BANC 10-K & 10-Q changes, risk factors and insider trading

Additionally, from time to time we undertake strategic project initiatives, including but not limited to, payment processing, investment in technology, process improvement, client experience and fintech partnerships or acquisitions, such as our acquisition of Deepstack.BancEdge. Significant effort and resources are necessary to manage and oversee the successful completion of these initiatives. These initiatives often place significant demands on a limited number of employees with subject matter expertise and management and may involve significant costs to implement as well as increase operational risk as employees learn to process transactions under new systems. The failure to properly execute on these strategic initiatives could adversely impact our business and results of operations.

Communications and information systems are essential to the conduct of our business, as we use such systems to manage our client relationships, our general ledger and virtually all other aspects of our business as well as process customer and merchant payments via the DeepstackBancEdge platform. Our operations rely on the secure processing, storage, and transmission of confidential and other information in our computer systems and networks. Although we take protective measures and endeavor to modify them as circumstances warrant, the security of our computer systems, software, and networks are vulnerable to breaches, unauthorized access either directly or indirectly through our vendors, misuse, computer viruses, or other malicious code and other types of cyber-attacks. Generative artificial intelligence is further increasing risks in this area, including by making fraud detection more difficult, particularly with detection devices that use voice recognition or authentication. The techniques used by bad actors change frequently, may not be recognized until launched, and may not be recognized until well after a breach has occurred. If one or more of these events occur, this could jeopardize our clients' confidential and other information that we process and store, or otherwise cause interruptions in our operations or the operations of our clients or counterparties. In addition, the U.S. banking regulatory agencies adopted a rule requiring us to notify the FRB within 36 hours of any significant computer security incident, and in July 2023, the SEC adopted rules that require reporting on Form 8-K of material cybersecurity incidents. Several states and their governmental agencies also have adopted or proposed cybersecurity laws. Privacy laws in the State of California and the State of Colorado, for example, require regulated entities to establish measures to identify, manage, secure, track, produce, and delete personal information. The occurrence of cyber-attacks may require us to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through our current insurance policies. If a cyber-attack succeeds in disrupting our operations or disclosing confidential data, we could also suffer significant reputational damage in addition to possible regulatory fines or client lawsuits.

We provide internet banking services to our clients which have additional cyber risks related to our client’s personal electronic devices and electronic communication. Any compromise of personal electronic device security could jeopardize the confidential information of our clients (including user names and passwords) and expose our clients to account take-overs and the possibility for financial crimes such as fraud or identity theft and deter clients from using our internet banking services. We rely on and employ industry-standard tools and processes to safeguard data. TheseThe precautions we take may not protect our systems from future vulnerabilities, data breaches or other cyber threats. Losses due to unauthorized account activity could harm our reputation and may have a material adverse effect on our business, financial condition, results of operations, and prospects.

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Annual Report on Form 10-K. In addition to historical data, this discussion and analysis contains forward lookingforward-looking statements about our business, operations and financial performance based on current expectations that involve risks, uncertainties and assumptions. Our actual results or outcomes may differ materially from those in this discussion and analysis as a result of various factors, including but not limited to those discussed in Part"Risk 1.Factors" in Item 1A,1A “Risk Factors” inof this Annual Report on Form 10-K.

For the discussion of the financial condition and results of operations for the year ended December 31, 20232024 compared to the year ended December 31, 2022,2023, refer to "Part II—Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 20232024 filed with the SEC on FebruaryMarch 29,3, 2024,2025, which is incorporated herein by reference.

Banc of California, Inc., a Maryland corporation, was incorporated in March 2002 and serves as the holding company for its wholly owned subsidiary, Banc of California (the “Bank”), a California state-chartered bank and a member of the FRB. When we refer to the "parent" or the “holding company," we are referring to Banc of California, Inc., the parent company, on a stand-alone basis. When we refer to “we,” “us,” “our,” or the “Company,” we are referring to Banc of California, Inc. and its consolidated subsidiaries including the Bank, collectively. The Bank is aone of the nation’s premier relationship-based business bank,banks, providing banking and treasury management services to small-,small, middle-market, and venture-backed businesses. The Bank offers a broad range of loan and deposit products and services through 79 full-service branches located throughout California and in Denver, Colorado, and Durham, North Carolina, as well as through regional offices nationwide. The Bank also provides full-stackfull-service payment processing solutions throughto its subsidiary, Deepstack Technologies,clients and serves the communityCommunity associationAssociation managementManagement industry nationwide with its technology-forward platform, SmartStreetTM.SmartStreet™. The Bank is committed to its local communities by supporting organizations that provide financial literacy and job training, small business support, affordable housing, and more.

