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Banc of California Reports Third Quarter 2019 Earnings

October 23, 2019 6:00 AM

SANTA ANA, Calif.--(BUSINESS WIRE)-- Banc of California, Inc. (NYSE: BANC) today reported a net loss for the third quarter of $22.7 million, resulting in a diluted loss per common share of $0.45.

Highlights for the third quarter (as compared to second quarter 2019) included:

“The third quarter results reflect the continued progress and execution on our strategy to improve the foundation and earnings power of the Company for the long term, lowering deposit costs, reducing our expenses and eliminating non–core assets,” said Jared Wolff, President and Chief Executive Officer of Banc of California. “The deposit initiative we began in May has brought in over $100 million of low cost deposits. We are seeing expenses stabilize at a significantly reduced level, and have made considerable progress in right sizing our balance sheet.”

Mr. Wolff continued, “During the quarter, we also executed on specific initiatives to simplify and optimize our balance sheet and create flexibility. As a result of these efforts, we are well positioned to consider additional capital management strategies in the coming quarters. Despite the significant loss we reported during the quarter from the borrower fraud that resulted in a charge–off of the loan originated in 2017, we continue to maintain strict credit quality standards which are in line with our relationship-lending focus. Overall, we remain well positioned on both sides of the balance sheet in the current environment, with opportunity to further reduce our cost of deposits and to remix our loan portfolio to protect yield as we build out our focused business banking and bridge lending platforms. I’m pleased to see the progress the bank made during this past quarter and look forward to continued execution as we close out 2019.”

Speaking specifically about balance sheet activity for the quarter, John Bogler, Chief Financial Officer of Banc of California, said, “We continue to make great strides in building a core balance sheet that will allow us to be high performing. During the quarter, we sold $574 million of low coupon multifamily loans, repaid high cost brokered deposits, tendered for $46 million of high cost preferred equity and we took the opportunity to sell longer duration, low yielding mortgage–backed securities at the end of the quarter. This will allow us to start the process of remaking the securities portfolio. All of these actions will begin to translate into a higher performing balance sheet as we head into next year.”

Business Results - Income Statement Highlights

Three Months Ended

Nine Months Ended

September 30,
2019

June 30,
2019

March 31,
2019

December 31,
2018

September 30,
2018

September 30,
2019

September 30,
2018

Total interest and dividend income

$

92,657

$

104,040

$

110,712

$

111,130

$

107,774

$

307,409

$

311,666

Total interest expense

33,742

39,260

42,904

40,448

36,582

115,906

96,272

Net interest income

58,915

64,780

67,808

70,682

71,192

191,503

215,394

Provision for (reversal of) loan and lease losses

38,540

(1,987

)

2,512

6,653

1,410

39,065

23,562

Net interest income after provision for loan and lease losses

20,375

66,767

65,296

64,029

69,782

152,438

191,832

Total noninterest income (loss)

3,181

(2,290

)

6,295

2,448

4,824

7,186

21,467

Total noninterest expense

43,307

43,587

61,835

49,569

60,877

148,729

183,216

Income tax (benefit) expense

(5,619

)

4,308

2,719

6,117

3,301

1,408

(1,273

)

(Loss) income from continuing operations

(14,132

)

16,582

7,037

10,791

10,428

9,487

31,356

Income from discontinued operations

—

—

—

247

668

—

3,078

Net (loss) income

$

(14,132

)

$

16,582

$

7,037

$

11,038

$

11,096

$

9,487

$

34,434

Net interest income

Q3 2019 vs Q2 2019.

Net interest income for the third quarter decreased to $58.9 million as we sold non-core assets and repaid high cost funding liabilities during the quarter. For the third quarter, average interest-earning assets declined from the prior quarter by $926 million to $8.2 billion, while the net interest margin remained flat at 2.86% between quarters. We continue to execute on our strategy of disposing of lower yielding, non-core assets and rebalancing our portfolio.

Our average yield on interest-earning assets declined to 4.50% for the third quarter as compared to 4.59% for the second quarter of 2019, primarily attributable to a decrease in our average yield on loans and securities. Our average yield on loans came in at 4.75% for the third quarter which decreased by 5 basis points from the prior quarter, primarily attributable to variable rate loans repricing and lower average balance of higher yielding commercial and industrial loans, partially offset by the settlement of the Freddie Mac multifamily securitization which consisted of lower yielding loans. Our average yield on securities decreased 23 basis points primarily as a result of the quarterly interest rate resets on our collateralized loan obligations (“CLO”) and the sales of CLOs that occurred during the second quarter of 2019. We sold a significant amount of CLOs during the second quarter, with the full impact of the second quarter sales reflected in the third quarter.

Our average cost of interest-bearing liabilities decreased to 2.03% for the third quarter from 2.09% for the second quarter, primarily resulting from a 14 basis point decrease in our average cost of total deposits from the prior quarter to 1.48%. Non-interest bearing deposits increased by $114 million in the third quarter. The decrease in our cost of deposits from the prior quarter primarily resulted from the continued execution of our deposit strategy to focus on relationship-based clients and de-emphasize high-rate transactional customers and brokered certificates of deposit.

