Banc of California, Inc.: Form 10-Q for the period ended Mar 31, 2026

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 months ended March 31, 2026. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2025 and with the unaudited 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, ACL, net interest margin, NII, deposit growth, loan and lease portfolio growth and production, acquisitions and related integrations, maintaining capital adequacy, liquidity, goodwill, and IRR 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: (i) 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; (ii) 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 DTAs, the availability and cost of capital and liquidity, and the impacts of continuing or renewed inflation; (iii) 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 ACL not being adequate; (iv) fluctuations in the demand for loans, and fluctuations in commercial and residential real estate values in our market area; (v) the quality and composition of our securities portfolio; (vi) 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; (vii) the rapid withdrawal of a significant amount of demand deposits over a short period of time; (viii) the costs and effects of litigation; (ix) 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; (x) 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 ACL, 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; (xi) 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; (xii) the risk that our enterprise risk management framework may not be effective in mitigating risk and reducing the potential for losses; (xiii) errors in estimates of the 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; (xiv) failures or security breaches with respect to the network, applications, vendors and computer systems on which we depend, including due to cybersecurity threats; (xv) our ability to attract and retain key members of our senior management team; (xvi) the effects of climate change, severe weather events, natural disasters such as earthquakes and wildfires, pandemics, epidemics and other public health crises, military activity (including the ongoing Iran war) or acts of terrorism, and other external events on our business; (xvii) 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; (xviii) the possibility that our recorded goodwill could become impaired, which may have an adverse impact on our earnings and capital; (xix) 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; (xx) changes in market conditions or strategic balance sheet actions, which may result in realized losses on investment securities or other assets; and (xxi) 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 for the fiscal year ended December 31, 2025 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 a member of the FRB. When we refer to the "parent" or 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 one of the nation’s premier relationship-based business banks, 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 79 full-service branches located 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™. The Bank is committed to its local communities by supporting organizations that provide financial literacy and job training, small business support, affordable housing, and more.

Recent Events

Stock Repurchase Program

On March 23, 2026, we announced the extension of the Company’s existing $300 million stock repurchase program, which had been scheduled to expire in March 2026, through March 16, 2027. During the First Quarter of 2026, the Company repurchased a total of approximately 1.7 million shares of common and common equivalent stock for $31.9 million, at a weighted-average price of $18.68 per share. As of March 31, 2026, the Company had $82.6 million remaining under the stock repurchase authorization. For further information on the stock repurchase program, see "Note 14. Stockholders' Equity", in Item 1 of this Form 10-Q.

Subordinated Debt

On May 1, 2026, the Company redeemed the entire outstanding $385 million aggregate principal amount of 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031, originally issued by Pacific Western Bank, for a redemption price equal to 100% of the principal amount redeemed, plus accrued and unpaid interest. These subordinated notes were scheduled to reset to a floating rate equal to three-month SOFR plus 252 bps beginning May 1, 2026, and were redeemable, in whole or in part, beginning May 1, 2026 at a redemption price equal to 100% of principal amount redeemed, plus any accrued and unpaid interest.

Critical Accounting Policies and Estimates

The following discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements and related notes, which have been prepared in accordance with U.S. GAAP. The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts and disclosure. We evaluate these estimates and assumptions on a ongoing basis based on historical experience and other relevant factors and circumstances; however, actual results may differ significantly from these estimates and assumptions, which could have a material adverse effect on our financial condition and results of operations.

Our accounting policies and estimates are fundamental to understanding the following discussion and analysis of financial condition and results of operations. We identify critical accounting estimates as those that involve the most significant judgments, uncertainties, and subjective decisions, and that could result in materially different outcomes under different assumptions or conditions. Our critical accounting policies and estimates include those related to the ACL on loans and leases HFI and the realization of deferred 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. Accordingly, we refer to 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, and pre-tax pre-provision income are presented because the use of these measures is prevalent among banking regulators, investors, and analysts. These measures are disclosed in addition to the related GAAP measures of return on average equity, book value per common share, and noninterest expense to total revenue, respectively. Reconciliations of these non‑GAAP measures to the most directly comparable GAAP measures are presented in the following tables for and as of the periods presented.

