Company: BANC-PF
Filing Date: 2025-03-03
Form Type: 10-K
Source: 0001628280-25-009438
Chunk: 338

Company: BANC OF CALIFORNIA, INC.
Filing Date: 2025-03-03
Form: 10-K
Item: Item 1B
Chunk 338
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 in calculating quantitative reserves. In the fourth quarter of 2024, we used the Moody’s December 2024 Baseline, and S2 Downside 75th Percentile scenarios for the calculation of our quantitative component. The weightings of the scenarios were based on management’s current expectations, acknowledging the risk of a mild recession over our reasonable and supportable forecast period, and inherent uncertainty in the economy. To consider the higher interest rate environment, the prepayment rates applied in the quantitative calculation are continuing to use a lower prepayment rate based on the slowing trends of loan payoffs and paydowns. 

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As part of our allowance for credit losses 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 the quantitative reserve; collateral dependency related to certain loan portfolios including loans secured by office properties that are 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. The primary qualitative adjustments are related to loans secured by office properties, concentration of credit associated with geographic concentration, and volume of adversely classified financial assets.

The primary driver behind lower quantitative reserves compared to the previous year-end were lower loan balances in the held for investment portfolio driven by the sale of approximately $1.95 billion of Civic loans during the year, and payoffs/lower balances on existing loans along with net charge-off activity. The decrease in quantitative reserves was partially offset by higher reserves due to risk rating migration and new loan originations/balance increases on existing loans. The loan-related provision for credit losses was $43.0 million in 2024.

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 ACL. As part of our allowance for credit losses process, sensitivity analyses are performed to assess the impact of how changing certain assumptions could impact the estimated ACL. At times, these analyses can provide information to further assist management in making decisions on certain assumptions. We calculated alternative values for our December 31