YTD 2019 vs YTD 2018.

Net interest income for the nine months ended September 30, 2019 decreased to $191.5 million as compared to $215.4 million for the same period in 2018 primarily as a result of the sale of CLOs in 2019 and the overall higher cost of funding, both mostly offset by higher yields on assets driven by the higher interest rate environment and loan growth in almost all loan categories. For the nine months ended September 30, 2019, average interest-earning assets declined $699 million from the prior period to $9.01 billion, while the net interest margin decreased to 2.84% from 2.97% for the comparable 2018 period.

Our average yield on interest-earning assets increased 26 basis points to 4.56% for the nine months ended September 30, 2019 as compared to 4.30% for the comparable 2018 period, due to increased yields in the loan and securities portfolios as well as an increased mix of loans versus securities. Our average yield on loans came in at 4.77% for the nine months ended September 30, 2019, compared to 4.61% during the comparable 2018 period, primarily attributable to overall increases in market rates between periods. Our average yield on securities increased 22 basis points primarily as a result of an interest rate reset on our CLOs, partially offset by a decrease in our average balance attributable to the sale and calls of $682.6 million of our higher yielding CLOs between periods.

Provision for loan losses

Q3 2019 vs Q2 2019.

During the third quarter, we recognized a loan loss provision of $38.5 million. As previously reported, the loan loss provision was primarily attributable to a $35 million charge-off of a line of credit originated in November 2017 to a borrower purportedly the subject of a fraudulent scheme. In addition, the charge-off increased the loss factor used in our allowance for loan loss methodology for commercial and industrial loans, resulting in an additional loan loss provision of $3.0 million. We are actively evaluating all available sources of recovery, although no assurance can be given that we will be successful in that regard.

During the third quarter of 2019, the Company undertook an extensive collateral review of all lending relationships $5 million and above not secured by real estate, consisting of 53 loans representing $536 million in commitments. The collateral review focused on security and collateral documentation and confirmation of the bank's collateral interest. The review was performed within the bank's Internal Audit division and the work was validated by an independent third party. While the review and outside validation is not yet complete, to date, we have not identified any other instances of apparent fraud for the credits reviewed or concerns over the existence of collateral held by the bank or on our behalf at third parties; however, there are no assurances that our internal review and third party validation will be sufficient to identify all such issues.

YTD 2019 vs YTD 2018.

During the nine months ended September 30, 2019 we recognized a loan loss provision of $39.1 million, primarily attributable to the aforementioned $35 million charge-off of a line of credit. For the comparable prior year period, $23.6 million of loan loss provisions were recorded, inclusive of a $14 million charge-off related to borrower fraud, as well as $594 million of growth in the loan portfolio.

Noninterest income

Q3 2019 vs Q2 2019.

Noninterest income for the third quarter was $3.2 million, which represented an increase of $5.5 million, or 239% from the prior quarter. The increase was primarily due to (1) $9.6 million primarily resulting from the net impact of the hedge associated with the Freddie Mac multifamily securitization, (2) a $5.1 million realized net loss on the sale of mortgage backed securities (“MBS”), (3) a $1.5 million increase in gain on sale of loans and (4) a $731 thousand other-than-temporary impairment on the remaining MBS portfolio.

In August 2019, the Company completed the previously announced Freddie Mac securitization of $574 million multifamily loans that were held for sale as of June 30, 2019 and sold the associated mortgage servicing rights. The Company realized a gain in fair value of the loans sold into the securitization of $9.0 million, offset by a $9.6 million loss from interest rate swap agreements entered into in order to offset variability in the fair value of the securitized loans as a result of changes in market interest rates. The $9.0 million gain in fair value on the securitization was recognized during the three months ended September 30, 2019 when the securitization settled, while the corresponding loss, as previously disclosed, was recognized during the three months ended June 30, 2019 because the interest rate swap agreements were entered into during May 2019 in preparation for the securitization.

During the third quarter, the Company partially hedged the fair value of the MBS portfolio using interest rate swaps. At the end of the quarter, the Company took advantage of the decline in long-term interest rates and sold the majority of the MBS portfolio and unwound the majority of the interest rate swaps. The remaining balance of the MBS portfolio and the related interest rate swap is expected to be sold and unwound early in the fourth quarter 2019. The unsold portion of the MBS portfolio has been deemed other–than–temporarily impaired and, along with the fair value adjustment on the swap, has been recorded in noninterest income with a net impact of $731 thousand.

YTD 2019 vs YTD 2018.

Noninterest income for the nine months ended September 30, 2019 was $7.2 million, which represented a decrease of $14.3 million, or 66.5% from the comparable period in the prior year. The decrease was primarily attributable to a $10.4 million decrease in net gain on sale of investment securities as a result of decreased favorable sale activity in 2019 and a realized loss of $5.1 million on the sale of our MBS portfolio in the third quarter of 2019 and a decrease of $3.3 million in loan servicing income as a result of the sale of mortgage servicing rights in 2018.

