phases of their early life cycles, warehouse loans, and secured business loans.

Our loan origination process emphasizes credit quality. To augment our internal loan production, we have purchased loans such as single-family residential mortgage loans, multi-family loans from other banks, and private student loans from third-party lenders. These loan purchases help us manage the concentrations in our portfolio as they diversify the geographic risk, interest-rate risk, credit risk, and product composition of our loan portfolio. Achieving net loan growth is subject to many factors, including maintaining strict credit standards, competition from other lenders, and borrowers that opt to prepay loans.

The Magnitude of Credit Losses

We emphasize credit quality in originating and monitoring our loans and leases, and we measure our success by the levels of our classified loans and leases, nonaccrual loans and leases, and net charge-offs. We maintain an ACL on loans and leases, which is the sum of the ALLL and the reserve for unfunded loan commitments. Provisions for credit losses are charged to operations as and when needed for both on and off-balance sheet credit exposures. Loans and leases that are deemed uncollectible are charged off and deducted from the ALLL. Recoveries on loans and leases previously charged off are added to the ALLL. The provision for credit losses on the loan and lease portfolio is based on our allowance methodology, which considers the impact of assumptions and is reflective of historical experience, economic forecasts viewed to be reasonable and supportable by management, the current loan and lease composition, and relative credit risks known as of the balance sheet date. For originated and acquired credit-deteriorated loans, a provision for credit losses may be recorded to reflect credit deterioration after the origination date or after the acquisition date, respectively.

We regularly review loans and leases to determine whether there has been any deterioration in credit quality resulting from borrower operations or changes in collateral value or other factors which may affect the collectability of our loans and leases. Changes in economic conditions, such as the rate of economic growth, the unemployment rate, rate of inflation, increases in the general level of interest rates, declines in real estate values, changes in commodity prices, and adverse conditions in borrowers’ businesses, could negatively impact our borrowers and cause us to adversely classify loans and leases. An increase in classified loans and leases generally results in increased provisions for credit losses and an increased ACL. Any deterioration in the commercial real estate market may lead to increased provisions for credit losses because our loans are concentrated in commercial real estate loans.

The Level of Noninterest Expense

Our noninterest expense includes fixed and controllable overhead, the largest components of which are compensation expense, customer related expense, information technology and data processing expense, and occupancy expense. Customer related expenses are primarily ECR payments to customers and are mostly driven by the HOA business. ECRs are rate-sensitive and fluctuate in response to changes in the federal funds rate. Additionally, noninterest expense includes insurance and assessments, intangible asset amortization, leased equipment depreciation, other professional services, loan expenses, acquisition, integration and organization costs, and other expense. We monitor our efficiency ratio as a key measure of operational performance.

Critical Accounting Policies and Estimates

The following discussion and analysis of financial condition and results of operations are based upon our condensed consolidated financial statements and the notes thereto, which have been prepared in accordance with U.S. GAAP. The preparation of the condensed consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the condensed consolidated financial statements. On an ongoing basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. We believe that our estimates and assumptions are reasonable; however, actual results may ultimately differ significantly from these estimates and assumptions, which could have a material adverse effect on the carrying value of assets and liabilities at the balance sheet dates and on our results of operations for the reporting periods.

Our accounting policies and estimates are fundamental to understanding the following discussion and analysis of financial condition and results of operations. We identify critical policies and estimates as those that require management to make particularly difficult, subjective, and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These policies and estimates relate to the ACL on loans and leases held for investment, the carrying value of goodwill and other intangible assets, and the realization of deferred income tax assets and liabilities.

Our critical accounting policies and estimates are described in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Form 10-K.

Non-GAAP Financial Measures

We use certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance. This disclosure should not be viewed as a substitute for results determined in accordance with GAAP. The methodology for determining these non-GAAP measures may differ among companies and may not be comparable. We used the following non-GAAP measures in this Quarterly Report on Form 10-Q:

• Return on average tangible common equity, tangible common equity, tangible book value per common share, efficiency ratio, adjusted net earnings, and adjusted diluted earnings per share: Given that the use of these measures is prevalent among banking regulators, investors, and analysts, we disclose them in addition to the related GAAP measures of return on average equity, book value per common share, and noninterest expense to total revenue, respectively. The reconciliations of these non-GAAP measures to the GAAP measures are presented in the following tables for and as of the periods presented.

(Dollars in thousands)

(1) Effective tax rates of 27.34% and 23.12% used for the three months ended September 30, 2025 and June 30, 2025. Effective tax rates of 27.34% and 27.61% used for the nine months ended September 30, 2025 and 2024.

(2) Annualized net earnings divided by average stockholders' equity.

(3) Annualized adjusted net earnings available to common and equivalent stockholders for ROATCE divided by average tangible common equity.

(Dollars in thousands, except per share data)

(1) Total common equity divided by common and equivalent shares outstanding.

(2) Tangible common equity divided by common and equivalent shares outstanding.

(3) Common and equivalent shares outstanding include non-voting common stock equivalents that are participating securities.

(Dollars in thousands)

(1) Includes customer related expense of $26.2 million and $26.6 million for the three months ended September 30, 2025 and June 30, 2025, and $80.6 million and $97.8 million for the nine months ended September 30, 2025 and 2024.

(2) Noninterest expense used for efficiency ratio divided by total revenue.

(Dollars in thousands)

(1) Effective tax rates of 27.34% and 23.12% used for the three months ended September 30, 2025 and June 30, 2025. Effective tax rates of 27.34% and 27.61% used for the nine months ended September 30, 2025 and 2024.

(2) Adjusted net earnings available to common and equivalent stockholders divided by weighted average diluted common shares outstanding.

(3) Annualized net earnings divided by average assets.

(4) Annualized adjusted net earnings divided by average assets.

(Dollars in thousands)

82

Results of Operations

The Company reported net earnings available to common and equivalent stockholders of $59.7 million, or $0.38 per diluted common share, for the third quarter of 2025. This compares to 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 second quarter of 2025, or $0.31 per diluted common share.(1) The second quarter of 2025 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.

Third Quarter of 2025 Financial Highlights:

• Total revenue of $287.7 million increased over 5% and pre-tax pre-provision income(1) of $102.0 million increased 17% from the second quarter of 2025 driven by strong net interest income growth, margin expansion, and continued expense discipline.
• Net interest margin increased by 12 basis points from the previous quarter to 3.22% driven by a higher average yield on loans and leases increasing by 12 basis points and lower cost of funds decreasing by 5 basis points.
• Noninterest-bearing deposits of $7.6 billion increased 9% annualized from the previous quarter. Noninterest-bearing deposits represented 28% of total deposits at the end of the third quarter, up from 27% at the end of the second quarter.
• Loan production and disbursements totaled $2.1 billion with a weighted average interest rate on production of 7.08%.
• Liquidated $263.5 million of held for sale commercial real estate loans through strategic loan sales and payoffs.
• Credit quality metrics remained stable with 4% reduction in criticized loans from the previous quarter. The allowance for credit losses ratio increased to 1.12%, up from 1.07% in the previous quarter.
• Noninterest expense of $185.7 million remained flat from the previous quarter resulting in an efficiency ratio(1) decrease to 62.05% from 65.50% in the previous quarter.
• Repurchased 2.2 million shares of common and common equivalent stock at a weighted average price per share of $16.48, or $35.5 million in the aggregate, during the third quarter, and 13.6 million shares of common stock at a weighted average price per share of $13.59, or $185.5 million in the aggregate, year-to-date.
• Maintained strong capital ratios well above the regulatory thresholds for "well capitalized" banks, including a 12.56% Tier 1 capital ratio and 10.14% CET 1 capital ratio and continued growth in book value per share to $19.09, up 3% from the previous quarter, and tangible book value per share(1) to $16.99, up 3% from the previous quarter.