On November 30, 2023, PacWest Bancorp merged with and into Banc of California, Inc. (the “Merger”), withwhich Banc of California, Inc. continuing asremained the surviving legal corporation and Banc of California, Inc. concurrently closedcompleted a $400 million equity capital raise. The MergerMerger, an all-stock transaction, was accounted fortreated as a reverse merger using the acquisition method offor accounting, therefore,making PacWest Bancorp was deemed the acquirer for financial reporting purposes, evenreporting, though Banc of California, Inc. was the legal acquirer. The Merger was an all-stock transaction and has been accounted for as a business combination. Banc of California, Inc.'s financialFinancial results for all periods ended prior to November 30, 2023 reflect PacWest Bancorp results only on a standalone basis. In addition, Banc of California, Inc.'s reported financial results for the year ended December 31, 2023 reflect PacWest Bancorp financial results only on a standalone basis until the closing of the Merger onbefore November 30, 2023, reflect only PacWest Bancorp and results offor December 2023 included the combined company for the month of December 2023.company. The number of shares issued and outstanding, earnings per share, and all references to share quantities or metrics of Banc of California, Inc. have beenwere retrospectively restated to reflect the equivalentMerger, numberand Banc of sharesCalifornia, issued in the Merger as the Merger was accounted for as a reverse merger. Under the reverse merger method of accounting, theInc, assets and liabilities of legacy Banc of California, Inc. as of November 30, 2023 were recorded at their respective fair values.value as of the merger date. Refer to "Note 2. Business Combinations" in Item 8 of this Form 10-K for additional information on this merger.

Net interest incomeNII is the excess of interest earned on our interest-earning assets over the interest paid on our interest-bearing liabilities. Net interest margin is net interest incomeNII (annualized if related to a quarterlynon-annual period) expressed as a percentage of average interest-earning assets. Tax equivalent net interest income is net interest income increased by an adjustment for tax-exempt interest on certain loans and investment securities based on a 21% federal statutory tax rate. Tax equivalent net interest margin is calculated as tax equivalent net interest income divided by average interest-earning assets.

Net interest incomeNII is affected by changes in both interest rates and the volume of average interest-earning assets and interest-bearing liabilities. Our primary interest-earning assets are loans and investment securities, and our primary interest-bearing liabilities are deposits and borrowings. Contributing to our positive net interest margin is our healthy yield on loans and leases in excess of our core deposit costs. While our deposit balances will fluctuate depending on our customers’ liquidity and cash flow, market conditions, and competitive pressures, we seek to minimize the impact of these variances by attracting a high percentage of noninterest-bearing deposits. We continue to focus on growing granular relationship-based deposits as a key component of our core deposit strategy, which supports a stable funding base and strengthens our client franchise.

We actively seek new lending opportunities under an array of lending products. Our lending activities include real estate mortgage loans, real estate construction and land loans, commercial loans and leases, and a small amount of consumer lending. Our commercial real estateCRE loans and real estate construction loans are secured by a range of property types. Our commercial loans and leases portfolio is diverse and generally includes various asset-secured loans, lender finance loans, equipment-secured loans and leases, venture capital loans to support venture capital firms’ operations and the operations of entrepreneurial and venture-backed companies during the various phases of their early life cycles, warehouse loansloans, and secured business loans.

Our loan origination process emphasizes credit quality. Historically, toTo augment our internal loan production, we have purchased loans such as SFR mortgage loans, multi-family loans from other banks, and private student loans from third-party lenders, and in recent years, single-family residential mortgage loans.lenders. These loan purchases help us manage the concentrations in our portfolio as they diversify the geographic risk, interest-rate risk, credit risk, and product composition of our loan portfolio. Achieving net loan growth is subject to many factors, including maintaining strict credit standards, competition from other lenders, and borrowers that opt to prepay loans.