Noninterest expense

Q3 2019 vs Q2 2019.

Noninterest expense for the third quarter was $43.3 million, which was comparable to the prior quarter. Noninterest expense included: (1) a $4.4 million increase in our professional fees, primarily attributable to $6.2 million of insurance recoveries net of expenses related to securities litigation, indemnification, investigation and other legal expenses in the second quarter as compared to $2.6 million of insurance recoveries net of expenses in the third quarter, (2) a $1.6 million decrease in our compensation expense resulting from lower headcount and lower consulting fees, (3) a $897 thousand decrease in regulatory assessments, and (4) a $585 thousand increase in gain on investments in alternative energy partnerships.

Noninterest expense for the second quarter of 2019 was $43.6 million, which included non-core adjustments of (1) $6.2 million of insurance recoveries net of expenses related to securities litigation, indemnification, investigation and other legal expenses, (2) $797 thousand of project charge-offs related to data processing, and (3) a $158 thousand reversal of restructuring expenses recognized in the first quarter of 2019.

YTD 2019 vs YTD 2018.

Noninterest expense for the nine months ended September 30, 2019 was $148.7 million, which represented a decrease of $34.5 million, or 18.8% from the comparable period in the prior year. The decrease in noninterest expense consisted of: (1) a decrease of $17.8 million in professional fees, primarily attributable to $6.1 million of insurance recoveries net of expenses related to securities litigation, indemnification, investigation and other legal expenses, (2) a $3.5 million decrease in our compensation expense resulting from lower headcount and lower consulting fees, (3) a $3.1 million decrease in advertising costs, and (4) a $3.6 million decrease in loss on investments in alternative energy partnerships.

Income taxes

Q3 2019 vs Q2 2019.

Income tax benefit totaled $5.6 million for the quarter, representing a decrease of 230% from the prior quarter, and an effective tax rate of 28.45%. During the third quarter of 2019, we had a pre-tax net loss of $19.8 million, resulting in approximately 13% reduction in the projected annual effective tax rate. For the full year, we expect our tax rate to normalize closer to 11%. The lower effective tax rate of 11% is primarily driven by the loss the Company incurred and we expect the rate to normalize closer to 20% in 2020.

YTD 2019 vs YTD 2018.

Income tax expense totaled $1.4 million for the nine months ended September 30, 2019, representing an increase of $1.5 million from the same period in 2018, and an effective tax rate of 11.91%. The increase in income tax expense and effective tax rate for the nine months ended September 30, 2019, primarily relates to the significant reduction in tax credits received by the Company on investments in alternative energy partnerships.

Balance Sheet

The following table shows selected balance sheet line items as of September 30, 2019 and for the previous four quarters. As indicated in the table below, at September 30, 2019, total assets were approximately $8.6 billion, which represented a linked quarter decrease of $735 million, consistent with our strategic shift towards reducing our balance sheet and focusing on relationship lending.

As of and for the Three Months Ended

Amount Change

September 30,
2019

June 30,
2019

March 31,
2019

December 31,
2018

September 30,
2018

Q3-19 vs. Q2-
19

Q3-19 vs. Q3-
18

Total assets

$

8,625,337

$

9,359,931

$

9,886,525

$

10,630,067

$

10,260,822

$

(734,594

)

$

(1,635,485

)

Securities available-for-sale

$

775,662

$

1,167,687

$

1,471,303

$

1,992,500

$

2,059,832

$

(392,025

)

$

(1,284,170

)

Loans held-for-investment

$

6,383,259

$

6,719,570

$

7,557,200

$

7,700,873

$

7,253,293

$

(336,311

)

$

(870,034

)

Loans held-for-sale

$

23,936

$

597,720

$

25,191

$

8,116

$

9,382

$

(573,784

)

$

14,554

Demand deposits

$

2,602,011

$

2,510,233

$

2,690,738

$

2,579,770

$

2,775,347

$

91,778

$

(173,336

)

Other core deposits

3,074,936

3,301,080

3,575,140

3,793,605

3,638,624

(226,144

)

(563,688

)

Brokered deposits

93,111

480,977

1,459,054

1,543,269

987,771

(387,866

)

(894,660

)

Total Deposits

$

5,770,058

$

6,292,290

$

7,724,932

$

7,916,644

$

7,401,742

$

(522,232

)

$

(1,631,684

)

As percentage of total deposits

Demand deposits

45.10

%

39.89

%

34.83

%

32.59

%

37.50

%

5.21

%

7.60

%

Other core deposits

53.29

%

52.46

%

46.28

%

47.92

%

49.16

%

0.83

%

4.13

%

Brokered deposits

1.61

%

7.64

%

18.89

%

19.49

%

13.35

%

(6.03

)%

(11.74

)%

Average Loan Yield

4.75

%

4.80

%

4.76

%

4.74

%

4.70

%

(0.05

)%

0.05

%

Average Cost of Interest-Bearing Deposits

1.78

%

1.89

%

1.92

%

1.77

%

1.58

%

(0.11

)%

0.20

%

Investments

Securities available-for-sale declined to $775.7 million, a decrease of 33.6% from the previous quarter, primarily due to the sale of $371 million of our MBS portfolio (resulting in a $5.1 million realized loss). In addition, $731 thousand of other-than-temporary impairment was recognized on the remaining $40 million MBS portfolio. As of September 30, 2019, our securities balance included $735 million of CLOs, $40 million of agency residential MBS and $277 thousand of non-agency residential MBS. The remaining balance of MBS are expected to be sold in the fourth quarter with all of the MBS sale proceeds expected to be reinvested into a mix of security classes, resulting in an overall shorter duration for the portfolio.