(Dollars in thousands)

(1) Effective tax rates of 25.14%, 26.86% and 25.30% used for the three months ended March 31, 2026, December 31, 2025 and March 31, 2025.

(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 NVCE that are participating securities. There were no NVCE outstanding as of March 31, 2026.

(Dollars in thousands)

(1) Includes customer related expense of $23.7 million, $24.9 million, and $27.8 million for the three months ended March 31, 2026, December 31, 2025, and March 31, 2025, respectively.

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

(Dollars in thousands)

57

Results of Operations

The Company reported net earnings available to common and equivalent stockholders of $62.0 million, or $0.39 per diluted common share, for the first quarter of 2026. This compares to net earnings available to common and equivalent stockholders of $67.4 million, or $0.42 per diluted common share, for the fourth quarter of 2025, and net earnings available to common and equivalent stockholders of $43.6 million, or $0.26 per diluted common share, for the first quarter of 2025.

First Quarter 2026 Financial Highlights:

• Total revenue of $286.9 million, up 8% year over year, with pre-tax pre-provision income(1) of $105.6 million, up 28% year over year.
• Net interest margin expanded 4 basis points to 3.24% compared to fourth quarter 2025, driven by an 11 basis point decline in deposit costs.
• Average total deposits increased by $103.4 million, and average noninterest-bearing deposits grew $81.2 million to 28.9% of average total deposits.
• First quarter loan production and disbursements totaled $2.1 billion, with a weighted average interest rate on production of 6.65%, supporting our balance sheet remixing and providing embedded earnings upside as higher-rate production replaces lower-yielding fixed-rate and hybrid loans.
• Average total loans increased $267.5 million.
• Total noninterest expense of $181.4 million, down 1% year over year.
• Maintained ACL coverage of 1.12% of total loans HFI.
• Repurchased $31.9 million of common stock and common equivalent stock at a weighted average price per share of $18.68.
• Growth in book value per share to $19.80 and tangible book value per share(1) to $17.77, up 9% and 10% year over year, respectively.
• Healthy capital ratios well above the regulatory thresholds for "well capitalized" banks, including a 12.54% Tier 1 capital ratio and a 10.18% CET 1 capital ratio.

(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) Common shares include NVCE that are participating securities. There were no NVCE outstanding as of March 31, 2026.

(2) See "Non-GAAP Financial Measures" in Item 2 of this Form 10-Q.

(3) Annualized.

(4) Total revenue equals the sum of NII 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" in Item 2 of this Form 10-Q. Noninterest expense includes customer related expense of $23.7 million, $24.9 million and $27.8 million for the three months ended March 31, 2026, December 31, 2025 and March 31, 2025.

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 $12.2 million, $12.7 million and $16.0 million for the three months ended March 31, 2026, December 31, 2025 and March 31, 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.

First Quarter of 2026 Compared to Fourth Quarter of 2025

NII increased by $0.3 million to $251.6 million for the first quarter, up from $251.4 million for the fourth quarter. This increase was primarily driven by a $9.7 million decrease in interest expense on deposits, reflecting lower interest rates due to the full quarter impact of the federal funds rate cuts of 50 basis points in the fourth quarter and two fewer days in the quarter. Additionally, interest income from investment securities rose by $2.3 million, supported by higher average balances from security purchases and a Federal Home Loan Bank (FHLB) special dividend. These positive factors were offset partially by a $9.3 million decrease in interest income from loans, mainly due to two fewer days in the quarter and lower average yields resulting from the federal funds rate cuts. Interest income from deposits in financial institutions also declined by $2.5 million, driven by lower average balances and interest rates.

