Executive Summary

Q2 2024 delivered stable GAAP EPS of $0.12 on net earnings to common of $20.4M, with NIM expanding 14 bps to 2.80% as average loan yields rose and funding costs fell; non-GAAP drivers improved even as noninterest income softened due to negative marks on credit-linked notes and SBIC investments .
Funding mix and cost trends improved: average total cost of deposits fell 6 bps to 2.60%, cost of funds declined 7 bps to 2.95%, and average NIB deposits grew 3% QoQ to 27% of average deposits, supporting NIM expansion in a challenging rate backdrop .
Post-quarter catalyst: the $1.95B CIVIC loan sale closed July 18 (~98% of UPB), boosting liquidity/capital and enabling paydown of higher-cost funding; management expects further NIM gains as CIVIC proceeds are deployed and as deposits and borrowings reprice lower .
4Q24 outlook reiterated/updated: NIM 2.90–3.00%, noninterest expense ~$195–$200M, cost of funds down 20–25 bps, wholesale funding ratio 10–12%, L/D 85–90%, NIB/deposits 28–29%; tax rate expected to normalize to 27–28% (from 32% in Q2) .

What Went Well and What Went Wrong

What Went Well

NIM expansion and lower funding costs: NIM rose to 2.80% (+14 bps QoQ), with average loan yields +10 bps and cost of funds –7 bps; management highlighted continued benefit from BTFP paydown and rising NIB balances .
Balance sheet/liquidity strengthened: available liquidity reached $16.9B (2.5x uninsured/unsecured deposits), borrowings fell ~$700M QoQ, and CET1 rose to 10.27% (total risk-based 16.57%) .
Strategic catalysts executed: CIVIC $1.95B sale (closed 7/18) at >98% of UPB, expected to lift CET1 >30 bps and fund higher-cost deposit/borrowing runoff; core systems conversion completed, enabling integrated operations and product delivery .

Management quote: “We are well-positioned to continue improving profitability through net interest margin expansion and our expense reduction initiatives.” – Jared Wolff, CEO .

What Went Wrong

Credit costs elevated: net charge-offs spiked to 0.89% annualized on $55.7M NCOs (CIVIC charge-offs and two office CRE charge-offs), lifting provision to $11M; ACL/loans fell to 1.19% after charge-offs .
Noninterest income pressure: noninterest income declined to $29.8M (–$4.0M QoQ) on negative fair value marks for credit-linked notes and SBICs; leased equipment income also trended lower vs prior-year levels .
FDIC costs remained elevated (regular plus special assessments) and will normalize only later in the year; management targets ~$10–$12M per quarter by Q4 as assessments reset .

Financial Results

Note: The company’s Q2 press release presents Q1 figures that differ from the original Q1 release (e.g., total revenue/EPS). Where discrepancies exist, we flag them below.

Metric	Q2 2023	Q1 2024	Q2 2024
Total Revenue ($MM)	$57.994	$262.918	$259.280
Net Interest Income ($MM)	$186.076	$229.102	$229.488
Noninterest Income ($MM)	$(128.082)	$33.816	$29.792
Noninterest Expense ($MM)	$320.437	$210.518	$203.643
Net Earnings to Common ($MM)	$(207.361)	$20.905	$20.386
Diluted EPS ($)	$(2.67)	$0.12	$0.12
Net Interest Margin (%)	1.82%	2.66%	2.80%
Avg Cost of Deposits (%)	2.62%	2.66%	2.60%
Avg Cost of Funds (%)	3.58%	3.02%	2.95%

Discrepancy note: Q1 2024 originally reported total revenue $272.964MM and diluted EPS $0.17; the Q2 press tables present Q1 revenue $262.918MM and EPS $0.12, implying reclassifications/updates in subsequent reporting .

Key balance sheet, capital and credit KPIs:

KPI	Q2 2023	Q1 2024	Q2 2024
Total Deposits ($MM)	$27,897	$28,892	$28,804
NIB Deposits ($MM, % of Total)	$6,055 (22%)	$7,834 (27%)	$7,825 (27%)
Brokered Time Deposits ($MM)	$5,428	$3,424	$4,034
Loans HFI ($MM)	$22,258	$25,473	$23,229
Loans / Deposits (%)	81.50%	88.44%	87.36%
CET1 (%)	11.16%	10.12%	10.27%
NPAs / Assets (%)	0.30%	0.44%	0.37%
ACL / Loans (%)	1.15%	1.26%	1.19%
Book Value per Share ($)	$25.78	$17.13	$17.23
Tangible Book Value per Share ($)	$25.44	$15.03	$15.07
Available Liquidity ($B)	—	$16.8	$16.9

Operating drivers (Q2 2024 vs Q1 2024):

Average loan yield +10 bps to 6.18%; average earning asset yield +9 bps to 5.65% .
Cost of funds –7 bps to 2.95%; average total cost of deposits –6 bps to 2.60% .
Borrowings down ~$699M QoQ; uninsured/unsecured deposits steady at 24% of total .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Net Interest Margin (NIM)	4Q 2024 run-rate	Not quantified previously	2.90%–3.00%	Initiated numeric target
Cost of Funds	2H 2024	Not quantified previously	Down 20–25 bps by 4Q24	New directional/quantified
Noninterest Expense	4Q 2024	4Q run-rate target reiterated	~$195–$200MM	Reaffirmed/quantified
Wholesale Funding Ratio	4Q 2024	Not quantified previously	10%–12%	New
Loans / Deposits	4Q 2024	Target band discussed	85%–90%	Reaffirmed/quantified
NIB / Deposits	4Q 2024	Target discussed	28%–29%	Reaffirmed/quantified
Tax Rate	Ongoing	—	27%–28% normalized (vs 32% in Q2)	New normalization