Loans

The following table sets forth the composition, by loan category, of our loan portfolio at September 30, 2019 and the previous four quarters.

September 30,
2019

June 30,
2019

March 31,
2019

December 31,
2018

September 30,
2018

Composition of held-for-investment loans

Commercial real estate

$

891,029

$

856,497

$

865,521

$

867,013

$

823,193

Multifamily

1,563,757

1,598,978

2,332,527

2,241,246

2,112,190

Construction

228,561

209,029

211,549

203,976

200,294

Commercial and industrial

1,789,478

1,951,707

1,907,102

1,944,142

1,673,055

SBA

75,359

80,929

74,998

68,741

71,494

Total commercial loans

4,548,184

4,697,140

5,391,697

5,325,118

4,880,226

Single family residential mortgage

1,775,953

1,961,065

2,102,694

2,305,490

2,300,069

Other consumer

59,122

61,365

62,809

70,265

72,998

Total consumer loans

1,835,075

2,022,430

2,165,503

2,375,755

2,373,067

Total gross loans

$

6,383,259

$

6,719,570

$

7,557,200

$

7,700,873

$

7,253,293

Composition percentage of held-for-investment loans

Commercial real estate

14.0

%

12.7

%

11.5

%

11.3

%

11.3

%

Multifamily

24.5

%

23.8

%

30.9

%

29.2

%

29.1

%

Construction

3.6

%

3.1

%

2.8

%

2.6

%

2.8

%

Commercial and industrial

28.0

%

29.1

%

25.2

%

25.2

%

23.1

%

SBA

1.2

%

1.2

%

1.0

%

0.9

%

1.0

%

Total commercial loans

71.3

%

69.9

%

71.4

%

69.2

%

67.3

%

Single family residential mortgage

27.8

%

29.2

%

27.8

%

29.9

%

31.7

%

Other consumer

0.9

%

0.9

%

0.8

%

0.9

%

1.0

%

Total consumer loans

28.7

%

30.1

%

28.6

%

30.8

%

32.7

%

Total gross loans

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

Held-for-investment loans decreased to $6.4 billion driven mostly by a reduction of $220 million related to the payoff of single family residential mortgage loans and multifamily loans while simultaneously reducing new commitments and a $162 million decrease in commercial and industrial loans due primarily to credit-related exits and charge-offs and a decrease in the warehouse lending balance, partially offset by a net increase of $54 million in commercial real estate and construction loans.

Single family residential mortgage and multifamily loans now comprise 52.3% of the total held-for-investment loan portfolio as compared to 60.8% one year ago. The loan portfolio concentration of single family residential mortgage and multifamily is expected to decline over the coming quarters as part of our strategy to deemphasize transaction lending and focus on relationship based clients. Commercial real estate loans comprised 14.0% of the loan portfolio and commercial and industrial loans constituted 28.0%, with yields of 4.87% and 5.38%, respectively.

Held-for-sale loans decreased by $574 million primarily resulting from the completion of the Freddie Mac multifamily securitization during the third quarter of 2019. The loans sold had a weighted average coupon of 3.79% and the proceeds were used to repay overnight Federal Home Loan Bank (“FHLB”) advances, which at the time had an advance rate of 2.53%.

During the third quarter of 2019, our commercial and industrial loan new commitments were $239 million, which represented an increase of 28.5% over the prior quarter. The following table sets forth our new commitments by loan category (in millions), and the related weighted average coupon, during the third quarter of 2019.

Three Months Ended

September 30, 2019

June 30, 2019

New Loan Commitments

Weighted Average Coupon

New Loan Commitments

Weighted Average Coupon

Commercial real estate

$

64.0

4.61%

$

72.6

4.79%

Multifamily

86.8

4.30%

172.3

4.62%

Construction

29.0

6.54%

21.0

6.49%

Commercial and industrial

239.0

5.36%

185.7

6.07%

SBA

3.4

4.74%

18.6

5.13%

Single family residential mortgage

2.4

4.30%

128.4

4.95%

Other consumer

1.7

5.99%

0.4

6.65%

Total

$

426.3

5.10%

$

599.0

5.25%

Deposits

The following table sets forth the composition of our deposits at September 30, 2019 and the previous four quarters.

