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Banc of California targets higher NIM after balance sheet changes
The bank projected net interest margin of about 3.30% in Q3 and said CET1 would rise to roughly 9.8% to 9.9% by year end, after completing actions without issuing external equity.
Banc of California outlined a balance sheet optimization plan during its Q2 2026 earnings call, aimed at removing low-yielding assets and reducing credit concentration. Management said it executed three moves, including a $2.3 billion securities repositioning, an $825 million targeted loan sale, and $385 million of subordinated debt retirement.
The securities shift replaced long-duration assets yielding 2.1% with shorter-duration instruments yielding 4.87%, which management said produced a 276 basis point yield pickup. For the loan portfolio, the targeted sales included $300 million in weakening construction loans and $525 million in low-rate performing CRE loans, designed to cut concentration risk and redeploy capital.
The bank tied its strategy to improving franchise momentum and credit metrics, citing 9% annualized loan growth and 12% annualized deposit growth, plus $1.2 billion of new noninterest-bearing deposits over the last two years. It also reported that special mention loans fell 56% and classified loans were down 31% quarter-over-quarter.
Looking ahead, management projected net interest margin to reach approximately 3.30% in Q3 and expand to a 3.30% to 3.40% range by year end. Banc of California also forecast common equity tier 1 capital building from 9.25% to about 9.8% to 9.9% by year end, and said it expects Q4 pretax pre-provision income of $125 million to $130 million, while noting the actions were completed without raising external equity.