(1) See "- Non-GAAP Financial Measures."

The following table presents financial results and performance ratios for the periods indicated:

(Dollars in thousands, except per share data)

(1) Shares include non-voting common stock equivalents that are participating securities.

(2) See "- Non-GAAP Financial Measures."

(3) Annualized.

(4) Total revenue equals the sum of net interest income and noninterest income.

(5) Ratio calculated by dividing noninterest expense (less intangible asset amortization and acquisition, integration and reorganization costs) by total revenue (less gain/loss on sale of securities). See "- Non-GAAP Financial Measures." Noninterest expense includes customer related expense of $26.2 million and $26.6 million for the three months ended September 30, 2025 and June 30, 2025, and $80.6 million and $97.8 million for the nine months ended September 30, 2025 and 2024.

Net Interest Income and Net Interest Margin

The following tables summarize the distribution of average assets, liabilities, and stockholders’ equity, as well as interest income and yields earned on average interest-earning assets and interest expense and rates paid on average interest-bearing liabilities, presented on a tax equivalent basis, for the periods indicated:

(Dollars in thousands)

(1) Total loans are net of deferred fees, related direct costs, and premiums and discounts, but exclude the allowance for loan losses. Includes net loan discount accretion of $19.3 million and $16.1 million for the three months ended September 30, 2025 and June 30, 2025.

(2) Total deposits is the sum of interest-bearing deposits and noninterest-bearing demand deposits. The cost of total deposits is calculated as annualized interest expense on total deposits divided by average total deposits.

(3) Total funds is the sum of total interest-bearing liabilities and noninterest-bearing demand deposits. The cost of total funds is calculated as annualized total interest expense divided by average total funds.

(Dollars in thousands)

(1) Total loans are net of deferred fees, related direct costs, and premiums and discounts, but exclude the allowance for loan losses. Includes net loan discount accretion of $51.5 million and $67.3 million for the nine months ended September 30, 2025 and 2024.

(2) Total deposits is the sum of interest-bearing deposits and noninterest-bearing demand deposits. The cost of total deposits is calculated as annualized interest expense on total deposits divided by average total deposits.

(3) Total funds is the sum of total interest-bearing liabilities and noninterest-bearing demand deposits. The cost of total funds is calculated as annualized total interest expense divided by average total funds.

Third Quarter of 2025 Compared to Second Quarter of 2025

Net interest income increased by $13.2 million to $253.4 million for the third quarter from $240.2 million for the second quarter, attributable primarily to the following:

• An increase of $10.4 million in interest income from loans due primarily to higher average yield driven mainly by higher rate on new loan production, a higher day count, and higher income from loan payoffs, including the payoff of a large commercial real estate loan.
• A decrease of $1.9 million in interest expense on deposits due primarily to lower average balances largely driven by lower brokered deposits and lower interest rates, partially offset by a higher day count.
• An increase of $0.9 million in interest income from deposits in financial institutions driven mainly by higher average balances and a higher day count, partially offset by lower interest rates.

The net interest margin was 3.22% for the third quarter, up 12 basis points from 3.10% for the second quarter, primarily driven by a higher average yield on interest-earning assets. The average yield on interest-earning assets increased to 5.50% from 5.42%, reflecting a 12 basis point increase in the average yield on loans and leases to 6.05%, largely due to the higher income related to loan payoffs discussed above.

The average total cost of funds was 2.37% for the third quarter, down 5 basis points from 2.42% for the second quarter, driven primarily by lower deposit and borrowing costs and a favorable shift in the funding mix. Brokered deposits decreased as strong customer deposit inflows in the third quarter were used to reduce higher-cost funding sources. As a result, the average total cost of deposits decreased by 5 basis points to 2.08% from 2.13% in the second quarter, while the average cost of borrowings declined by 17 basis points to 4.76%.

Average total deposits decreased by $12.9 million, with a $112.1 million decrease in average interest-bearing deposits partially offset by a $99.2 million increase in average noninterest-bearing deposits. Average noninterest-bearing deposits represented 28.2% of average total deposits in the third quarter, up from 27.8% in the second quarter.

Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024

Net interest income increased by $35.3 million to $726.0 million for the nine months ended September 30, 2025 from $690.8 million for the nine months ended September 30, 2024 attributable primarily to the following:

• A decrease of $133.4 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 balances due mainly to the paydown of brokered deposits.
• A decrease of $30.4 million in interest expense on borrowings and subordinated debt driven by lower average balances resulting from the payoff of higher-cost borrowings in 2024, which were partially replaced with lower-cost long-term FHLB advances and lower market interest rates.
• An increase of $10.7 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 $76.1 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.
• A decrease of $63.1 million in interest income from loans due primarily to lower market interest rates reflective of federal funds rate cuts, lower average balances attributable mainly to the sale in July 2024 of $1.95 billion of Civic loans, and by lower net loan discount accretion income.

The net interest margin was 3.13% for the nine months ended September 30, 2025, up 34 basis points from 2.79% for the nine months ended September 30, 2024. The year-over-year improvement was primarily driven by a 53 basis point decrease in the average total cost of funds to 2.40%, offset partially by a 17 basis point decrease in the average yield on interest-earning assets to 5.44%.

The average total cost of funds decreased by 53 basis points to 2.40%, driven by lower market interest rates and a shift in mix. The average cost of deposits declined by 49 basis points to 2.11%, reflecting the impact of federal funds rate cuts in the second half of 2024. Average total deposits decreased by $1.7 billion year over year, including a $1.5 billion reduction in average interest-bearing deposits and a $144.0 million decrease in average noninterest-bearing deposits. Despite this decline, average noninterest-bearing deposits represented 28.2% of average total deposits for the nine months ended September 30, 2025, up from 27.0% for the comparable period in 2024. The average cost of borrowings also decreased by 75 basis points to 4.99%, reflecting the paydown of higher-cost borrowings in the prior year and their replacement with lower-cost long-term FHLB advances.

The average yield on interest-earning assets declined by 17 basis points to 5.44%, due primarily to a 102 basis point decrease in the average yield on deposits in financial institutions, and an 18 basis point decline in the average yield on loans and leases, offset partially by a 27 basis point increase in the average yield on investment securities. The average yield on deposits in financial institutions decreased to 4.39% from 5.41% driven by the federal funds rate cuts described above, while the average yield on loans and leases decreased to 5.96% from 6.14%, driven by lower net loan discount accretion income and market rates. The average yield on investment securities increased to 3.21% from 2.94%, reflecting continued benefits from the 2024 balance sheet repositioning actions and reinvestment into higher-yield assets.

Provision for Credit Losses

The following table sets forth the details of the provision for credit losses on loans and leases held for investment and securities and information regarding credit quality metrics for the periods indicated:

(Dollars in thousands)

(1) See "- Balance Sheet Analysis - Allowance for Credit Losses on Loans and Leases Held for Investment" for detail of charge-offs and recoveries by loan portfolio segment, class, and subclass for the periods presented.

Provision for credit losses are charged to earnings for the ALLL, the reserve for unfunded loan commitments, and the ACL on HTM and AFS securities. The provision for credit losses on our loans and leases held for investment is based on our allowance methodology and is an expense that, in our judgment, is required to maintain an adequate ACL. For further details on our loan-related ACL methodology, see “- Balance Sheet Analysis - Allowance for Credit Losses on Loans and Leases Held for Investment” contained herein.