September 30,
2019

June 30,
2019

March 31,
2019

December 31,
2018

September 30,
2018

Composition of deposits

Noninterest-bearing checking

$

1,107,442

$

993,745

$

1,120,700

$

1,023,360

$

1,061,557

Interest-bearing checking

1,503,208

1,577,901

1,573,499

1,556,410

1,713,790

Money market

695,530

800,898

899,330

873,153

856,886

Savings

1,042,162

1,061,115

1,151,442

1,265,847

1,269,489

Non-brokered certificates of deposit

1,367,284

1,479,137

1,684,895

1,654,605

1,512,249

Brokered certificates of deposit

54,432

379,494

1,295,066

1,543,269

987,771

Total deposits

$

5,770,058

$

6,292,290

$

7,724,932

$

7,916,644

$

7,401,742

Composition percentage of deposits

Noninterest-bearing checking

19.2

%

15.8

%

14.5

%

12.9

%

14.3

%

Interest-bearing checking

26.1

%

25.1

%

20.4

%

19.7

%

23.2

%

Money market

12.0

%

12.7

%

11.6

%

11.0

%

11.6

%

Savings

18.1

%

16.9

%

14.9

%

16.0

%

17.2

%

Non-brokered certificates of deposit

23.7

%

23.5

%

21.8

%

20.9

%

20.4

%

Brokered certificates of deposit

0.9

%

6.0

%

16.8

%

19.5

%

13.3

%

Total deposits

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

Deposits finished the third quarter at $5.8 billion, with noninterest-bearing deposits increasing $114 million from the prior quarter. For the third quarter, the average balance of noninterest-bearing deposits was $1.048 billion, up from the second quarter average balance of $1.034 billion and noninterest-bearing deposits now comprise 19.2% of total deposits, up from 14.3% from the comparable period in the prior year. Total deposits decreased by $522 million, of which $325 million was as a result of maturities on our brokered certificates of deposit and no new brokered certificates of deposit were acquired during the quarter. Non–brokered certificates of deposit declined by $112 million from the prior quarter and are expected to continue to decline as offered rates on maturing certificates are reset lower. Money market balances decreased by $105 million versus the prior quarter, while savings account balances decreased by $19 million during this same time period. We continue to price down higher costing savings and money market accounts as we focus on building relationship based deposits.

Debt

Advances from the FHLB decreased $175 million, or 10%, to $1.65 billion as of September 30, 2019, as a result of the paydown of overnight advances with the FHLB using the proceeds from the sale of loans sold into the Freddie Mac multifamily securitization. At the end of the quarter, the maturity dates of FHLB advances consisted of $670 million of overnight, $300 million maturing in 3 months or less, and $680 million maturing beyond 3 months. As of the end of the quarter, the overnight advance interest rate was 2.08%.

Equity

At September 30, 2019, total stockholders’ equity decreased by $62.6 million to $901.0 million on a linked-quarter basis, while tangible common equity decreased by $20.8 million to $669.4 million. The decrease in total stockholders’ equity partially related to our net loss of $14.1 million, partially offset by the improvement within our accumulated other comprehensive income as a result of other comprehensive income of $3.1 million. During the quarter, the Company completed a tender offer for depositary shares representing shares of its Series D and Series E preferred stock. The total consideration for each Series E Depositary Share tendered and accepted for purchase pursuant to the offer equaled $27.13. The total consideration for each Series D Depositary Share tendered and accepted for purchase pursuant to the offer equaled $26.39. The aggregate total consideration payable by the Company for the preferred stock accepted for purchase was $46.0 million inclusive of premium to par and accrued dividends ($19.4 million of series D and $26.6 million series E depository shares). The tender resulted in a $5.1 million reduction to net income available to common shareholders.

Capital ratios remain strong with total risk based capital at 14.31% and a tier 1 leverage ratio of 9.84%. The following table sets forth our regulatory capital ratios at September 30, 2019 and the previous four quarters.

September 30,
2019

June 30,
2019

March 31,
2019

December 31,
2018

September 30,
2018

Capital Ratios

Banc of California, Inc.

Total risk-based capital ratio

14.31

%

15.00

%

14.01

%

13.71

%

14.05

%

Tier 1 risk-based capital ratio

13.26

%

14.03

%

13.03

%

12.77

%

13.15

%

Common equity tier 1 capital ratio

10.30

%

10.50

%

9.72

%

9.53

%

9.80

%

Tier 1 leverage ratio

9.84

%

9.62

%

8.87

%

8.95

%

8.99

%

Banc of California, NA

Total risk-based capital ratio

15.59

%

16.70

%

15.79

%

15.71

%

15.94

%

Tier 1 risk-based capital ratio

14.53

%

15.73

%

14.81

%

14.77

%

15.04

%

Common equity tier 1 capital ratio

14.53

%

15.73

%

14.81

%

14.77

%

15.04

%

Tier 1 leverage ratio

10.75

%

10.80

%

10.07

%

10.36

%

10.29

%

Credit Quality

September 30,
2019

June 30,
2019

March 31,
2019

December 31,
2018

September 30,
2018

Asset quality information and ratios

($ in thousands)