We emphasize credit quality in originating and monitoring our loans and leases, and we measure our success by the levels of our classified loans and leases, nonaccrual loans and leases, and net charge-offs. We maintain an allowance for credit lossesACL on loans and leases, which is the sum of the allowance for loan and lease lossesALLL and the reserve for unfunded loan commitments. Provisions for credit losses are charged to operations as and when needed for both on and off-balance sheet credit exposures. Loans and leases that are deemed uncollectable are charged off and deducted from the allowance for loan and lease losses.ALLL. Recoveries on loans and leases previously charged off are added to the allowance for loan and lease losses.ALLL. The provision for credit losses on the loan and lease portfolio is based on our allowance methodology, which considers the impact of assumptions and is reflective of historical experience, economic forecasts viewed to be reasonable and supportable by management, the current loan and lease composition, and relative credit risks known as of the balance sheet date. For originated and acquired credit-deteriorated loans, a provision for credit losses may be recorded to reflect credit deterioration after the origination date or after the acquisition date, respectively.

We regularly review loans and leases to determine whether there has been any deterioration in credit quality resulting from borrower operations or changes in collateral value or other factors which may affect the collectability of our loans and leases. Changes in economic conditions, such as the rate of economic growth, the unemployment rate, rate of inflation, increases in the general level of interest rates, declines in real estate values, changes in commodity prices, and adverse conditions in borrowers’ businesses, could negatively impact our borrowers and cause us to adversely classify loans and leases. An increase in classified loans and leases generally results in increased provisions for credit losses and an increased allowance for credit losses.ACL. Any deterioration in the real estate market may lead to increased provisions for credit losses because our loans are concentrated in real estate loans.

Our noninterest expense includes fixed and controllable overhead, the largest components of which are compensation expense, customer related expense, information technology and data processing expense, and occupancy expense. Customer related expenses are primarily earnings credit rateECRs payments to customers and are mostly driven by the Homeowners Association ("HOA") business. ItECRs alsoare includesrate-sensitive costsand thatfluctuate tendin response to varychanges based onin the volumefederal offunds activity, such as loan and lease production and the number and complexity of foreclosed assets.rate. Additionally, noninterest expense includedincludes insurance and assessments, intangible asset amortization, leased equipment depreciation, other professional services, loan expenses, acquisition, integration and reorganizationorganization costs related to the Mergercosts, and aother goodwill impairment charge recorded in 2023.expense. We monitor our efficiency ratio as a key measure success in controlling both fixed and variable costs through monitoring of theoperational ratio of noninterest expense to average total assets.performance.

Our significant accounting policies and practices are described in "Note 1. Nature of Operations and Summary of Significant Accounting Policies" in Item 8 of thethis Notesform to Consolidated Financial Statements contained in "Item 8. Financial Statements and Supplementary Data."10-K. We have identified threetwo policies and estimates as being critical because they require management to make particularly difficult, subjective, and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These policies relate to the allowance for credit lossesACL on loans and leases held for investment, the carrying value of goodwill and other intangible assets,HFI and the realization of deferred tax assets and liabilities.

The ACL is estimated on a quarterly basis and represents management'smanagement’s estimate of current expected credit losses over the remaining expected life of the Company's financial assets measured at amortized cost, including loans and leases and certain lending-related commitments. The ACL involves significant judgment on a number of matters including assessment of key credit risk characteristics, assignment of risk ratings, valuation of collateral, the determination of remaining expected life, incorporation of historical default and loss experience, and development and weighting of macroeconomic forecasts. For information regarding the calculation and policies of the ACL on loans and leases heldHFI forand investment,related seeunfunded loan commitments. The ACL is evaluated quarterly and reflects management’s judgment based on historical loss experience, current conditions, and reasonable and supportable forecasts. A detailed description of the Company’s accounting policies and methodology is included in the " - Balance Sheet Analysis - Allowance for Credit Losses on Loans and Leases Held for Investment" in Item 7 and "Note 1(j).1. Nature of Operations and Summary of Significant Accounting Policies - Allowance for Credit Losses on Loans and Leases Held for Investment,Investment" in Item 8 of thethis NotesForm to Consolidated Financial Statements contained in "Item 8. Financial Statements and Supplementary Data."10-K.