Net interest margin was 3.24% for the first quarter, up 4 basis points from 3.20% for the fourth quarter, primarily driven by lower average total cost of funds, offset partially by lower average yield on interest-earning assets. The average total cost of funds decreased to 2.10% from 2.20%, as a result of an 11 basis point decrease in the average total cost of deposits to 1.78%, and an 11 basis points decrease in the average cost of borrowings to 4.63%. The average yield on interest-earning assets decreased to 5.25% from 5.31%, as a result of a 9 basis point decrease in the average yield on loans and leases to 5.74%. Declines in both funding costs and asset yield reflect the full quarter impact of rate cuts that occurred in the fourth quarter.

Average total deposits increased by $103.4 million, with a $81.2 million increase in average noninterest-bearing deposits and $22.2 million increase in average interest-bearing deposits. Average noninterest-bearing deposits represented 28.9% of average total deposits in the first quarter, up from 28.7% in the fourth quarter.

First Quarter of 2026 Compared to First Quarter of 2025

NII increased by $19.3 million to $251.6 million for the first quarter of 2026, up from $232.4 million for the first quarter of 2025. This increase was primarily driven by a $20.3 million decrease in interest expense on deposits, reflecting lower interest rates due to federal funds rate cuts of 75 basis points toward the end of 2025. Additionally, interest income from investments increased by $4.0 million and interest income from loans and leases by $3.8 million, both due primarily to higher average balances. Interest income on investments also benefited from the FHLB special divided in the first quarter of 2026. These positive factors were offset partially by a $7.1 million decrease in interest income from deposits in financial institutions, driven by lower average balances as we maintained lower cash target level and lower yield resulting from the federal funds rate cuts.

Net interest margin was 3.24% for the first quarter of 2026, up 16 basis points from 3.08% for the first quarter of 2025. The year over year improvement was primarily driven by a 32 basis point decrease in the average total cost of funds to 2.10% from 2.42%, as a result of a 34 basis point decrease in the average total cost of deposits to 1.78%, and a 71 basis point decrease in average cost of borrowings. Declines in funding costs reflect the impact of rate cuts that occurred in 2025.

Average total deposits increased by $398.7 million year over year, with a $223.0 million increase in average interest-bearing deposits and a $175.7 million increase in average noninterest-bearing deposits. Average noninterest-bearing deposits represented 28.9% of average total deposits for the three months ended March 31, 2026, up from 28.7% for the comparable period in 2025.

Provision for Credit Losses

The following table sets forth the details of the provision for credit losses on loans and leases HFI 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" in Item 2 of this Form 10-Q for detail of charge-offs and recoveries by loan portfolio segment, class, and subclass for the periods presented.

Provisions for credit losses are charged to earnings for both on and off‑balance sheet credit exposures. The provisions for credit losses on our loans and leases HFI, AFS debt securities, and HTM debt securities are based on our allowance methodologies and are expenses that, in our judgment, are required to maintain an appropriate ACL for these assets.

First Quarter of 2026 Compared to Fourth Quarter of 2025 and First Quarter of 2025

The provision for credit losses was $9.8 million for the first quarter of 2026 compared to $12.5 million for the fourth quarter of 2025 and $9.3 million for the first quarter of 2025.

The first quarter of 2026 provision for loan losses and unfunded commitments was primarily driven by net charge off activity and changes in loan risk ratings including specific reserves, offset by lower balances in the HFI portfolio and lower qualitative reserves.

The fourth quarter of 2025 provision for loan losses and unfunded commitments was primarily driven by changes in loan risk ratings including specific reserves, and higher loan balances and unfunded commitments, offset partially by lower qualitative reserves.

The first quarter of 2025 provision for loan losses and unfunded commitments was primarily driven by net charge-off activity, offset partially by lower specific reserves and changes in portfolio mix driven by growth in loan segments with low expected credit losses.

Certain circumstances may lead to increased provisions for credit losses on loans and leases in the future. Examples of such circumstances include an increased amount of classified and/or nonaccrual loans and leases, net loan and lease and unfunded commitment growth, and changes in economic conditions and forecasts. Changes in economic conditions and forecasts 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.