Delinquent loans held-for-investment

30 to 89 days delinquent

$

39,122

$

34,938

$

44,840

$

26,684

$

20,265

90+ days delinquent

17,220

17,272

14,623

13,846

15,269

Total delinquent loans

$

56,342

$

52,210

$

59,463

$

40,530

$

35,534

Total delinquent loans to total loans

0.88

%

0.78

%

0.79

%

0.53

%

0.49

%

Non-performing assets, excluding loans held-for-sale

Non-performing loans

$

45,169

$

28,499

$

27,739

$

21,585

$

25,523

90+ days delinquent and still accruing loans

—

275

731

470

—

Other real estate owned

—

276

316

672

434

Non-performing assets

$

45,169

$

29,050

$

28,786

$

22,727

$

25,957

ALLL to non-performing loans

139.31

%

206.86

%

224.40

%

281.99

%

226.39

%

Non-performing loans to total loans held-for-investment

0.71

%

0.43

%

0.38

%

0.29

%

0.35

%

Non-performing assets to total assets

0.52

%

0.31

%

0.29

%

0.21

%

0.25

%

Troubled debt restructurings (TDRs)

Performing TDRs

$

6,800

$

20,245

$

5,574

$

5,745

$

5,580

Non-performing TDRs

14,605

2,428

1,943

2,276

2,684

Total TDRs

$

21,405

$

22,673

$

7,517

$

8,021

$

8,264

Loan delinquencies increased by 7.9% to $56.3 million at September 30, 2019, primarily related to the increase in our 30 to 89 days delinquent loans. The increase in our total delinquent loans resulted from $21.4 million of additions, partially offset by $11.4 million returning to current status and $5.8 million of principal payments or payoffs. Loans 90+ days delinquent includes single family mortgage residential loans, which accounts for 66% of the balance. Loan delinquencies as a percentage of total loans held-for-investment increased to 88 basis points for the quarter, almost exclusively due to single family residential mortgage loans, of which $8.7 million have cured since quarter end, and the reduction in our balance sheet over the same period.

Non-performing loans and non performing assets increased to $45.2 million as of September 30, 2019, primarily as a result of a $14.5 million, non-agented Shared National Credit moving from performing to non-performing during the quarter. The loan continues in a current payment status and subsequent payments will be recognized as a reduction of the loan balance. The Company currently has five Shared National Credits totaling $47.4 million. The increase in non-performing TDRs during the third quarter was primarily due to one loan relationship moving from performing to non-performing.

Allowance for Loan Losses

Three Months Ended

September 30,
2019

June 30,
2019

March 31,
2019

December 31,
2018

September 30,
2018

($ in thousands)

Allowance for loan losses (ALLL)

Balance at beginning of period

$

59,523

$

63,885

$

62,192

$

57,782

$

56,678

Loans and leases charged off

$

(35,546

)

$

(2,451

)

$

(1,063

)

$

(2,522

)

$

(388

)

Recoveries

$

410

$

76

$

244

$

279

$

82

Net charge-offs

$

(35,136

)

$

(2,375

)

$

(819

)

$

(2,243

)

$

(306

)

Provision for (reversal of) loan losses

$

38,540

$

(1,987

)

$

2,512

$

6,653

$

1,410

Balance at end of period

$

62,927

$

59,523

$

63,885

$

62,192

$

57,782

Annualized net loan charge-offs to average total loans held-for-investment

2.19

%

0.13

%

0.04

%

0.12

%

0.02

%

Reserve for loss on repurchased loans

Balance at beginning of period

$

2,478

$

2,486

$

2,506

$

2,575

$

3,149

Additions

4,415

—

—

—

—

Reversal of provision for loan repurchases

(123

)

(8

)

(20

)

(69

)

(342

)

Utilization of reserve for loan repurchases

(209

)

—

—

—

(232

)

Balance at end of period

$

6,561

$

2,478

$

2,486

$

2,506

$

2,575

Charge-offs for the third quarter totaled $35.5 million, which primarily consisted of the previously reported $35.1 million charge-off of a line of credit originated by the Bank in November 2017 to a borrower that was purported to be the subject of a fraudulent scheme, as previously reported by the Company on Form 8-K. The provision for loan losses increased due to net charge-offs of $35.1 million, an increase of $3.0 million due to an increase in loss factors associated with the large charge-off and increases in other qualitative provisions resulting in an allowance for loan losses of $62.9 million, or 0.99% of total loans held-for-investment. The reserve for loss on repurchased loans increased by $4.4 million due to the contractual agreement associated with the multifamily loan securitization completed in the third quarter of 2019. As the securitization balance subsequently decreases, the reserve for loss on repurchased loans is also expected to decrease.

Securities Litigation Update

During the third quarter of 2019, we entered into a tentative settlement agreement, subject to court approval, for $19.75 million in connection with the Securities Litigation matter. As a result of the agreement, there is no expected impact to earnings as the settlement will be paid directly by the Company's insurance carriers.

