KBRA Affirms Ratings for Banc of California, Inc.

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, the preferred stock rating of BB+, and the short-term debt rating of K3 for Banc of California, Inc. (NYSE: BANC) ("the company"). Additionally, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for the lead subsidiary, Banc of California. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

The ratings are supported by BANC’s well-executed post-merger strategy that has been centered around the restructuring of the balance sheet to better position the company for long-term performance. BANC has utilized various asset sales to paydown wholesale funding as well as better diversify the loan portfolio as reflected in its CRE concentration which has fallen to roughly 264% of risk-based capital at 3Q25, more in line with rated peers. Moreover, with its meaningful scale in various national specialty business lines, BANC's commercially-focused loan and deposit books were considered to be relatively more diverse than the rated peer group. Additionally, the company’s efforts to strengthen the balance sheet, which also included repositioning within the investment portfolio, has driven meaningful NIM expansion, which has increased more than 60 bps since its low-point in 1Q24, enabling a steady improvement in the company’s earnings (ROAA), which, on an adjusted basis, was in line with the rated peer group at 0.7% for 9M25. While still comparatively elevated, wholesale funding, which stood at more than 50% of total funding at 4Q23, decreased significantly, slightly above 30% at 3Q25. The decrease in wholesale funding, coupled with the lower interest rate environment, allowed for a significant reduction in funding costs, which tracked in line with rated peers at 2.3% at 3Q25.

Asset quality metrics have been somewhat mixed throughout 9M25, with NPAs increasing, though, importantly total criticized loans showed positive inflection while the slightly elevated NCO ratio in 2Q25 was primarily related to the company’s transfer of $0.5 billion of CRE loans to HFS. The company’s higher concentration of NDFI lending ($4.3 billion, or 18% of total loans), has shown no signs of material deterioration, with no credit losses within this portfolio over a multi-year period, reflective of BANC’s highly comprehensive monitoring and internal audit process. Following a period of rebuild in 2024, BANC’s capital ratios decreased roughly 40bps – 60bps in 2Q25 largely due to share repurchase activity. The company expects to manage capital near current levels, including a CET1 ratio in the range of 10.0% - 10.5% which KBRA considers to be adequate for the rating category.

Rating Sensitivities

The Stable Outlook reflects KBRA's view that a ratings change is unlikely over the medium term. However, an increase in core capital ratios, including a CET1 ratio tracking more in line with rated peers, could result in positive ratings momentum over time. Additionally, a continued improvement in earnings to include an ROAA tracking above 1% along with greater revenue diversification could have a favorable impact on ratings in the long term. Conversely, material credit deterioration, with credit losses significantly higher than peers, impacting the profitability of the company and stressing the company’s already low capital ratios could result in negative rating action.

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Methodologies