Third Quarter of 2025 Compared to Second Quarter of 2025

The provision for credit losses was $9.7 million for the third quarter compared to $39.1 million for the second quarter. The third quarter provision included a provision for loan losses of $8.7 million and a $1.0 million provision for unfunded loan commitments.

The third quarter provision for loan losses and unfunded commitments reflected changes in loan risk ratings, new originations, changes in the macroeconomic outlook, and higher unfunded commitments, partially offset by net recoveries and lower qualitative reserve driven primarily by lower balances in commercial real estate loans secured by office properties compared to the second quarter.

The second quarter provision included a $38.6 million provision for loan losses and a $0.9 million provision for credit losses related to investment securities, offset by a $0.4 million reversal of the provision for unfunded loan commitments.

The second quarter provision for 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, and an increase in the reserve driven by the updated economic forecast.

Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024

The provision for credit losses was $58.1 million for the nine months ended September 30, 2025 compared to $30.0 million for the nine months ended September 30, 2024. The provision for the 2025 period primarily included a provision for loan losses of $57.0 million and a provision for unfunded loan commitments of $1.2 million.

The provision for the 2025 period included $26.3 million related to loans transferred to HFS, as described above. The remaining increase in the provision for loan losses and unfunded loan commitments was primarily driven by net charge-off activity, with additional impacts from changes in loan risk ratings. 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 losses and unfunded loan commitments for the 2024 period included a $32.0 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 and sold in the third quarter of 2024.

Certain circumstances may lead to increased provisions for credit losses on loans and leases in the future. Examples of such circumstances include deterioration in economic conditions and forecasts, an increased amount of classified and/or criticized loans and leases, and net loan and lease and unfunded commitment growth. Deterioration in economic conditions and forecasts may include the rate of economic growth, the unemployment rate, the rate of inflation, changes in the general level of interest rates, changes in real estate values, and adverse conditions in borrowers’ businesses. See further discussion in “- Balance Sheet Analysis - Allowance for Credit Losses on Loans and Leases Held for Investment” contained herein.

Noninterest Income

The following table summarizes noninterest income by category for the periods indicated:

(In thousands)

Third Quarter of 2025 Compared to Second Quarter of 2025

Noninterest income increased by $1.7 million to $34.3 million for the third quarter from $32.6 million for the second quarter due mainly to a $2.4 million increase in dividends and gains on equity investments, offset partially by a $0.8 million decrease in warrant income. The increase in dividends and gains on equity investments was primarily related to fair value gains in the third quarter on SBIC investments compared to fair value losses in the second quarter. The decrease in warrant income was driven by lower gains from warrant exercises.

Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024

Noninterest income increased by $52.4 million to $100.6 million for the nine months ended September 30, 2025 from $48.2 million for the nine months ended September 30, 2024 . The prior year period included a $59.9 million loss on the sale of $742 million of securities executed as part of a balance sheet repositioning initiative, which was partially offset by a $9.0 million decrease in leased equipment income, as the prior year benefited from higher gains from early lease terminations and sale of leased assets.

Noninterest Expense

The following table summarizes noninterest expense by category for the periods indicated:

(In thousands)

Third Quarter of 2025 Compared to Second Quarter of 2025

Noninterest expense remained relatively flat at $185.7 million for the third quarter compared to $185.9 million for the second quarter.

Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024

Noninterest expense decreased by $55.2 million to $555.2 million for the nine-month period ended September 30, 2025 due mainly to decreases of $33.9 million in insurance and assessments, $17.2 million in customer related expenses, $6.4 million in occupancy, and $10.7 million in all of the other expense categories, offset partially by an increase of $13.2 million in acquisition, integration and reorganization costs. Insurance and assessment decreased primarily due to incremental FDIC special assessments recorded in 2024, which reflected higher assessment rates. Customer related expense decreased due to lower earnings credit rate expenses, driven by the lower federal funds rate. Occupancy expenses decreased as a result of cost savings from branch consolidations following the PacWest Bancorp merger. Acquisition, integration and reorganization costs of $13.2 million in 2024 reflected adjustments to the merger-related accruals, as actual expenses were lower than previously estimated.

Income Taxes

Third Quarter of 2025 Compared to Second Quarter of 2025

Income tax expense of $22.7 million was recorded for the third quarter resulting in an effective tax rate of 24.6% compared to income tax expense of $19.5 million and an effective tax rate of 40.7% for the second quarter.

The higher 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 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.

Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024

Income tax expense of $61.7 million was recorded for the nine-month period ended September 30, 2025 resulting in an effective tax rate of 28.9% compared to income tax expense of $28.6 million and an effective tax rate of 29.0% for the comparable period in 2024.

On July 4, 2025, the One Big Beautiful Bill Act (the “OBBBA”) was enacted in the U.S. The OBBBA includes significant tax reform provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act and the restoration of immediate deductions of certain capital asset additions. While our initial evaluation indicates these tax law changes will not materially impact the Company’s future effective tax rate, we will continue to monitor any additional changes and relevant guidance, and to assess any potential impact to our financial statements.

Balance Sheet Analysis

The following table provides a summary of our balance sheet highlights as of the dates indicated:

(In thousands)

Cash and Cash Equivalents

Cash and cash equivalents decreased by $103.9 million to $2.4 billion at September 30, 2025 compared to $2.5 billion at December 31, 2024, primarily attributable to the use of cash to support loan growth.

Securities Available-for-Sale

The following table presents the composition and durations of our AFS securities as of the dates indicated:

(Dollars in thousands)

AFS securities increased by $179.9 million to $2.4 billion at September 30, 2025 compared to $2.2 billion at December 31, 2024, due primarily to purchases of $444.5 million and a $72.6 million increase in the fair value of AFS securities resulting from lower interest rates, offset partially by $330.8 million of principal paydowns, maturities, and calls.

As of September 30, 2025, AFS securities had aggregate unrealized net after-tax losses in AOCI of $147.9 million compared to $200.1 million at December 31, 2024. The decrease in unrealized net losses on AFS securities was driven by a decline in interest rates, which positively impacted the fair values of these securities.

Securities Held-to-Maturity

The following table presents the composition and duration of our HTM securities as of the dates indicated:

(Dollars in thousands)

HTM securities remained relatively flat at $2.3 billion at both September 30, 2025 and December 31, 2024.

As of September 30, 2025, HTM securities had aggregate unrealized net after-tax losses in AOCI of $139.7 million remaining from the balance established at the time of the AFS to HTM transfer on June 1, 2022, compared to $157.9 million at December 31, 2024.

The following table shows the geographic composition of the majority of our HTM municipal securities portfolio as of the date indicated:

(Dollars in thousands)

94

Loans and Leases Held for Investment

The following table presents the composition of our loans and leases held for investment by loan portfolio segment, class, and subclass as of the dates indicated:

(Dollars in thousands)

(1) Includes land and acquisition and development loans of $217.7 million at September 30, 2025 and $223.9 million at December 31, 2024, respectively.

Total loans and leases held for investment increased by $329.0 million and totaled $24.1 billion at September 30, 2025 compared to $23.8 billion at December 31, 2024. The increase in loans and leases held for investment was due primarily to increased balances in the asset-based, venture capital, other residential real estate mortgage (mainly from purchased single-family residential loans), and other commercial loan portfolios, offset partially by a decrease in the real estate construction and land loan segment and the commercial real estate mortgage loan portfolios.