We use certain non‑GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance. This disclosure should not be viewed as a substitute for results determined in accordance with GAAP. The methodology for determining these non-GAAP measures may differ among companies and may not be comparable. We use the following non-GAAP measures in this Annual Report on Form 10-K:

•ReturnWe use the following non-GAAP measures:return on average tangible common equity, tangible common equity ratio, tangibleefficiency book value per common share,ratio, adjusted return on average tangible common equity, adjusted net earnings, adjusted diluted earnings per share, and adjusted return on average assets:assets. Given that the use of these measures is prevalent among banking regulators, investorsinvestors, and analysts, we disclose them in addition to the related GAAP measures of return on average equity, stockholders' equity to assets ratio, noninterest expense to total revenue, and bookreturn valueon peraverage share,assets, respectively. The reconciliations of these non-GAAP measures to the GAAP measures are presented in the following tables for and as of the yearsperiods presented. Such disclosures should not be viewed as substitutes for results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

(2) Adjusted netNet earnings (loss) divided by average stockholders' equity.

(3) Adjusted net earnings (loss) available to common and equivalent stockholders for ROATCE divided by average tangible common equity.

_________________________________________________________________ (1) EffectiveIncludes taxcustomer ratesrelated expense of 24.76%,$105.4 14.12%,million, $129.5 million, and 25.36%$124.1 usedmillion for the years ended December 31, 2025, 2024, 2023, and 2022.2023.

(2) Adjusted net earnings (loss) available to common and equivalent stockholders divided by weighted average diluted common shares outstanding.

(4) Adjusted net earnings divided by average assetsassets.

(2) See "- Non-GAAP Financial Measures.Measures" in Item 7 of this Form 10-K.

Net Interest Income and Net Interest Margin

The following table summarizes the distribution of average assets, liabilities, and stockholders’ equity, as well as interest income and yields earned on average interest‑earning assets and interest expense and rates paid on average interest‑bearing liabilities, presented on a tax equivalent basis,liabilities for the years indicated:

(2) Total loans are net of deferred fees, related direct costs, and premiums and discounts, but exclude the allowance for loan losses. Includes net loan discount accretion of $64.2 million, $88.0 million and $9.7 million for the years ended 2025 and 2024 and 2023 and net loan premium amortization of $17.9 million for 2022,2023, respectively.

The following table presents changes in interest income (tax equivalent) and interest expense and related changes in rate and volume for the years indicated:

The following is management's discussion and analysis of the major factors that influenced our results of operations and financial condition as of and for the threesix months ended MarchJune 31,30, 2026. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2025 and with the unaudited consolidated financial statements and notes thereto set forth in this Quarterly Report on Form 10-Q.

ActualFactors that could cause actual results couldto differ materially from thosethe containedresults anticipated or impliedprojected byinclude, suchbut forward-lookingare statementsnot forlimited a variety of factors, including without limitationto: (i) changes in general economic conditions, either nationally or in our market areas, including the impact of tariffs and retaliatory tariffs, supply chain disruptions, and the risk of recession or an economic downturn; (ii) changes in the interest rate environment, including the recent and potential future changes in the FRB benchmark rate, which could adversely affect our revenue and expenses, the value of assets and obligations, the realization of DTAs,deferred tax assets, the availability and cost of capital and liquidity, and the impacts of continuing or renewed inflation; (iii) the credit risks of lending activities, which may be affected by deterioration in real estate markets and the financial condition of borrowers, and the operational risk of lending activities, including the effectiveness of our underwriting practices and the risk of fraud, any of which may lead to increased loan delinquencies, losses, and non-performing assets, and may result in our ACLallowance for credit losses not being adequate; (iv) fluctuations in the demand for loans, and fluctuations in commercial and residential real estate values in our market area; (v) the quality and composition of our securities portfolio; (vi) our ability to develop and maintain a strong core deposit base, including among our venture banking clients, or other low cost funding sources necessary to fund our activities particularly in a rising or high interest rate environment; (vii) the rapid withdrawal of a significant amount of demand deposits over a short period of time; (viii) our ability to achieve or maintain the anticipated benefits of our securities repositioning and other strategic balance sheet actions due to one or more of the other factors described herein or otherwise, or the failure to complete our anticipated loan sales due to a condition to closing not being satisfied or otherwise; (ix) our ability to raise capital or incur debt on reasonable terms; (x) the costs and effects of litigation; (ixxi) risks related to the Company'sCompany’s acquisitions, including disruption to current plans and operations; difficulties in customer and employee retention; fees, expenses and charges related to these transactions being significantly higher than anticipated; and our inability to achieve expected revenues, cost savings, synergies, and other benefits; (xxii) the competitive and other impacts on our business of emerging technologies, including stablecoins and other digital currencies, tokenized deposits, blockchain, artificial intelligence, quantum computing, and related innovations affecting both the Company and the banking industry; (xiii) results of examinations by regulatory authorities of the Company and the possibility that any such regulatory authority may, among other things, limit our business activities, restrict our ability to invest in certain assets, refrain from issuing an approval or non-objection to certain capital or other actions, increase our ACL,allowance for credit losses, result in write-downs of asset values, restrict our ability or that of our bank subsidiary to pay dividends, or impose fines, penalties or sanctions; (xixiv) legislative or regulatory changes that adversely affect our business, including changes in tax laws and policies, accounting policies and practices, privacy laws, and regulatory capital or other rules; (xiixv) the risk that our enterprise risk management framework may not be effective in mitigating risk and reducing the potential for losses; (xiiixvi) errors in estimates of the fair values of certain of our assets and liabilities, as well as the value of collateral supporting our loans, which may result in significant changes in valuation or recoveries; (xivxvii) cybersecurity threats and failures or security breaches with respect to the network, applications, vendors and computer systems on which we depend, including due to cybersecurity threatsdepend; (xvxviii) our ability to attract and retain key members of our senior management team; (xvixix) the effects of climate change, severe weather events, natural disasters such as earthquakes and wildfires, pandemics, epidemics and other public health crises, military activity (including the ongoing Iran war) or acts of terrorism, and other external events on our business; (xviixx) the impact of bank failures or other adverse developments at other banks on general depositor and investor sentiment regarding the stability and liquidity of banks; (xviiixxi) the possibility that our recorded goodwill could become impaired, which may have an adverse impact on our earnings and capital; (xixxxii) our existing indebtedness, together with any future incurrence of additional indebtedness, could adversely affect our ability to raise additional capital and to meet our debt obligations; (xxxxiii) changes in market conditions or strategic balance sheet actions, which may result in realized losses on investment securities or other assets; (xxiv) the effects of any damage to our reputation resulting from developments related to any of the items identified above; and (xxixxv) other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and the other risks described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 and from time to time in other documents that we file with or furnish to the SEC.