For information regarding the ACL on loans and leases HFI and HTM securities, see “Balance Sheet Analysis - Allowance for Credit Losses on Loans and Leases” and “Critical Accounting Policies and Estimates” in Item 2 Management's Discussion and Analysis, and "Note 4. Loans and Leases" in Item 1 of this Form 10-Q.

Noninterest Income

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

(In thousands)

First Quarter of 2026 Compared to Fourth Quarter of 2025

Noninterest income decreased by $6.2 million to $35.3 million for the first quarter from $41.6 million for the fourth quarter due mainly to a $7.9 million decrease in leased equipment income, offset partially by increases of $1.5 million in commission and fees and $1.1 million in other income. The decrease in leased equipment was due mainly to higher gains on early lease terminations in the fourth quarter. The increase in other income was primarily due to a partial gain from extinguishment of debt related to the credit-linked note.

First Quarter of 2026 Compared to First Quarter of 2025

Noninterest income increased by $1.7 million to $35.3 million for the first quarter of 2026 from $33.7 million for the first quarter of 2025 due mainly to increases of $1.8 million in other income, $1.2 million in warrant income and $1.0 million in commission and fees, offset partially by a decrease of $2.3 million in leased equipment income. The increase in other income was primarily due to a partial gain from extinguishment of debt related to the credit-linked note. The increase in warrant income was driven by higher gains from warrant exercises. The decrease in leased equipment income was due mainly to lower leased equipment balances driven by lease buyouts in previous quarters.

Noninterest Expense

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

(In thousands)

63

First Quarter of 2026 Compared to Fourth Quarter of 2025

Noninterest expense increased by $0.7 million to $181.4 million for the first quarter compared to $180.6 million for the fourth quarter due mainly to a $5.2 million increase in compensation expense, offset partially by the decrease of $2.5 million in other professional services and $1.1 million in customer related expense. The increase in compensation expense was mainly driven by seasonality, reflecting higher incentive compensation and annual reset of payroll related taxes and benefits in the first quarter. The decline in other professional services was driven by lower project spend, while customer related expenses decreased due to lower ECR payments following the federal funds rate cuts in the fourth quarter.

First Quarter of 2026 Compared to First Quarter of 2025

Noninterest expense decreased by $2.3 million to $181.4 million for the first quarter of 2026 compared to $183.7 million for the first quarter of 2025 due mainly to decreases of $4.0 million in customer related expenses and $1.4 million in leased equipment depreciation expense, offset partially by increases of $4.7 million in compensation expense. Customer related expense decreased due to lower ECR payments driven by the federal funds rate cuts in late 2025. Leased equipment expense decreased due to lower leased equipment balances driven by prior quarter leased buyouts. Compensation expense increased due to higher incentive compensation and higher salary and benefits by increased full-time equivalent employees.

Income Taxes

First Quarter of 2026 Compared to Fourth Quarter of 2025

Income tax expense of $23.8 million was recorded for the first quarter resulting in an effective tax rate of 24.9% compared to income tax expense of $22.4 million and an effective tax rate of 22.4% for the fourth quarter. The higher effective tax rate for the first quarter of 2026 is primarily due to higher forecasted pre-tax book income for 2026 while tax exempt items remain relatively consistent.

First Quarter of 2026 Compared to First Quarter of 2025

Income tax expense of $23.8 million was recorded for the first quarter of 2026 resulting in an effective tax rate of 24.9% compared to income tax expense of $19.5 million and an effective tax rate of 26.7% for the comparable period in 2025. The higher effective tax rate for the first quarter of 2025 was due primarily to a tax return to provision true-up adjustment recorded in the first quarter of 2025.

Balance Sheet Analysis

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

(In thousands)

64

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 $202.3 million during the first quarter to $2.7 billion at March 31, 2026 compared to $2.5 billion at December 31, 2025, due primarily to purchases of $343.4 million, offset partially by $119.8 million of principal paydowns, $10.8 million of maturities, $9.2 million decrease in the fair value of AFS securities, and $1.3 million of net amortization. As of March 31, 2026, AFS securities had aggregate unrealized net after-tax losses in AOCI of $143.3 million, up from $136.6 million at December 31, 2025, driven by higher interest rates.