In the second quarter of 2025, the Company commenced a strategic loan sale process and transferred $506.7 million of loans to held for sale. While many of the loans in the sale portfolio are adequately collateralized, they possess credit characteristics or risk attributes that have contributed to credit migration, and accordingly, the Company commenced the sales process for these loans.

As of June 30, 2025, $30.5 million of these loans had been sold at market value of $28.5 million, and the remaining $476.2 million were transferred to held for sale and carried at the lower of cost or market value of $441.2 million. The loans transferred to held for sale consisted of $258.4 million in commercial real estate construction loans, $163.2 million in commercial real estate mortgage loans, and $19.6 million in multi-family loans.

During the third quarter of 2025, the Company sold $207.9 million of these loans that had been transferred to held for sale, and $55.6 million of such loans were repaid prior to sale. Sold loans consisted of $174.9 million in commercial real estate construction loans, $20.4 million in multi-family loans, and $12.2 million in commercial real estate mortgage loans. These loan sales met the requisite criteria to be accounted for as sales in accordance with ASC 860, Transfers and Servicing. In connection with the sale, the Company recognized a loss of $0.4 million on the loans sold. As of September 30, 2025, $180.9 million of loans remained classified as held for sale under the strategic loan sale initiative.

The following table presents a roll forward of loans and leases held for investment for the period indicated:

(In thousands)

96

Real Estate Loans Held for Investment

Our real estate loan portfolio encompasses commercial real estate mortgage, residential real estate mortgage, and real estate construction and land loans. As of September 30, 2025 and December 31, 2024, the real estate loan comprised 65% and 70%, respectively, of the total loan portfolio. The following table presents the geographic composition of our real estate loans held for investment by the top 10 states and all other states combined (in the order presented for the current quarter-end) as of the dates indicated:

(Dollars in thousands)

At September 30, 2025 and December 31, 2024, 72% and 71% of our real estate loans were collateralized by property located in California because our full-service branches and our community banking activities are primarily located in California.

Loans Held for Sale

Total loans held for sale increased by $185.1 million to $211.5 million at September 30, 2025 compared to $26.3 million at December 31, 2024. The increase primarily reflects the transfer of loans to HFS as part of the Company’s strategic loan sale process initiated in the second quarter of 2025, partially offset by subsequent loan liquidations, as discussed above.

Allowance for Credit Losses on Loans and Leases Held for Investment

The ACL on loans and leases held for investment is the combination of the ALLL and the reserve for unfunded loan commitments. The ALLL is reported as a reduction of the amortized cost basis of loans and leases, while the reserve for unfunded loan commitments is included within "Accrued interest payable and other liabilities" on the condensed consolidated balance sheets. The amortized cost basis of loans and leases does not include accrued interest receivable, which is included in "Other assets" on the condensed consolidated balance sheets. The "Provision for credit losses" on the condensed consolidated statement of earnings is a combination of the provision for loan and lease losses, the provision for unfunded loan commitments, the provision for AFS debt securities, and the provision for HTM debt securities.

Under the CECL methodology, expected credit losses reflect losses over the remaining contractual life of an asset, considering the effect of prepayments and available information about the collectability of cash flows, including information about relevant historical experience, current conditions, and reasonable and supportable forecasts of future events and circumstances. Thus, the CECL methodology incorporates a broad range of information in developing credit loss estimates.

For further information regarding the calculation of the ACL on loans and leases held for investment using the CECL methodology, see Note 1. Nature of Operations and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements contained in "Item 8. Financial Statements and Supplementary Data" of our Form 10-K.

In calculating our ACL, we continued to consider higher inflation rates, the Federal Reserve's monetary policy, the risk of a recession, technical or otherwise, and the impact of various geopolitical risks on the economy in our process for estimating expected credit losses given the changes in economic forecasts and assumptions along with the uncertainty related to the severity and duration of the economic consequences resulting from such events. Our methodology and framework along with the 4-quarter reasonable and supportable forecast period and 2-quarter reversion period have remained consistent since the implementation of CECL on January 1, 2020. Certain management assumptions are reassessed every quarter based on current expectations for credit losses, while other assumptions are assessed and updated on at least an annual basis.

For the third quarter of 2025, we used the Moody’s September 30, 2025 Baseline and S2 Downside 75th Percentile for the calculation of our quantitative component. The weightings of the scenarios were based on management’s current expectations for the economic forecast, acknowledging the risk of recession over our reasonable and supportable forecast period and the current economic uncertainty.

The ACL on loans and leases, which includes the reserve for unfunded loan commitments, totaled $270.7 million, or 1.12% of total loans and leases, at September 30, 2025, compared to $268.4 million, or 1.13% of total loans and leases, at December 31, 2024. The $2.3 million increase in the allowance was driven was primarily driven by ACL provision expense of $58.1 million partially offset by net charge off activity totaling $55.8 million including the charge-offs associated with the transfer of loans to held for sale in the second quarter.

As part of our ACL methodology, we consistently incorporate the use of qualitative factors in determining the overall ACL to capture risks that may not be appropriately reflected in our quantitative models. Such qualitative factors may include, but are not limited to: economic conditions not captured in in the quantitative reserve; collateral dependency related to certain loan portfolios including loans secured by office properties that were directly impacted by flexible/hybrid work environment; concentrations of credit within the loan portfolio including the commercial real estate portfolio; the quality of the Company’s credit review system; the volume and severity of adversely classified financial assets; the Company’s lending policies and procedures; and the effect of other external factors such as the regulatory and legal environments. During the third quarter of 2025, reserves associated with the qualitative adjustments decreased when compared to the prior quarter. Primary qualitative adjustments were related to loans secured by office properties and concentration of credit associated with commercial real estate loans, multi-family loans, and construction loans.

The use of different economic forecasts, whether based on different scenarios, the use of multiple or single scenarios, or updated economic forecasts and scenarios, can change the outcome of the calculations. In addition to the economic forecasts, there are numerous components and assumptions that are integral to the overall estimation of the ACL. As part of our ACL process, sensitivity analyses are performed to assess how changing certain assumptions could impact the estimated ACL. At times, these analyses can provide information to further assist management in making decisions related to certain assumptions. We calculated alternative values for our ACL using various alternative forecast scenarios weightings and the calculated amounts for the quantitative component differed from the probability-weighted multiple scenario forecast ranging from increasing the dollar amount of the quantitative component of the ACL by 4.95% to lower reserves by 5.34%. However, from a sensitivity analysis perspective, changing key assumptions such as the macro-economic variable inputs from the economic forecasts, the reasonable and supportable forecast period, prepayment rates, loan segmentation, historical loss factors and/or periods, among others, would all change the outcome of the quantitative components of the ACL. Those results would then need to be assessed from a qualitative perspective, potentially requiring further adjustments to the qualitative component to arrive at a reasonable and appropriate ACL.

The determination of the ACL is complex and highly dependent on numerous models, assumptions, and judgments made by management. Management's current expectation for credit losses on loans and leases held for investment as quantified in the ACL incorporates certain management assumptions and is reflective of historical credit experience, economic forecasts viewed to be reasonable and supportable, current loan and lease composition, and relative credit risks known as of the balance sheet date.

Management believes the ACL is appropriate for the current expected credit losses in our loan and lease portfolio and associated unfunded loan commitments, and the credit risk ratings and inherent loss rates currently assigned are reasonable and appropriate as of the reporting date. It is possible that others, given the same information, may at any point in time reach different conclusions that could result in a significant impact to the Company's financial statements.

