Banc of California's Q1 2025: Navigating Contradictions in Credit Losses, Loan Growth, and Capital Strategies

Allowance for credit losses and economic forecasts, deposit cost reduction, loan growth outlook and economic uncertainty, loan growth opportunities, and capital strategy and share repurchases are the key contradictions discussed in Banc of California's latest 2025Q1 earnings call.



Loan Growth and Diversification:
- Banc of California reported a loan portfolio growth of 6% on an annualized basis, with $2.6 billion in loan production, up from $1.8 billion in the previous quarter.
- Growth was driven by increased production in warehouse, lender finance, and fund finance areas, reflecting a shift towards lower-risk and shorter-duration loan categories.

Margin Expansion and Deposit Cost Reduction:
- The net interest margin increased to 3.08%, up 4 basis points from the prior quarter, primarily due to a 13-basis-point decline in the cost of deposits to 2.12%.
- The cost reduction was attributed to successful pass-through of rate reductions on interest-bearing deposits.

Conservative Credit Risk Management:
- There was an increase in classified loans, mainly driven by multifamily rate-sensitive loans impacted by repricing risk, resulting in performance metric deterioration.
- The bank adopted a conservative posture on risk-weighted loans, leading to increased credit downgrades and a focus on disciplined underwriting criteria.

Capital Management and Shareholder Returns:
- Banc of California announced a $150 million share buyback program, opportunistically repurchasing 6.8% of its shares, following a reduction in share price due to market volatility.
- The buyback program was implemented to prudently deploy capital, taking advantage of favorable market conditions while maintaining capital strength.