Securities Held-to-Maturity

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

(Dollars in thousands)

(1) As of March 31, 2026, our municipal securities are geographically concentrated primarily in California at 26%, Texas at 22%, and Washington at 15% of total municipal securities based on amortized cost.

As of March 31, 2026, HTM securities had aggregate unrealized net after-tax losses in AOCI of $127.2 million remaining from the balance established at the time of transfer from AFS.

Loans Held for Sale

As part of our management of the loans held in our portfolio, on occasion we will transfer loans from HFI to HFS. Total loans and leases HFS increased by $76.1 million in the first quarter and totaled $259.0 million at March 31, 2026 compared to $182.9 million at December 31, 2025. The increase in loans HFS was primarily driven by a $72.1 million loan transfer during the first quarter. The loan was subsequently sold at par in April 2026.

Loans and Leases Held for Investment

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

(Dollars in thousands)

(1) Includes land and acquisition and development loans of $217.8 million at March 31, 2026 and $214.5 million at December 31, 2025.

Our non-deposit financial institutions ("NDFI") lending for HFI loans totaled $5.1 billion or 20.4%,as of March 31, 2026 compared to $5.1 billion, or 20.5% as of December 31, 2025, and is diversified across multiple asset classes, including warehouse lending, equity fund loans, and lender finance. The NDFI portfolio has a history of strong asset quality performance with no delinquencies, nonperforming loans, or classified loans for these respective periods.

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

(In thousands)

Loan Concentrations

We mitigate loan concentration risk through disciplined underwriting and approval processes that consider borrower, industry, and collateral characteristics. All loan originations and renewals are individually reviewed, with larger exposures subject to credit committee oversight. Credit risk is actively managed through ongoing borrower monitoring, covenant compliance, independent credit review, and portfolio reviews designed to identify emerging credit risks.

Total real estate loans HFI were $15.4 billion, or 63%, of our loan portfolio at March 31, 2026 and consisted of $13.5 billion of real estate mortgage loans and $1.9 billion of real estate construction and land loans, compared to $15.7 billion, or 63%, of our total loan portfolio at December 31, 2025 and consisted of $13.8 billion of real estate mortgage loans and $1.9 billion of real estate construction and loan loans. At March 31, 2026 and December 31, 2025, 70% and 71% of our real estate loans were collateralized by property in California, reflecting the concentration of our community banking operations within the state.

Allowance for Credit Losses on Loans and Leases Held for Investment

The ACL represents our estimate of CECL for loans and leases HFI and unfunded loan commitments as of the reporting date. The ACL is estimated under the CECL methodology, which incorporates historical credit loss experience, current conditions, and reasonable and supportable forecasts.

In estimating the ACL, we consider multiple forward‑looking economic scenarios, with scenario selection and weighting reflecting current economic conditions and downside risk over the reasonable and supportable forecast period. Expected losses revert to a through‑the‑cycle basis thereafter, and assumptions are reassessed quarterly based on portfolio composition, credit quality trends, and macroeconomic factors. Quantitative model outputs are supplemented by qualitative adjustments for risks not fully captured in the models, primarily related to CRE exposure, portfolio concentrations, and levels of adversely classified loans. As part of our ACL governance framework, we perform sensitivity analyses to assess the reasonableness of the allowance; however, due to the interrelated nature of key assumptions, the impact of changes in individual inputs cannot be isolated.

We believe the ACL appropriately reflects expected credit losses inherent in the portfolio as of the reporting date. Actual results may differ due to changes in economic conditions, portfolio mix, or borrower performance. For additional information regarding our ACL methodology and accounting policies, see "Note 1 – Nature of Operations and Summary of Significant Accounting Policies" in Item 8 of the Form 10‑K.