The following table presents information regarding the ACL on loans and leases held for investment as of the dates indicated:

(Dollars in thousands)

99

The following table presents the changes in our ACL on loans and leases held for investment for the periods indicated:

(Dollars in thousands)

100

The following table presents charge-offs by loan portfolio segment, class, and subclass for the periods indicated:

(In thousands)

101

The following table presents recoveries by portfolio segment, class, and subclass for the periods indicated:

(In thousands)

102

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 primarily due to the transfer of loans to held for sale in connection with the strategic loan sales process commenced in the second quarter of 2025. These sales and transfers contributed to broad-based improvements across key credit quality metrics.

As of September 30, 2025, criticized loans and leases decreased by $391.3 million, or 24%, from December 31, 2024, driven by special mention loans and leases decreasing by 54% to 2.10% of total loans and leases held for investment, down from 4.61%. This improvement was partially offset by classified loans and leases increasing during the same period by 36% to 3.17% of total loans and leases, up from 2.37%, largely due to a risk rating framework update implemented within the Venture Banking loan portfolio. Classified loans and leases also included a $49.6 million commercial real estate loan which became classified in the third quarter of 2025. Subsequent to the end of the third quarter, the borrower entered into a contract to sell the underlying property at a price above our loan amount. The sale is expected to close in the fourth quarter.

Nonperforming Assets, Classified Loans and Leases, and Special Mention Loans and Leases

The following table presents information on our nonperforming assets, classified loans and leases, and special mention loans and leases as of the dates indicated:

(Dollars in thousands)

103

Nonaccrual Loans and Leases Held for Investment

The following table presents our nonaccrual loans and leases held for investment and accruing loans and leases past due between 30 and 89 days by loan portfolio segment and class as of the dates indicated:

(In thousands)

Nonperforming loans and leases held for investment decreased by $15.1 million to $174.5 million at September 30, 2025 compared to $189.6 million at December 31, 2024, due mainly to principal and other reductions of $87.4 million, charge-offs of $22.5 million, transfers to accrual status of $19.8 million, and transfers to held for sale of $5.7 million, offset partially by additions of $120.3 million. As of September 30, 2025, the Company's three largest loan relationships on nonaccrual status had an aggregate carrying value of $47.0 million and represented 27% of total nonaccrual loans and leases.

Loans and leases accruing and 30-89 days past due decreased by $5.4 million to $45.4 million as of September 30, 2025 compared to $50.8 million at December 31, 2024, due mainly to a decrease of $9.4 million in multi-family real estate mortgage delinquent loans, offset partially by an increase of $5.5 million in other residential real estate mortgage delinquent loans.

Foreclosed Assets, Net

The following table presents foreclosed assets (primarily OREO), net of the valuation allowance, by property type as of the dates indicated:

(In thousands)

Foreclosed assets decreased by $4.9 million to $4.8 million at September 30, 2025 compared to $9.7 million at December 31, 2024, due mainly to sales of $10.9 million and a provision for losses of $0.8 million, offset partially by transfers from loans of $6.7 million.

Classified and Special Mention Loans and Leases Held for Investment

The following table presents the credit risk ratings of our loans and leases held for investment as of the dates indicated:

(In thousands)

Classified and special mention loans and leases fluctuate from period to period as a result of loan repayments and downgrades or upgrades from our ongoing active portfolio management.

The following table presents the classified and special mention credit risk rating categories for loans and leases held for investment by loan portfolio segment and class and the related net changes as of the dates indicated:

(In thousands)

Classified loans and leases increased by $200.1 million to $763.6 million at September 30, 2025 compared to $563.5 million at December 31, 2024, due mainly to increases of $69.3 million in multi-family real estate mortgage classified loans, $66.4 million in asset-based classified loans, $48.0 million in venture capital classified loans, and $19.0 million in other residential real estate mortgage classified loans.

Special mention loans and leases decreased by $591.3 million to $506.0 million at September 30, 2025 compared to $1.1 billion at December 31, 2024, due mainly to decreases of $238.1 million in commercial real estate mortgage special mention loans, largely driven by credit migration out of the category as well as loans sold or transferred to held for sale in connection with the strategic loan sales process, $194.9 million in residential real estate construction and land special mention loans, primarily due to credit migration, $66.6 million in commercial real estate construction and land special mention loans, $49.3 million in multi-family real estate mortgage special mention loans, and $21.6 million in venture capital special mention loans.

Deposits

The following table presents the composition of our deposit portfolio by account type as of the dates indicated:

(Dollars in thousands)

The following table presents time deposits based on the $250,000 FDIC insured limit as of the dates indicated:

(Dollars in thousands)

Total deposits remained relatively flat and decreased by $7.1 million to $27.18 billion at September 30, 2025 compared to $27.19 billion at December 31, 2024. At September 30, 2025, noninterest-bearing deposits totaled $7.6 billion, or 28%, of total deposits, and interest-bearing deposits totaled $19.6 billion, or 72%, of total deposits, compared to noninterest-bearing deposits of $7.7 billion, or 28% of total deposits, and interest-bearing deposits of $19.5 billion, or 72% of total deposits, at December 31, 2024.

As of September 30, 2025, FDIC-insured deposits represented approximately 70% of total deposits, including accounts eligible for pass-through insurance, down from 72% as of December 31, 2024. Available liquidity (on-balance sheet liquidity plus unused borrowing capacity and unpledged AFS securities) was $14.8 billion at September 30, 2025, which exceeded uninsured and uncollateralized deposits of $7.6 billion, with a coverage ratio of 194% as compared to a coverage ratio of 221% at December 31, 2024. Available liquidity also represented 54% of total deposits at September 30, 2025.

The following table summarizes the maturities of time deposits as of the date indicated:

Client Investment Funds

In addition to deposit products, we also offer alternative, non-depository corporate treasury solutions for clients to invest excess liquidity. These off-balance sheet client funds totaled $1.1 billion at September 30, 2025 and 1.5 billion at December 31, 2024.

Borrowings

The following table summarizes our borrowings as of the dates indicated:

(Dollars in thousands)

Borrowings increased by $613.2 million to $2.0 billion at September 30, 2025 compared to $1.4 billion at December 31, 2024, due to higher FHLB secured advances and other short-term borrowings, offset partially by the payoff of $174.0 million of Senior Notes in the second quarter of 2025. We utilized these borrowings to manage liquidity needs, including, but not limited to, funding asset growth, accommodating liability maturities and deposit withdrawals, and supporting business operations.

Subordinated Debt

Subordinated debt increased by $9.0 million to $950.9 million at September 30, 2025 compared to $941.9 million at December 31, 2024, due primarily to the accretion of the acquisition discount on acquired subordinated debt and higher valuation of the Euribor-based subordinated debt. At September 30, 2025, $131.0 million of subordinated debt was included in the Company's Tier I capital and $804.8 million was included in Tier II capital.

Regulatory Matters

Capital

Bank regulatory agencies measure capital adequacy through standardized risk-based capital guidelines that compare different levels of capital (as defined by such guidelines) to risk-weighted assets and off-balance sheet obligations. At September 30, 2025, banks considered to be “well capitalized” must maintain a minimum Tier 1 leverage ratio of 5.00%, a minimum common equity Tier 1 capital ratio of 6.50%, a minimum Tier 1 capital ratio of 8.00%, and a minimum Total capital ratio of 10.00%.

Regulatory capital requirements limit the amount of DTAs that may be included when determining the amount of regulatory capital. Deferred tax asset amounts in excess of the calculated limit are disallowed from regulatory capital. At September 30, 2025, such disallowed amounts were $317.8 million for the Company and $294.8 million for the Bank. No assurance can be given that the regulatory capital deferred tax asset limitation will not increase in the future or that the Company and the Bank will not have increased DTAs that are disallowed.

