Banc of California(BANC -2.22%) reported Q2 2025 earnings on July 22, 2025, noting adjusted net income of $48.4 million ($0.31 per share). Net interest income rose 3.4% quarter over quarter to $240 million, and tangible book value per share increased for the fifth consecutive quarter to $16.46. Management executed $507 million in commercial real estate loan sales at an expected 95% of face value, repurchased $150 million in stock, and reaffirmed guidance for mid-single-digit net interest income growth in the second half of 2025.
Key insights follow, including strategic loan sales, margin drivers, and evolving deposit/capital allocation strategies.
Banc of California Executes $507 Million CRE Loan Sale to Optimize Balance Sheet
Management transferred $507 million in commercial real estate (CRE) loans to held for sale, closing $30.4 million and lining up $476.2 million for subsequent quarters. This action was reflected in net charge-offs of $37 million related to these loans, with favorable credit migration metrics: nonperforming, classified, and special mention loans improved by 19, 46, and 115 basis points, respectively, quarter over quarter.
"During the quarter, we opportunistically engaged in the sales process for approximately $507 million of commercial real estate loans, which we have transferred to held for sale with expected proceeds net of reserve release of 95%. We expect the strategic sales of these loans will further optimize our balance sheet and contribute to delivering high-quality, consistent, sustainable earnings growth for our shareholders. This move also helped to drive improvement across our credit quality metrics for the quarter."
— Jared Wolff, President and Chief Executive Officer
By monetizing CRE assets with extended lease-up or risk profiles and redeploying capital to higher-quality loans, Banc of California is proactively derisking its portfolio and positioning for more stable long-term earnings and lower reserve requirements.
Net Interest Income Climbs 3.4% as High-Yield Loan Growth Accelerates
Loan production for the quarter totaled $2.2 billion, with $1.2 billion of originations at an average rate of 7.29%, up from 7.2% in Q1 2025, and total loans expanded by 9% annualized. Net interest margin (NIM) increased to 3.1%, driven by a three-basis-point rise in average loan yields to 5.93%, further supported by the redemption of $174 million of 5.25% senior notes replaced with lower-cost borrowings.
"Net interest income of $240 million was up 3.4% from the prior quarter, driven by strong growth on loan balances and higher loan yields. Net interest margin expanded in the quarter to 3.1%, driven by a three basis point increase in average loan yields to 5.93%. The increase in loan yields was due to the full quarter impact of strong growth in higher-yielding loans. The rates on new loan production averaged 7.29%, and total loans grew by 9% annualized, led by growth in lender finance, fund finance, and purchasing of family residential loans."
— Joe Kauder, Chief Financial Officer
Sustained origination of niche, above-market yield assets amid stable funding costs is allowing Banc of California to compound core earnings and illustrates a defensible NIM trajectory even before potential benefits from future rate cuts.
Banc of California’s Capital Priorities Reflect Disciplined Share Repurchase and Deposit Strategy
Following the repurchase of $150 million of common stock (representing 6.8% of shares) in early Q2 2025, management retains $150 million in remaining buyback authorization but signaled only opportunistic deployment in the near term. Current deposit trends show a mix shift from non-interest-bearing (NIB) to interest-bearing accounts, with average deposit costs up slightly amid heightened competition and liquidity constraints in the California market.
"As mentioned on our first quarter call, we opportunistically repurchased $150 million of common stock or about 6.8% of our shares early in the second quarter. We have $150 million remaining in our buyback program, which can be used toward both common and preferred stock. We will continue to be prudent with the remainder of this program and use it opportunistically. And while our outlook may change, we do not expect to deploy all this remaining capacity in the near future."
— Jared Wolff, President and Chief Executive Officer
The emphasis on selective buybacks signals management’s focus on capital flexibility and readiness to respond to share price volatility, while active management of deposit pricing is mitigating margin compression during a period of deposit market competitiveness.
Looking Ahead
Management reiterated full-year guidance for mid-single-digit growth in average earning assets and net interest income in the second half of 2025, and anticipates achieving the NIM target range of 3.2%-3.3% in Q4 2025. Core provision for credit losses is guided to $10 million-$12 million per quarter, with capital deployment toward high-yield originations and possible opportunistic additional buybacks if the share price remains below tangible book, as discussed on the earnings call. No explicit guidance was provided for the pace of further CRE loan sales beyond contracted tranches, but the company expects credit quality ratios to remain resilient.
