Los Angeles-based Banc of California reported an unexpected $251.3 million loss Wednesday among its second-quarter results.
The loss comes at the confluence of three moves the bank defended as better for its long-term health.
The bank initiated the sale of $827 million in commercial real estate and multifamily construction loans. That maneuver was meant to “reduce selected credit exposures and lower the potential for future credit-related earnings volatility,” Banc of California said. Transactions of loans transferred to held-for-sale during the second quarter should close in the third, the bank said. Buyers were not disclosed.
Banc of California also retired $385 million in subordinated debt ahead of “a significantly higher interest rate reset,” the lender disclosed Wednesday.
The bank also transferred $2.3 billion in held-to-maturity securities to available-for-sale. The securities originally yielded 2.11%. But Banc of California is reinvesting the proceeds on them to buy shorter-duration securities with a 4.87% yield.
The repositioning generated a 276-basis-point yield pickup on redeployed balances but created a $256.7 million pretax loss on securities, the bank said.
The move, however, also “improved the risk-weighted asset profile of the securities portfolio, all while maintaining capital ratios significantly above ‘well capitalized’ regulatory thresholds,” Banc of California said Wednesday.
The downturn amounts to $1.61 per diluted common share.
But Banc of California CEO Jared Wolff put his focus squarely on future potential.
“During the second quarter, we made a strategic decision to reallocate capital toward opportunities that we believe will enhance long-term returns for our shareholders,” Wolff said in a statement. “These actions resulted in significant one-time charges, but they increase our long-term earnings power, improve capital efficiency and provide greater financial flexibility to support future growth. Just as importantly, they allow us to focus our capital on the businesses, clients and markets where we see the greatest opportunities to create shareholder value.”
The market is rarely kind to surprise losses. Banc of California’s stock price dropped roughly 10.1% early Wednesday before trending back up, according to Yahoo Finance.
The scale of Banc of California’s loss – $251.3 million – is eerily close to the $252 million fourth-quarter 2023 New York Community Bank loss that triggered a crisis of confidence in lenders with a high concentration of CRE loans.
Until Wednesday, Banc of California had not suffered a quarterly loss since Q4 of 2023, when the Los Angeles lender completed its acquisition of PacWest.
Among other benchmarks the bank reported Wednesday, average loans at Banc of California jumped $556.1 million, or 2.3%, during the quarter, and deposits increased $799 million, or 2.9%, over the three-month span.