In 2020, the federal bank regulatory authorities approved a rule that delays the estimated impact on regulatory capital resulting from the adoption of CECL. We elected the CECL phase-in option provided by regulatory capital rules which delayed for two years the estimated impact of CECL on regulatory capital and phases it in over a three-year transition period beginning in the first quarter of 2022. The full impact of the CECL standard was phased-in to regulatory capital through December 31, 2024 under this phase-in option, and beginning in the first quarter of 2025, CECL was fully reflected in our regulatory capital.

Basel III currently requires all banking organizations to maintain a 2.50% capital conservation buffer above the minimum risk-based capital requirements to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively comprised of common equity Tier 1 capital, and it applies to each of the three risk-based capital ratios but not to the leverage ratio. Effective January 1, 2019, the common equity Tier 1, Tier 1, and Total capital ratio minimums inclusive of the capital conservation buffer were 7.00%, 8.50%, and 10.50%. At September 30, 2025, the Company and the Bank were in compliance with the capital conservation buffer requirements.

The following tables present a comparison of our actual capital ratios to the minimum required ratios and well capitalized ratios as of the dates indicated:

The Company's consolidated risk-based capital ratios decreased during the nine months ended September 30, 2025 due mainly to the impact of stock repurchases, offset by earnings for the period. The consolidated Tier 1 leverage ratio also decreased during the nine months ended September 30, 2025 due mainly to the impact of stock repurchases and higher average assets, offset by earnings.

Dividends on Common Stock and Interest on Subordinated Debt

As a bank holding company, Banc of California, Inc. is required to notify and receive approval from the FRB prior to declaring and paying a dividend to common stockholders during any period in which quarterly and/or cumulative twelve-month net earnings are insufficient to fund the dividend amount, among other requirements. Interest payments made on subordinated debt are considered dividend payments under FRB regulations. We may not pay a dividend if the FRB objects or until such time as we receive approval from the FRB or we no longer need to provide notice under applicable regulations. The Company currently is required to receive FRB approval to declare or pay a dividend to stockholders. Further, if the Company defaults or elects to defer the interest payments on its subordinated debt, it is restricted from paying dividends on its Series F preferred and common stock.

Dividends on Preferred Stock

The Company's ability to pay dividends on the Series F preferred stock depends on the ability of the Bank to pay dividends to the holding company. The ability of the Company and the Bank to pay dividends in the future is subject to bank regulatory requirements, including capital regulations and policies established by the FRB and the DFPI, as applicable. Dividends on the Series F preferred stock will not be declared, paid, or set aside for payment to the extent such act would cause us to fail to comply with applicable laws and regulations, including applicable FRB capital adequacy regulations and policies.

Dividends on the Series F preferred stock are not cumulative or mandatory. If the Company's Board of Directors does not declare a dividend on the Series F preferred stock in respect of a dividend period, then no dividend shall be deemed to be payable for such dividend period or be cumulative, and the Company will have no obligation to pay any dividend for that dividend period, whether or not the Board of Directors declares a dividend on the Series F preferred stock or any other class or series of its capital stock for any future dividend period. However, if dividends on the Series F preferred stock have not been declared or paid for the equivalent of six dividend payments, whether or not for consecutive dividend periods, holders of the outstanding shares of Series F preferred stock, together with holders of any other series of the Company's preferred stock ranking equal with the Series F preferred stock with similar voting rights, will generally be entitled to vote for the election of two additional directors. Additionally, so long as any share of Series F preferred stock remains outstanding, unless dividends on all outstanding shares of Series F preferred stock for the most recently completed dividend period have been paid in full or declared and a sum sufficient for the payment thereof has been set aside for payment, no dividend shall be declared or paid or set aside for payment and no distribution shall be declared or made or set aside for payment on the Company's common stock.

Liquidity

Liquidity Management

Liquidity is the ongoing ability to accommodate liability maturities and deposit withdrawals, fund asset growth and business operations, and meet contractual obligations through unconstrained access to funding at reasonable market rates. Liquidity management involves forecasting funding requirements and maintaining sufficient capacity to meet the needs and accommodate fluctuations in asset and liability levels due to changes in the Company’s business operations or unanticipated events.

We have a Management Finance Committee ("MFC") that is comprised of members of senior management and is responsible for managing commitments to meet the needs of customers while achieving our financial objectives. MFC meets regularly to review funding capacities, current and forecasted loan demand, and investment opportunities.

We manage our liquidity by maintaining pools of liquid assets on-balance sheet, consisting of cash and receivables due from banks, interest-earning deposits in other financial institutions, and unpledged AFS securities, which we refer to as our primary liquidity. We also maintain available borrowing capacity under secured credit lines with the FHLB and the FRBSF, which we refer to as our secondary liquidity.

As a member of the FHLB, the Bank had secured borrowing capacity with the FHLB of $7.1 billion at September 30, 2025, offset partially by $577.4 million pledged for letters of credit and a balance outstanding of $1.7 billion as of that date. The FHLB secured credit line was collateralized by a blanket lien on $10.6 billion of certain qualifying loans and $20.1 million of securities. The Bank also had secured borrowing capacity with the FRBSF under the Discount Window program totaling $5.5 billion at September 30, 2025, of which $5.5 billion was available. The FRBSF Discount Window secured credit line was collateralized by liens on $5.0 billion of qualifying loans and $1.6 billion of pledged securities.

In addition to its secured lines of credit with the FHLB and FRBSF, the Bank also had credit limits of $215.0 million in the aggregate with several commercial banks, as well as borrowing arrangements with unaffiliated financial institutions that provide for the purchase of overnight funds or other short-term borrowings. The availability of these unsecured borrowings fluctuates regularly and is subject to the discretion of the counterparties. As of September 30, 2025, the Bank had $190.0 million outstanding under these arrangements. Additionally, the holding company has a $100.0 million unsecured revolving line of credit. As of September 30, 2025, there was no balance outstanding.

The following tables provide a summary of the Company's primary and secondary liquidity levels at the dates indicated:

(Dollars In thousands)

(In thousands)

The Company's primary liquidity increased by $94.5 million to $4.5 billion at September 30, 2025 compared to $4.4 billion at December 31, 2024, due mainly to an increase of $179.9 million in AFS securities, partially offset by a decrease of $103.9 million in total cash, cash equivalents, and restricted cash. We also include certain unencumbered HTM securities in our internal liquidity stress test buffer which are not included in our primary liquidity. The Company's secondary liquidity decreased by $1.2 billion to $10.3 billion at September 30, 2025 compared to $11.5 billion at December 31, 2024, due to decreases in available secured borrowing capacity with the FRB of $791.6 million and with the FHLB of $441.1 million.

Obtaining new customer deposits, or having existing customers increase their deposit balances with us, are the primary sources of funding for our operations and is one of the highest priorities of the Company. See "- Balance Sheet Analysis - Deposits" for additional information and detail of our deposits. Additionally, we fund our operations with cash flows from our loan and securities portfolios.

Our deposit balances may decrease if customers withdraw funds from the Bank. In order to address the Bank’s liquidity risk from fluctuating deposit balances, the Bank maintains adequate levels of available liquidity on and off the balance sheet.

We use brokered deposits, the availability of which is uncertain and subject to competitive market forces and regulations, for liquidity management purposes. At September 30, 2025, brokered deposits totaled $2.4 billion, consisting of $2.3 billion of brokered time deposits and $0.2 billion of non-maturity brokered accounts. At December 31, 2024, brokered deposits totaled $2.7 billion, consisting of $2.1 billion of brokered time deposits and $0.6 billion of non-maturity brokered accounts.