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

(Dollars in thousands)

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

(Dollars in thousands)

68

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

(In thousands)

69

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

(In thousands)

70

Credit Quality

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)

Nonaccrual Loans and Leases Held for Investment

The following table presents our nonaccrual loans and leases HFI 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)

71

Nonperforming loans and leases HFI increased by $26.6 million to $185.7 million at March 31, 2026 compared to $159.2 million at December 31, 2025, due mainly to additions of $54.6 million, offset partially by principal and other reductions of $20.0 million, charge-offs of $5.2 million, and transfers to accrual status of $2.8 million. As of March 31, 2026, a few of our largest loan relationships on nonaccrual status had an aggregate carrying value of $62.9 million and represented 34% of total nonaccrual loans and leases.

Loans and leases accruing and 30-89 days past due increased by $142.1 million to $235.1 million as of March 31, 2026 compared to $93.0 million at December 31, 2025, due mainly to increases of $114.1 million in residential real estate construction and land delinquent loans, $32.9 million in commercial real estate construction and land delinquent loans, and $5.1 million in other residential real estate mortgage delinquent loans, offset partially by a decrease of $9.9 million in multi-family 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 increased by $0.9 million to $18.1 million at March 31, 2026 compared to $17.1 million at December 31, 2025, due mainly to transfers from loans of $1.7 million, offset partially by sales of $0.7 million.

Classified and Special Mention Loans and Leases Held for Investment

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

(In thousands)

Special mention and classified loans and leases fluctuated as a result of the migration in a limited number of loans within a few larger relationships within the quarter. These were largely isolated situations, reflect proactive risk management actions and the credits are supported by strong collateral and defined resolution plans.

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

(In thousands)

Classified loans and leases increased by $42.5 million to $842.8 million at March 31, 2026 compared to $800.3 million at December 31, 2025, due mainly to increases of $73.4 million in multi-family real estate mortgage loans and $10.3 million in other commercial loans, offset partially by decreases of $19.9 million in CRE construction and land loans, $12.7 million in CRE mortgage loans, and $4.6 million in other residential real estate mortgage loans.

Special mention loans and leases increased by $230.0 million to $688.7 million at March 31, 2026 compared to $458.7 million at December 31, 2025, due mainly to increases of $352.4 million in residential real estate construction and land loans and $39.0 million in venture capital loans, offset partially by decreases of $134.2 million in multi-family real estate mortgage loans, $23.3 million in other commercial loans, and $7.3 million in CRE mortgage loans.

Deposits

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

(Dollars in thousands)

Total deposits decreased by $521.2 million to $27.3 billion at March 31, 2026 compared to $27.8 billion at December 31, 2025. Interest-bearing deposits decreased due mainly to lower balances in checking accounts of $331.1 million and lower money market accounts of $274.5 million, offset partially by higher saving accounts of $85.1 million and higher brokered and non-brokered time deposits of $24.5 million. At March 31, 2026, noninterest-bearing deposits totaled $7.8 billion, or 29%, of total deposits, and interest-bearing deposits totaled $19.5 billion, or 71%, of total deposits, compared to noninterest-bearing deposits of $7.8 billion, or 28% of total deposits, and interest-bearing deposits of $20.0 billion, or 72% of total deposits, at December 31, 2025.

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

(Dollars in thousands)

As of March 31, 2026, FDIC-insured deposits represented approximately 70% of total deposits, down from 71% as of December 31, 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 $1.2 billion at March 31, 2026 and $1.2 billion at December 31, 2025.

Borrowings

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

(Dollars in thousands)

Borrowings increased by $487.4 million to $2.6 billion at March 31, 2026 compared to $2.1 billion at December 31, 2024, due to higher FHLB secured advances and other short-term borrowings. 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 $1.3 million to $954.1 million at March 31, 2026 compared to $952.7 million at December 31, 2025, due primarily to the accretion of the acquisition discount on acquired subordinated debt, offset partially by the lower valuation of the Euribor-based subordinated debt. At March 31, 2026, $131.0 million of subordinated debt was included in the Company's Tier I capital and $792.9 million was included in Tier II capital.

On May 1, 2026, the Company redeemed all $385 million outstanding aggregate principal amount of its 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031 originally issued by Pacific Western Bank. For more information see “Note 17. Subsequent Events” in Item 1 of this Form 10‑Q.