The Company will host a conference call to discuss its third quarter 2019 financial results at 10:00 a.m. Pacific Time (PT) on Wednesday, October 23, 2019. Interested parties are welcome to attend the conference call by dialing 888-317-6003, and referencing event code 1817922. A live audio webcast will also be available and the webcast link will be posted on the Company’s Investor Relations website at www.bancofcal.com/investor. The slide presentation for the call will also be available on the Company's Investor Relations website prior to the call.

About Banc of California, Inc.

Banc of California, Inc. (NYSE: BANC) is a bank holding company with approximately $8.6 billion in assets and one wholly-owned banking subsidiary, Banc of California, N.A. (the “Bank”). The Bank has 43 offices including 32 full-service branches located throughout Southern California. Through our dedicated professionals, we provide customized and innovative banking and lending solutions to businesses, entrepreneurs and individuals throughout California. We help to improve the communities where we live and work, by supporting organizations that provide financial literacy and job training, small business support and affordable housing. With a commitment to service and building enduring relationships, we provide a higher standard of banking. We look forward to helping you achieve your goals. For more information, please visit us at www.bancofcal.com.

Forward-Looking Statements

This press release includes forward-looking statements within the meaning of the “Safe-Harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements are necessarily subject to risk and uncertainty and actual results could differ materially from those anticipated due to various factors, including those set forth from time to time in the documents filed or furnished by Banc of California, Inc. with the Securities and Exchange Commission. You should not place undue reliance on forward-looking statements and Banc of California, Inc. undertakes no obligation to update any such statements to reflect circumstances or events that occur after the date on which the forward-looking statement is made.

Banc of California, Inc.

Consolidated Statements of Financial Condition

(Dollars in thousands)

(Unaudited)

September 30,
2019

June 30,
2019

March 31,
2019

December 31,
2018

September 30,
2018

ASSETS

Cash and cash equivalents

$

526,874

$

313,850

$

304,705

$

391,592

$

372,221

Securities available-for-sale

775,662

1,167,687

1,471,303

1,992,500

2,059,832

Loans held-for-sale

23,936

597,720

25,191

8,116

9,382

Loans held-for-investment

6,383,259

6,719,570

7,557,200

7,700,873

7,253,293

Allowance for loan losses

(62,927

)

(59,523

)

(63,885

)

(62,192

)

(57,782

)

Federal Home Loan Bank and other bank stock

71,679

76,373

55,794

68,094

71,308

Servicing rights, net

2,407

2,715

3,053

3,428

3,770

Other real estate owned, net

—

276

316

672

434

Premises and equipment, net

128,979

129,227

130,417

129,394

133,129

Investments in alternative energy partnerships, net

27,039

26,633

26,578

28,988

41,781

Goodwill

37,144

37,144

37,144

37,144

37,144

Other intangible assets, net

4,605

5,105

5,726

6,346

6,990

Deferred income tax, net

45,950

42,798

45,111

49,404

47,865

Income tax receivable

4,459

2,547

4,787

2,695

1,764

Bank owned life insurance investment

108,720

108,132

107,552

107,027

106,468

Right of use assets

23,907

24,118

24,519

—

—

Due from unsettled securities sales

334,769

—

—

—

—

Other assets

188,875

165,559

151,014

146,496

152,933

Assets of discontinued operations

—

—

—

19,490

20,290

Total assets

$

8,625,337

$

9,359,931

$

9,886,525

$

10,630,067

$

10,260,822

LIABILITIES AND STOCKHOLDERS’ EQUITY

Noninterest-bearing deposits

$

1,107,442

$

993,745

$

1,120,700

$

1,023,360

$

1,061,557

Interest-bearing deposits

4,662,616

5,298,545

6,604,232

6,893,284

6,340,185

Total deposits

5,770,058

6,292,290

7,724,932

7,916,644

7,401,742

Advances from Federal Home Loan Bank

1,650,000

1,825,000

935,000

1,520,000

1,640,000

Notes payable, net

173,339

173,257

173,203

173,174

173,096

Reserve for loss on repurchased loans

6,561

2,478

2,486

2,506

2,575

Lease liabilities

25,210

25,457

25,893

—

—

Due on unsettled securities purchases

—

—

—

—

17,500

Accrued expenses and other liabilities

99,181

77,905

76,686

72,209

79,231

Total liabilities

7,724,349

8,396,387

8,938,200

9,684,533

9,314,144

Commitments and contingent liabilities

Preferred stock

189,825

231,128

231,128

231,128

231,128

Common stock

520

520

518

518

518

Common stock, class B non-voting non-convertible

5

5

5

5

5

Additional paid-in capital

628,774

627,306

626,608

625,834

624,789

Retained earnings

120,221

146,039

136,943

140,952

140,971

Treasury stock

(28,786

)

(28,786

)

(28,786

)

(28,786

)

(28,786

)

Accumulated other comprehensive loss, net

(9,571

)

(12,668

)

(18,091

)

(24,117

)

(21,947

)

Total stockholders’ equity

900,988

963,544

948,325

945,534

946,678

Total liabilities and stockholders’ equity

$

8,625,337

$

9,359,931

$

9,886,525

$

10,630,067

$

10,260,822

Banc of California, Inc.