On March 23, 2026, we announced the extension of the Company’s existing $300 million stock repurchase program, which had been scheduled to expire in March 2026, through March 16, 2027. During thesix Firstmonths Quarterended ofJune 30, 2026, the Company repurchased a total of approximately 1.7 million shares of common and common equivalent stock for $31.9 million, at a weighted-average price of $18.68 per share. As of MarchJune 31,30, 2026, the Company had $82.6 million remaining under the stock repurchase authorization. For further information on the stock repurchase program, see "Note 14. Stockholders' Equity", in Item 1 of this Form 10-Q.

The following discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements and related notes, which have been prepared in accordance with U.S. GAAP. The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts and disclosure. We evaluate these estimates and assumptions on aan ongoing basis based on historical experience and other relevant factors and circumstances; however, actual results may differ significantly from these estimates and assumptions, which could have a material adverse effect on our financial condition and results of operations.

___________________________________ (1) Effective tax rates of 25.14%,28.00%, 26.86%25.14% and 25.30%23.12% used for the three months ended MarchJune 31,30, 2026, December 31, 2025 and March 31, 2026 and June 30, 2025. Effective tax rates of 29.30% and 23.12% used for the six months ended June 30, 2026 and 2025.

(2) Annualized net (loss) earnings divided by average stockholders' equity.

(3) Annualized adjusted net (loss) earnings available to common and equivalent stockholders for ROATCE divided by average tangible common equity.

(3) Common and equivalent shares outstanding include NVCE that are participating securities. There werewas no NVCE outstanding as of MarchJune 31,30, 2026.

_______________________________________ (1) Includes customer related expense of $23.7$24.1 million, $24.9$23.7 million, and $27.8$26.6 million for the three months ended June 30, 2026, March 31, 2026, Decemberand 31,June 30, 2025, and March$47.9 31,million 2025,and respectively.$54.3 million for six months ended June 30, 2026 and 2025.

(2) Noninterest expense used for efficiency ratio divided by total revenue.revenue used for efficiency ratio.