Our Liquidity Management Policy includes guidelines, which are governed by the Company's Risk Appetite Statement, which include the following metrics: Primary Liquidity Ratio (unencumbered liquid assets, which reflects cash and cash equivalents excluding restricted cash and the market value of unpledged AFS securities, net of a haircut, divided by total assets), Primary + Secondary Liquidity (unencumbered liquid assets, which reflect cash and cash equivalents excluding restricted cash and the market value of unpledged AFS securities, net of a haircut, and available borrowing capacity at the FHLB and FRB, divided by total assets), Brokered Deposits to Total Funding Ratio (brokered deposits to total deposits plus borrowings), Total Borrowings to Total Funding Ratio (borrowings to total deposits and borrowings), and Non-Core Funding to Total Funding Ratio (brokered deposits and borrowings to total deposits plus borrowings). The Bank regularly monitors and assesses its liquidity position relative to these established guidelines to ensure alignment with its established risk parameters.

Holding Company Liquidity

Banc of California, Inc. acts as a source of financial strength for the Bank which can also include being a source of liquidity. The primary sources of liquidity for the holding company include dividends from the Bank, intercompany tax payments from the Bank, and Banc of California, Inc.'s ability to raise capital, issue subordinated and senior debt, and secure outside borrowings. Banc of California, Inc.'s ability to obtain funds for the payment of dividends to our stockholders, the repurchase of shares of common and preferred stock, and other cash requirements is largely dependent upon the Bank’s earnings. The Bank is subject to restrictions under certain federal and state laws and regulations that limit its ability to transfer funds to the holding company through intercompany loans, advances, or cash dividends. Banc of California, Inc.'s ability to pay dividends is also subject to the restrictions set forth by the FRB, and by certain covenants contained in our subordinated debt. See "- Regulatory Matters - Dividend on Preferred Stock" for information regarding the payment of dividends on the Series F preferred stock.

On December 23, 2024, Banc of California, Inc. entered into an unsecured revolving line of credit agreement as a borrower for $50.0 million. On March 17, 2025, the Company executed an amendment to the credit agreement that increased the Company's unsecured revolving line of credit to $100.0 million. As of September 30, 2025 and December 31, 2024, there was no balance outstanding.

On March 17, 2025, we announced that our Board of Directors authorized the repurchase of up to $150.0 million of our common stock. On April 23, 2025, we announced an upsize of our stock repurchase program from $150.0 million to $300.0 million and expanded the program to cover both the Company's common stock and depositary shares representing its preferred stock. The repurchase authorization expires in March 2026. During the nine months ended September 30, 2025, common and common equivalent stock repurchased under the program totaled 13,648,429 shares at a weighted average price per share of $13.59, or $185.5 million in the aggregate. As of September 30, 2025, the Company had $114.5 million remaining under the stock repurchase authorization. The program may be changed, suspended, or discontinued at any time.

At September 30, 2025, Banc of California, Inc. had $158.1 million in cash and cash equivalents, of which a substantial amount was on deposit at the Bank. We believe this amount of cash, along with anticipated future dividends from the Bank, will be sufficient to fund the holding company’s cash flow needs over the next 12 months.

Commitments and Contingencies

Our obligations also include off-balance sheet arrangements consisting of loan commitments, of which only a portion is expected to be funded, and standby letters of credit. At September 30, 2025, our loan commitments and standby letters of credit were $4.8 billion and $225.1 million. The loan commitments, a portion of which will eventually result in funded loans, increase our profitability through net interest income when drawn and unused commitment fees prior to being drawn. We manage our overall liquidity taking into consideration funded and unfunded commitments as a percentage of our liquidity sources. Our liquidity sources, as described in "- Liquidity - Liquidity Management," have been and are expected to be sufficient to meet the cash requirements of our lending activities. For further information on loan commitments, see Note 10. Commitments and Contingencies, of our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

This analysis should be read in conjunction with text under the caption "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the year ended December 31, 2024, which text is incorporated herein by reference. Our analysis of market risk and market-sensitive financial information contains forward-looking statements and is subject to the disclosure at the beginning of Item 2 regarding such forward-looking information.

Market Risk - Foreign Currency Exposure

We enter into foreign exchange contracts with our clients and counterparty banks primarily for the purpose of offsetting or hedging clients' foreign currency exposures arising out of commercial transactions, and we enter into cross currency swaps and foreign exchange contracts to hedge exposures to loans and debt instruments denominated in foreign currencies. We have experienced and will continue to experience fluctuations in our net earnings as a result of transaction gains or losses related to revaluing certain asset and liability balances that are denominated in currencies other than the U.S. Dollar and the derivatives that hedge those exposures in order to minimize our foreign exchange risk.

As of September 30, 2025, the U.S. Dollar notional amounts of loans receivable and subordinated debt payable denominated in foreign currencies were $67.8 million and $30.2 million, and the U.S. Dollar notional amounts of derivatives outstanding to hedge these foreign currency exposures were $66.8 million and $29.9 million. We recognized a foreign currency translation net gain of $18,000 for the nine months ended September 30, 2025 and a foreign currency translation net loss of $752,000 for the nine months ended September 30, 2024.

Asset/Liability Management and Interest Rate Sensitivity

Interest Rate Risk - Company Governance. On at least a quarterly basis, we measure our IRR position using two methods: (i) Net Interest Income ("NII") simulation analysis and (ii) Economic Value of Equity ("EVE") modeling. The Management Finance Committee ("MFC") and the Finance Committee of the Company's Board of Directors review the results of these analyses at least quarterly. As discussed in more detail below, if projected changes to interest rates cause changes to our simulated net present value of equity and/or net interest income to be outside our pre-established IRR limits, we may adjust our asset and liability mix in an effort to bring our interest rate risk exposure within our established limits.

The pre-established IRR Limits are recommended by management, determined based on analytical review and available peer data published by regulatory agencies about the IRR Limits utilized by other regional banks, and documented in the Company's ALM Policy. The ALM Policy is approved by MFC and the Finance Committee of the Board of Directors annually. We believe our ALM Policy IRR Limits are consistent with prevailing practice in the regional banking industry.

We use a balance sheet simulation model (the "IRR Model") to estimate changes in NII and EVE that would result from immediate and sustained changes in interest rates as of the measurement date. This IRR Model assesses the changes in NII and EVE that would occur in response to an instantaneous and sustained increase and decrease in market interest rates of +-100, +-200, +-300, and +-400 basis points. This model is an IRR management tool, and the results are not necessarily an indication of our future net interest income. The IRR Model has inherent limitations and the model's results are based on a given set of rate changes and assumptions at a single point in time.

The IRR Model is updated at least quarterly, and the IRR Model results are reported to MFC and the Finance Committee of the Company's Board of Directors at each quarterly meeting, as applicable.

Our Risk When Interest Rates Change. The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time, except for non-maturity deposits. Market interest rates change over time. Accordingly, our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our assets and liabilities. The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk and is our most significant market risk.

How We Measure Our Risk of Interest Rate Changes. As part of our attempt to manage our exposure to changes in interest rates and comply with applicable regulations, we have established asset/liability committees to monitor our interest rate risk. In monitoring interest rate risk, we continually analyze and manage assets and liabilities based on their payment streams and interest rates, the timing of their maturities and/or prepayments, and their sensitivity to actual or potential changes in market interest rates.

