Company: BANC-PF
Filing Date: 2025-11-10
Form Type: 10-Q
Source: 0001628280-25-050892
Chunk: 174

Company: BANC OF CALIFORNIA, INC.
Filing Date: 2025-11-10
Form: 10-Q
Item: Item 8
Chunk 174
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 of recession over our reasonable and supportable forecast period and the current economic uncertainty. 

The ACL on loans and leases, which includes the reserve for unfunded loan commitments, totaled $270.7 million, or 1.12% of total loans and leases, at September 30, 2025, compared to $268.4 million, or 1.13% of total loans and leases, at December 31, 2024. The $2.3 million increase in the allowance was driven was primarily driven by ACL provision expense of $58.1 million partially offset by net charge off activity totaling $55.8 million including the charge-offs associated with the transfer of loans to held for sale in the second quarter.  

As part of our ACL methodology, we consistently incorporate the use of qualitative factors in determining the overall ACL to capture risks that may not be appropriately reflected in our quantitative models. Such qualitative factors may include, but are not limited to: economic conditions not captured in in the quantitative reserve; collateral dependency related to certain loan portfolios including loans secured by office properties that were directly impacted by flexible/hybrid work environment; concentrations of credit within the loan portfolio including the commercial real estate portfolio; the quality of the Company’s credit review system; the volume and severity of adversely classified financial assets; the Company’s lending policies and procedures; and the effect of other external factors such as the regulatory and legal environments. During the third quarter of 2025, reserves associated with the qualitative adjustments decreased when compared to the prior quarter. Primary qualitative adjustments were related to loans secured by office properties and concentration of credit associated with commercial real estate loans, multi-family loans, and construction loans.  

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The use of different economic forecasts, whether based on different scenarios, the use of multiple or single scenarios, or updated economic forecasts and scenarios, can change the outcome of the calculations. In addition to the economic forecasts, there are numerous components and assumptions that are integral to the overall estimation of the ACL. As part of our ACL process, sensitivity analyses are performed to assess how changing certain assumptions could impact the estimated ACL. At times, these analyses can provide information to further assist management in making decisions related to certain assumptions. We calculated alternative values for our ACL using various alternative forecast scenarios weightings and the calculated amounts for the quantitative component differed from the probability-weighted multiple scenario forecast ranging from increasing the dollar amount of the quantitative component of the ACL by 4.95% to lower reserves by 5.34%. However, from a sensitivity analysis perspective,