Banc of California (NYSE: BANC) reported third-quarter 2026 diluted earnings of $0.46 per share as higher asset yields and benefits from its second-quarter balance-sheet repositioning lifted net interest income and profitability. Net interest margin rose 21 basis points sequentially to 3.34%, while the bank maintained its fourth-quarter pre-tax pre-provision income outlook and narrowed its expected margin range.
Net earnings totaled $83.1 million, compared with a loss of $241.3 million in the second quarter and earnings of $69.6 million a year earlier. Net earnings available to common and equivalent stockholders were $73.1 million. The prior quarter included substantial securities losses and credit costs associated with the strategic repositioning.
Net interest income increased 9% from the second quarter and 7% year over year to $272.4 million. The average yield on interest-earning assets rose 25 basis points sequentially to 5.43%, supported by higher securities and loan yields. Total revenue was $303.8 million, up 6% from both the first quarter and the year-earlier period.
Noninterest expense declined 2% sequentially to $185.4 million and was essentially unchanged from a year earlier. The decrease from the second quarter primarily reflected lower regulatory assessments and fewer nonrecurring expenses. The non-GAAP adjusted efficiency ratio improved to 55.47% from 64.01% in the second quarter and 58.24% a year earlier.
Non-GAAP pre-tax pre-provision income reached $118.4 million, up 12% from the first quarter and 16% year over year. Return on average assets was 0.94%, while non-GAAP return on average tangible common equity was 11.93%, compared with 9.87% in the third quarter of 2025.
Repositioning supports interest income
The quarter reflected the bank’s repositioning of $2.3 billion of lower-yielding securities into higher-yielding assets. The yield on available-for-sale securities increased 23 basis points from the second quarter to 4.58%, while portfolio duration declined to 3.9 years from 5.0 years in the first quarter. The total securities yield was 4.86%, including a one-time $2.8 million special dividend on Federal Home Loan Bank stock.
Banc of California also completed the sale of about $525 million of performing commercial real estate loans on September 25. A roughly $300 million nonperforming construction-loan transaction closed on October 21; that amount included $235 million sold and $65 million converted to permanent financing before sale. The bank expects completion of the loan sales to support higher interest income and contribute about two basis points to fourth-quarter net interest margin.
The company also retired $385 million of subordinated debt that had been scheduled to reset at a substantially higher rate, avoiding what it described as more than 300 basis points of reset risk.
Core loans and relationship deposits grow
Core loans, a non-GAAP measure excluding discontinued portfolios, increased by $473 million from the second quarter to $24.07 billion, representing 8% annualized growth. Total held-for-investment loans rose by $380 million to $24.59 billion.
Loan production and disbursements totaled $2.65 billion, up 28% year over year. New production carried a weighted-average rate of 6.58%, 89 basis points above the total portfolio yield. Production was led by residential mortgages, warehouse lending, fund finance and commercial-and-industrial lending. Lower-rate multifamily loans and loans in discontinued businesses continued to run off.
Total deposits increased to $28.26 billion from $28.12 billion in the second quarter. Core deposits rose by $515 million to $25.82 billion and represented 91.4% of total deposits, up from 90.0%. Brokered deposits declined by $375 million, reducing the bank’s reliance on wholesale funding.
The average cost of deposits increased three basis points to 1.83% as higher market rates were partly offset by the shift away from brokered funding. Average noninterest-bearing deposits accounted for 28.0% of average deposits.
Credit metrics improve, but tangible book value declines
The nonperforming-loan ratio fell 12 basis points sequentially to 0.72%, while the classified-loan ratio declined 35 basis points to 2.06%. The delinquent-loan ratio decreased to 0.47% from 0.72%. Special-mention loans, however, rose 19 basis points, with the increase concentrated in residential construction and venture lending.
The allowance for credit losses on loans declined to $269.3 million, or 1.10% of held-for-investment loans, from 1.14% in the second quarter. The quarter included $17.3 million of net charge-offs and a $10.4 million provision for credit losses, which the company said reflected growth in the held-for-investment portfolio.
The preliminary common equity Tier 1 ratio increased 45 basis points to 9.70%, driven by earnings and a lower regulatory deduction for deferred tax assets related to net operating losses. All regulatory capital ratios remained above well-capitalized thresholds.
Non-GAAP tangible book value per share declined to $16.09 from $16.44. The bank attributed the decrease to higher unrealized losses on available-for-sale securities as interest rates rose. The portfolio’s unrealized pretax loss increased by $160 million sequentially to $369 million.
Fourth-quarter outlook
Banc of California maintained its fourth-quarter non-GAAP pre-tax pre-provision income forecast of $125 million to $130 million, implying sequential growth of about 6% to 10%. It narrowed its expected net interest margin range to 3.35% to 3.40% from 3.30% to 3.40%.
The company now expects full-year noninterest expense growth of about 1%, compared with its original range of 3.0% to 3.5%. Its fourth-quarter non-GAAP return on average tangible common equity range was revised to 12.0% to 12.5% from 11.5% to 12.5%. The forecast for return on average assets remained 0.95% to 1.00%.
Management expects the CET1 ratio to reach 9.8% to 9.9% in the fourth quarter, supported by core earnings and settlement of the nonperforming-loan sale, and anticipates a ratio above 10% in the first quarter of 2027.
The outlook remains subject to changes in interest rates, deposit costs and availability, loan demand, borrower credit quality and commercial real estate conditions. Other uncertainties identified by the bank include economic weakness, inflation, regulatory changes, cybersecurity threats and the possibility that the expected benefits of its strategic repositioning may not be fully realized.
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