The MFC is comprised of select members of senior management. The Company also has a Finance Committee of the Boards of Directors of the Company and the Bank (together with MFC, the “ALCOs”). In order to manage the risk of potential adverse effects of material and prolonged or volatile changes in interest rates on our results of operations, we have adopted asset/liability management policies to align maturities and repricing terms of interest-earning assets to interest-bearing liabilities. The asset/liability management policies establish guidelines for the volume and mix of assets and funding sources taking into account relative costs and spreads, interest rate sensitivity and liquidity needs, while management monitors adherence to those guidelines with oversight by the ALCOs. The objectives are to manage assets and funding sources to produce results that are consistent with liquidity, capital adequacy, growth, risk, and profitability goals. The ALCOs meet no less than quarterly to review, among other things, economic conditions and interest rate outlook, current and projected liquidity needs and capital position, anticipated changes in the volume and mix of assets and liabilities and interest rate risk exposure limits versus current projections pursuant to our economic value of equity analysis.

In order to manage our assets and liabilities and achieve the desired liquidity, credit quality, interest rate risk, profitability, and capital targets, we evaluate various strategies including:

• Complementing our current loan origination platform through strategic acquisitions of whole loans,
• Strategically managing multiple warehouse relationships,
• Originating shorter-term consumer loans,
• Managing the level of investments and duration of investment securities,
• Managing our deposits to establish stable deposit relationships, and
• Using certain derivatives such as interest rate swaps and collars as hedges to align maturities and repricing terms.

At times, depending on the level of general interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, the ALCOs may decide to increase our interest rate risk position within the asset/liability tolerance set forth by our Board of Directors. As part of its procedures, the ALCOs regularly review interest rate risk by forecasting the impact of alternative interest rate environments on net interest income and our economic value of equity.

Interest Rate Sensitivity of Economic Value of Equity and Net Interest Income

Interest rate risk results from our banking activities and is the primary market risk for us. Interest rate risk is caused by the following factors:

• Repricing risk - timing differences in the repricing and maturity of interest-earning assets and interest-bearing liabilities;
• Option risk - changes in the expected maturities of assets and liabilities, such as borrowers’ ability to prepay loans and depositors’ ability to redeem certificates of deposit before maturity;
• Yield curve risk - changes in the yield curve where interest rates increase or decrease in a nonparallel fashion; and
• Basis risk - changes in spread relationships between different yield curves, such as U.S. Treasuries, U.S. Prime Rate, and SOFR.

Since our earnings are primarily dependent on our ability to generate net interest income, we focus on actively monitoring and managing the effects of adverse changes in interest rates on our net interest income. Management of our interest rate risk is overseen by the Finance Committee of the Boards of Directors of the Company and Bank, which delegates the day-to-day management of interest rate risk to the MFC. MFC ensures that the Bank is following the appropriate and current regulatory guidance in the formulation and implementation of our interest rate risk program. The Finance Committee of the Boards of Directors of the Company and the Bank reviews the results of our interest rate risk modeling at least quarterly to ensure that we have appropriately measured our interest rate risk, mitigated our exposures appropriately and any residual risk is acceptable. In addition to our annual review of our asset liability management policy, our Board of Directors periodically reviews the interest rate risk policy limits.

Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective management of interest rate risk begins with understanding the dynamic repricing characteristics of our assets and liabilities and determining the appropriate interest rate risk posture given business forecasts, management objectives, market expectations, and policy constraints.

Our interest rate risk exposure is measured and monitored through various risk management tools, including a simulation model that performs interest rate sensitivity analysis under multiple scenarios. The simulation model is based on the actual maturities and re-pricing characteristics of the Bank’s interest-rate sensitive assets and liabilities. The simulated interest rate scenarios include an instantaneous parallel shift in the yield curve (“Rate Shock”). We then evaluate the simulation results using two approaches: Net Interest Income at Risk (“NII at Risk”), and Economic Value of Equity (“EVE”). Under NII at Risk, the impact on net interest income from changes in interest rates on interest-earning assets and interest-bearing liabilities is modeled utilizing various assumptions for assets, liabilities, and derivatives.

We used a NII simulation model to measure the estimated changes in NII that would result over the next twelve months from immediate and sustained changes in interest rates as of September 30, 2025. We have assumed no growth or changes in the product mix of either our total interest-sensitive assets or liabilities over the next twelve months, therefore the results reflect an interest rate shock to a static balance sheet. This model is an interest rate risk management tool, and the results are not necessarily an indication of our future net interest income.

EVE measures the period end present value of assets minus the present value of liabilities. Asset liability management uses this value to measure the changes in the economic value of the Company under various interest rate scenarios. In some ways, the economic value approach provides a broader scope than net interest income volatility approach since it captures all anticipated future cash flows. During the third quarter of 2025, we updated our deposit decay assumptions, which resulted in changes to the base case EVE and the corresponding sensitivity analysis. These assumptions are reviewed periodically and may be modified as historical data and observed deposit behaviors are updated.

The balance sheet is considered “asset sensitive” when an increase in interest rates is expected to expand our net interest income, as rates earned on our interest-earning assets reprice higher at a pace faster than rates paid on our interest-bearing liabilities. Conversely, the balance sheet is considered “liability sensitive” when an increase in interest rates is expected to compress our net interest income, as rates paid on our interest-bearing liabilities reprice higher at a pace faster than rates earned on our interest-earning assets.

At both September 30, 2025 and December 31, 2024, our interest rate risk profile remained close to "neutral." This position reflects our balanced composition of repricing assets and beta-adjusted repricing deposits and other interest-bearing liabilities over the course of the next twelve months. Given the uncertainty of the magnitude, timing, and direction of future interest rate movements, as well as the shape of the yield curve, actual results may vary materially from those predicted by our model.

The following table presents the projected change in the Company’s economic value of equity at September 30, 2025 and net interest income over the next twelve months, which would occur upon an immediate change in interest rates, but without giving effect to any steps that management might take to counteract that change:

(Dollars in millions)

(1) Assumes an instantaneous uniform change in interest rates at all maturities and no rate shock has a rate lower than zero percent.

Earnings-at-Risk

In addition to interest rate risk associated with net interest income, certain noninterest expense items are also sensitive to changes in market interest rates. One such item is the cost of ECRs provided on certain deposit accounts, primarily those associated with our HOA business. ECRs are comprised mostly of our customer related expense and fluctuate in response to changes in short term rates and can therefore influence the Company's overall earnings sensitivity profile. We expect that a declining interest rate environment would reduce ECR costs and thereby reduce noninterest expense, conversely, when interest rates rise, ECR costs would also rise, thereby increasing noninterest expense. The Company's Earnings-at-Risk ("EaR") modeling incorporates the impact of these rate-sensitive noninterest expenses, in addition to interest income and expense, to assess the effect of interest rate movements on projected earnings over a twelve-month horizon.

As of September 30, 2025, client deposits eligible for ECRs totaled approximately $3.6 billion. Taking into account the rate sensitivity of ECRs, which are primarily attributable to such deposits, the Company's overall earnings profile would be considered "liability sensitive." During the second quarter of 2025, the Company also entered into interest rate collars with a notional value of $1.0 billion to mitigate the risk of increasing interest expense if short term interest rates increase. For further information on the interest rate collars, see Note 9. Derivatives, of our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

(a) Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures as of September 30, 2025 and have concluded that these disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting that occurred during the third quarter of 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

For information regarding factors that could affect the Company's results of operations, financial condition, and liquidity, see the risk factors disclosed in the "Risk Factors" section of our Form 10-K. See also "Forward-Looking Information" disclosed in Part I, Item 2 of this Quarterly Report on Form 10-Q. There have been no material changes to the risk factors previously disclosed in our Form 10-K.