The Company reported net loss available to common and equivalent stockholders of $251.3 million, or $(1.61) per diluted common share, for the second quarter of 2026. This compares to net earnings available to common and equivalent stockholders of $62.0 million, or $0.39 per diluted common share, for the first quarter of 2026. This compares to net earnings available to common and equivalent stockholders of $67.4 million, or $0.42 per diluted common share, for the fourth quarter of 2025,2026, and net earnings available to common and equivalent stockholders of $43.6$18.4 million, or $0.26$0.12 per diluted common share, for the firstsecond quarter of 2025. The net loss for the second quarter of 2026 was primarily attributable to the impact of strategic balance sheet actions undertaken during the quarter, including the securities repositioning, targeted loan sale process, and redemption of subordinated debt.

FirstSecond Quarter 2026 Financial Highlights:

•Average totalTotal deposits increased by $103.4$799.0 million, andor 2.9% during the quarter, with average noninterest-bearing deposits grewcomprising $81.2 million to 28.9%28.5% of average total deposits.

•Healthy capitalCapital ratios well aboveexceeded the regulatory thresholds for "well capitalized" banks, including a 12.54%11.67% Tier 1 capital ratio and a 10.18%9.25% CET 1 capital ratio.

_____________________________ (1) Common shares include NVCE that are participating securities. There werewas no NVCE outstanding as of June 30, 2026 and March 31, 2026.

(5) Ratio calculated by dividing noninterest expense (less intangible asset amortization and acquisition, integration and reorganization costs) by total revenue (less gain/loss on sale of securities). See "Non-GAAP Financial Measures" in Item 2 of this Form 10-Q. Noninterest expense includes customer related expense of $23.7 million, $24.9$24.1 million and $27.8$23.7 million for the three months ended MarchJune 31,30, 2026, December 31, 20252026 and March 31, 2026, and $47.9 million and $54.3 million for six months ended June 30, 2026 and 2025.

_____________________ (1) Total loans are net of deferred fees, related direct costs, and premiums and discounts, but exclude the allowance for loan losses. Includes net loan discount accretion of $12.2$11.2 million, $12.7$12.2 million and $16.0$16.1 million for the three months ended MarchJune 31,30, 2026, December 31, 2025 and March 31, 2026 and June 30, 2025.

Net interest margin was 3.13% for the second quarter, down 11 basis points from 3.24% for the first quarter,quarter. upThe 4decrease basis points from 3.20% for the fourth quarter,was primarily driven by lowernonaccrual averageinterest totalimpacts costand an increase in short-term funding associated with strong loan growth and the redemption of funds,subordinated offsetdebt, partiallywhile bycore lowerdeposit averagegrowth yieldstrengthened ontoward interest-earningquarter-end, assets.improving the Company's funding profile entering the third quarter. The average total cost of funds increased to 2.14% from 2.10%, as a result of a 2 basis point increase in the average total cost of deposits to 1.80%, and a 19 basis point decrease in the average cost of borrowings to 4.44%. The average yield on interest-earning assets decreased to 2.10%5.18% from 2.20%,5.25%, as a result of an 11 basis point decrease in the average total cost of deposits to 1.78%, and an 11 basis points decrease in the average cost of borrowings to 4.63%. The average yield on interest-earning assets decreased to 5.25% from 5.31%, as a result of a 9 basis point decrease in the average yield on loans and leases to 5.74%. Declines in both funding costs and asset yield reflect the full quarter impact of rate cuts that occurred in the fourth quarter.5.63%.

Average total deposits increased by $398.7$299.1 million year over year,million, with a $223.0$323.5 million increase in average interest-bearing depositsdeposits, andoffset partially by a $175.7$24.4 million increasedecrease in average noninterest-bearing deposits. Average noninterest-bearing deposits represented 28.9%28.5% of average total deposits forin the threesecond monthsquarter, ended March 31, 2026, updown from 28.7%28.9% forin the comparablefirst period in 2025.quarter.

The first quarter of 2026 provision for loan losses and unfunded loan commitments was primarily driven by net charge off activity and changes in loan risk ratings including specific reserves, offset partially by lower balances in the HFI portfolio and lower qualitative reserves.

The firstprovision quarterfor the six months ended June 30, 2025 included the impact of 2025$506.7 million of loans transferred to HFS and recorded at the LOCOM. The remaining increase in the provision for loan losses and unfunded loan commitments was primarily driven by net charge-off activity,activity experienced in the first half of the year, with additional impacts from changes in loan risk ratings, and higher unfunded commitments. These were offset partially by lower qualitative reserves, lower specific reservesreserves, and changesa favorable shift in the portfolio mix drivendue byto growth in loan segments with lowlower expected credit losses.