Additional directional items:

Use CIVIC sale proceeds primarily to pay down higher-cost brokered deposits and borrowings, improving NIM/COF .
Securities repositioning under evaluation with ~2+ year earn-back; may utilize capital from CIVIC to accelerate .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 2023, Q1 2024)	Current Period (Q2 2024)	Trend
NIM and COF trajectory	NIM 1.69% in Q4 amid repositioning; plan to grow via lower COF and better mix	NIM 2.80% (+14 bps QoQ); COF –7 bps; further NIM expansion expected as CIVIC proceeds redeploy, NIB builds	Improving
FDIC assessments	Elevated post-merger; special assessment in Q4 and Q1	Still elevated with special assessment catch-up; target ~$10–$12M per quarter by Q4	Normalizing by Q4
CIVIC portfolio	Repositioning discussed; CIVIC contributed to credit “noise”	$1.95B moved to HFS; sale closed at >98% UPB; improved capital/liquidity; some charge-offs recognized	De-risked
Credit quality / office CRE	NPL/NPAs improved post-merger; office watched	NCOs elevated on CIVIC and two office loans; ACL/loans 1.19%; classified up on repricing risk	Mixed (idiosyncratic office)
Deposits/NIB growth	NIB % improved to ~26–27% in Q4/Q1; deposit engine emphasized	Average NIB up 3% QoQ to 27% of avg deposits; deposit mix shifts continue	Positive
Technology/systems	Conversion planned for mid-2024	Core systems conversion completed; enables integrated products and TM/payments	Achieved
Securities repositioning	Future optionality noted	Considering repositioning using CIVIC capital; ~2+ year earn-back	Under evaluation
Capital returns	CET1 10.1% Q4; focus on building capital	CET1 10.27%; discuss buybacks when CET1 ~11% and sustainable	Building to thresholds

Management Commentary

“We paid down $1 billion in higher-cost BTFP funding, which contributed to our NIM expansion… our bankers originated over $1 billion in loan commitments.” – Jared Wolff, CEO .
“We expect further improvement in our net interest margin as we move through the year… Noninterest expense to approach $195–$200 million in Q4.” – Joe Kauder, CFO .
“CIVIC loan sale… will improve our core earnings power as we redeploy this capital and liquidity.” – Jared Wolff, CEO .

Q&A Highlights

FDIC expense trajectory: target ~$10–$12M per quarter by Q4; reflected in the 4Q expense guide .
CIVIC proceeds allocation: “north of half” to pay down brokered CDs; expected OpEx relief of ~$2–3M by year-end as servicing tapers .
NIM guide (4Q24 2.90–3.00%) inclusive of expected balance sheet actions; upside if NIB grows faster or rate cuts accelerate .
Cost of funds expected to decline 20–25 bps in 2H24 with only one rate cut assumed; CIVIC alone contributes 5–10 bps to lower COF .
Securities repositioning earn-back a little over 2 years; near-term repositioning possible using CIVIC capital .
Capital return threshold: CET1 ~11% and sustainable before discussing buybacks; tax rate to normalize to 27–28% .
Lender finance re-engagement: portfolio ~750–800M after purchase; viewed as attractive, with relationship momentum .

Estimates Context

Wall Street consensus (S&P Global) for EPS/Revenue/EBITDA was unavailable due to data access limits at this time; we could not perform a quantitative beat/miss comparison. We will update as soon as S&P Global estimates become retrievable.

Key Takeaways for Investors

Core earnings power is inflecting: NIM expanded to 2.80% with clear line-of-sight to 2.90–3.00% by 4Q24 on lower COF, mix improvement, and CIVIC redeployment .
Balance sheet de-risking and liquidity are strategic assets: $16.9B liquidity (2.5x uninsured) and CET1 10.27% support further optimization (including securities repositioning) without stressing capital .
Watch the credit tape: Q2 charge-offs were elevated (CIVIC and two office loans), but NPLs/NPAs improved and ACL coverage remains robust; management proactively migrated rate-sensitive credits .
Expense trajectory is a lever: noninterest expense path to ~~$195–$200M by Q4 plus FDIC normalization (~~$10–$12M/quarter) should drive operating leverage into 2025 .
Funding mix still improving: rebuild of NIB and brokered runoff post-CIVIC should continue to compress COF, supporting NIM/earnings sensitivity to eventual rate cuts .
Tactical catalysts: securities repositioning (~2-year earn-back) and accelerated deployment of CIVIC proceeds could bring upside to NIM/COF sooner if market conditions allow .
Medium-term thesis: management targeting ~1%+ ROAA/low-teens ROTCE as integration completes, cost synergies flow, and rate path cooperates; capital return discussions likely around CET1 ~11% .

Appendix – Additional Operating/Balance Sheet Details (Q2 2024)

Average loan yield 6.18% (+10 bps QoQ) and average earning asset yield 5.65% (+9 bps QoQ) .
Deposits: total $28.8B (–$88M QoQ); mix shift with +$610M brokered time, offset by –$526M interest checking and –$183M money market; average NIB rose to 27% .
Borrowings $1.44B (–$699M QoQ) with $1.0B BTFP paydown offset by +$300M FHLB term borrowings .
Credit: NPAs 0.37% of assets (down from 0.44%); delinquent loans fell sharply to 0.36% of loans (from 0.93%) as CIVIC moved to HFS .

All data above sourced from the company’s Q2 2024 8-K/press release and presentation, Q2 2024 earnings call transcript, and prior quarter filings: .

BANC OF CALIFORNIA, INC. (BANC)·Q2 2024 Earnings Summary