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.

Regulatory capital requirements limit the amount of DTAs that may be included when determining the amount of regulatory capital. DTA amounts in excess of the calculated limit are disallowed from regulatory capital. At March 31, 2026, such disallowed amounts were $315.7 million for the Company and $291.4 million for the Bank. No assurance can be given that the regulatory capital DTA limitation will not increase in the future or that the Company and the Bank will not have increased DTAs that are disallowed.

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 CET1 capital, and it applies to each of the three risk-based capital ratios but not to the leverage ratio. Effective January 1, 2019, the CET1, Tier 1, and Total capital ratio minimums inclusive of the capital conservation buffer were 7.00%, 8.50%, and 10.50%. At March 31, 2026, 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 increased during the three months ended March 31, 2026 due mainly to the effect of positive earnings for the period, offset partially by stock purchases, dividends and lower loan balances. The consolidated Tier 1 leverage ratio decreased during the three months ended March 31, 2026 due mainly to the impact of higher average assets, offset partially 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 $6.9 billion at March 31, 2026, offset partially by $476.0 million pledged for letters of credit and a balance outstanding of $2.0 billion as of that date. The FHLB secured credit line was collateralized by a blanket lien on $10.1 billion of certain qualifying loans and $19.8 million of securities. The Bank also had secured borrowing capacity with the FRBSF under the Discount Window program totaling $5.3 billion at March 31, 2026, of which $5.3 billion was available. The FRBSF Discount Window secured credit line was collateralized by liens on $5.0 billion of qualifying loans and $1.4 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 March 31, 2026, the Bank had $440.0 million outstanding under these arrangements. Additionally, the holding company has a $100.0 million unsecured revolving line of credit. As of March 31, 2026, 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 $106.4 million to $4.5 billion at March 31, 2026 compared to $4.4 billion at December 31, 2025, due mainly to an increase of $202.3 million in AFS securities, offset partially by a decrease of $90.7 million in total cash and cash equivalents excluding 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 $48.8 million to $9.7 billion at March 31, 2026 compared to $9.8 billion at December 31, 2025, due to a decrease in available borrowing capacity at the FHLB of $280.0 million, offset partially by the increase in available secured borrowing capacity with the FRB of $231.2 million. At March 31, 2026, total available liquidity was $14.2 billion, which exceeded uninsured and uncollateralized deposits of $7.8 billion.

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 March 31, 2026, brokered deposits totaled $2.8 billion, consisting of $2.6 billion of brokered time deposits and $0.2 billion of non-maturity brokered accounts. At December 31, 2025, brokered deposits totaled $2.9 billion, consisting of $2.4 billion of brokered time deposits and $0.5 billion of non-maturity brokered accounts.

Our Liquidity Management Policy establishes guidelines aligned with the Company's Risk Appetite Framework and includes a range of liquidity and funding concentration metrics designed to monitor balance sheet strength, funding stability, and available liquidity resources. These measures incorporate assessments of on-balance sheet liquidity, contingent funding capacity, and the composition of funding sources. As of March 31, 2026, the Bank was in compliance with all applicable liquidity and funding concentration guidelines.

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 stock 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 March 31, 2026 and December 31, 2025, there was no balance outstanding.

On March 23, 2026, we announced the extension of the Company’s existing $300 million stock repurchase program, which had been scheduled to expire in March 2026, through March 16, 2027. During the first quarter of 2026, the Company repurchased a total of approximately 1.7 million shares of common and common equivalent stock for $31.9 million, at a weighted-average price of $18.68 per share. As of March 31, 2026, the Company had $82.6 million remaining under the stock repurchase authorization. For further information on the stock repurchase program, see "Note 14. Stockholders' Equity", in Item 1 of this Form 10-Q.

At March 31, 2026, Banc of California, Inc. had $146.4 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 March 31, 2026, our loan commitments and standby letters of credit were $5.5 billion and $255.8 million. The loan commitments, a portion of which will eventually result in funded loans, increase our profitability through NII 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", in Item 1 of this 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, 2025, 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 forward 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. As of March 31, 2026, the U.S. Dollar notional amounts of loans receivable and subordinated debt payable denominated in foreign currencies were $70.2 million and $29.8 million, and the U.S. Dollar notional amounts of derivatives outstanding to hedge these foreign currency exposures were $71.7 million and $29.9 million. We recognized a foreign currency translation net gain of $0.1 million for the three months ended March 31, 2026 and a foreign currency translation net loss of $0.3 million for the three months ended March 31, 2025.

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) NII simulation analysis and (ii) 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 NII to be outside our pre-established IRR limits, we may adjust our asset and liability mix in an effort to bring our IRR 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 Asset Liability Management Policy. The policy is approved by MFC and the Finance Committee of the Board of Directors annually. We believe our 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 NII. 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 monthly or 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 IRR 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 IRR. In monitoring IRR, 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 IRR exposure limits versus current projections pursuant to our EVE analysis.

In order to manage our assets and liabilities and achieve the desired liquidity, credit quality, IRR, profitability, and capital targets, we evaluate various strategies. These include complementing our current loan origination platform through strategic acquisitions of whole loans, strategically managing multiple warehouse relationships, and originating shorter-term consumer loans. We also actively manage the level of investments and duration of investment securities, and focus on establishing stable deposit relationships. Additionally, we utilize 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 IRR position within the asset/liability tolerance set forth by our Board of Directors. As part of its procedures, the ALCOs regularly review IRR by forecasting the impact of alternative interest rate environments on NII and our EVE.

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

IRR results from our banking activities and is the primary market risk for us. IRR 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 NII, we focus on actively monitoring and managing the effects of adverse changes in interest rates on our NII. Management of our IRR is overseen by the Finance Committee of the Boards of Directors of the Company and Bank, which delegates the day-to-day management of IRR to the MFC. MFC ensures that the Bank is following the appropriate and current regulatory guidance in the formulation and implementation of our IRR program. The Finance Committee of the Boards of Directors of the Company and the Bank reviews the results of our IRR modeling at least quarterly to ensure that we have appropriately measured our IRR, 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 IRR policy limits.

IRR management is an ongoing process that monitors loan and deposit flows, along with investment and funding activities. Effective IRR management begins with understanding the repricing characteristics of our assets and liabilities and estimating an appropriate risk posture based on forecasts, objectives, market expectations, and policy constraints.

IRR exposure is measured using several tools, including a simulation model that performs interest rate sensitivity under multiple scenarios. The model reflects the actual maturities and re-pricing characteristics of interest rate sensitive assets and liabilities and includes instantaneous parallel interest rate shocks. Results are evaluated using two metrics: NII at Risk and EVE. NII at Risk estimates the impact of rate changes on NII using assumptions for assets, liabilities, and derivatives.

The NII simulation estimates changes in NII over the next twelve months from immediate and sustained rate changes as of March 31, 2026. The analysis assumes a static balance sheet with no growth or product mix changes. This model is a risk management tool and does not necessarily predict future NII.

EVE measures the present value of assets minus liabilities and assesses changes in the economic value under various interest rate scenarios. Unlike the NII approach, EVE captures the impact of all anticipated cash flows and provides a longer-term perspective.

A balance sheet is considered “asset sensitive” when an increase in short-term interest rates is expected to expand our NII, 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 short-term interest rates is expected to compress our NII, as rates paid on our interest-bearing liabilities reprice higher at a pace faster than rates earned on our interest-earning assets.

At both March 31, 2026 and December 31, 2025, our IRR 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 EVE at March 31, 2026 and NII 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 IRR associated with NII, 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 Homeowners Association business. ECRs comprise most 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 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 March 31, 2026, client deposits eligible for ECRs totaled approximately $3.8 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", in Item 1 of this Form 10-Q.

Evaluation of disclosure controls and procedures

Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures as of March 31, 2026 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.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the first quarter of 2026 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.