Consolidated Statements of Operations

(Dollars in thousands, except per share data)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,
2019

June 30,
2019

March 31,
2019

December 31,
2018

September 30,
2018

September 30,
2019

September 30,
2018

Interest and dividend income

Loans, including fees

$

80,287

$

89,159

$

90,558

$

88,258

$

84,795

$

260,004

$

241,014

Securities

10,024

12,457

17,841

19,882

20,599

40,322

63,685

Other interest-earning assets

2,346

2,424

2,313

2,990

2,380

7,083

6,967

Total interest and dividend income

92,657

104,040

110,712

111,130

107,774

307,409

311,666

Interest expense

Deposits

22,811

28,598

31,443

28,972

25,154

82,852

62,264

Federal Home Loan Bank advances

8,519

8,289

9,081

9,068

8,996

25,889

25,927

Securities sold under repurchase agreements

13

16

18

25

47

47

1,008

Notes payable and other interest-bearing liabilities

2,399

2,357

2,362

2,383

2,385

7,118

7,073

Total interest expense

33,742

39,260

42,904

40,448

36,582

115,906

96,272

Net interest income

58,915

64,780

67,808

70,682

71,192

191,503

215,394

Provision for (reversal of) loan and lease losses

38,540

(1,987

)

2,512

6,653

1,410

39,065

23,562

Net interest income after provision for loan and lease losses

20,375

66,767

65,296

64,029

69,782

152,438

191,832

Noninterest income

Customer service fees

1,582

1,434

1,515

1,786

1,446

4,531

4,529

Loan servicing income

128

121

118

22

439

367

3,698

Income from bank owned life insurance

588

580

525

559

551

1,693

1,617

Impairment loss on investment securities

(731

)

—

—

(3,252

)

—

(731

)

—

Net (loss) gain on sale of securities available for sale

(5,063

)

—

208

—

13

(4,855

)

5,532

Net gain on sale of loans

4,326

2,826

1,553

873

279

8,705

1,059

All other income (loss)

2,351

(7,251

)

2,376

2,460

2,096

(2,524

)

5,032

Total noninterest income

3,181

(2,290

)

6,295

2,448

4,824

7,186

21,467

Noninterest expense

Salaries and employee benefits

25,934

27,506

28,439

24,587

24,832

81,879

85,387

Occupancy and equipment

7,767

7,955

7,686

8,064

8,213

23,408

23,783

Professional fees (reimbursement)

1,463

(2,903

)

11,041

6,206

11,966

9,601

27,446

Data processing

1,568

1,672

1,496

1,733

1,884

4,736

5,218

Advertising

2,090

2,048

2,057

3,371

3,152

6,195

9,293

Regulatory assessments

1,239

2,136

2,482

1,252

2,138

5,857

6,426

(Reversal of) provision for loan repurchases

(123

)

(61

)

(116

)

(122

)

(360

)

(300

)

(2,366

)

Amortization of intangible assets

500

621

620

644

693

1,741

2,363

Restructuring (reversal) expense

—

(158

)

2,795

(105

)

553

2,637

4,536

All other expenses

3,809

5,126

3,385

3,153

5,322

12,320

16,872

Total noninterest expense excluding loss (gain) on investments in alternative energy partnerships

44,247

43,942

59,885

48,783

58,393

148,074

178,958

(Gain) loss on investments in alternative energy partnerships

(940

)

(355

)

1,950

786

2,484

655

4,258

Total noninterest expense

43,307

43,587

61,835

49,569

60,877

148,729

183,216

(Loss) income from continuing operations before income taxes

(19,751

)

20,890

9,756

16,908

13,729

10,895

30,083

Income tax (benefit) expense

(5,619

)

4,308

2,719

6,117

3,301

1,408

(1,273

)

(Loss) income from continuing operations

(14,132

)

16,582

7,037

10,791

10,428

9,487

31,356

Income from discontinued operations before income taxes

—

—

—

347

924

—

4,249

Income tax expense

—

—

—

100

256

—

1,171

Income from discontinued operations

—

—

—

247

668

—

3,078

Net (loss) income

(14,132

)

16,582

7,037

11,038

11,096

9,487

34,434

Preferred stock dividends

3,403

4,308

4,308

4,308

4,970

12,019

15,196

Income allocated to participating securities

—

271

—

—

—

—

—

Participating securities dividends

94

94

202

203

202

390

608

Impact of preferred stock redemption

5,093

—

—

—

2,307

5,093

2,307

Net (loss) income available to common stockholders

$

(22,722

)

$

11,909

$

2,527

$

6,527

$

3,617

$

(8,015

)

$

16,323

Basic (loss) earnings per common share

(Loss) income from continuing operations

$

(0.45

)

$

0.23

$

0.05

$

0.12

$

0.06

$

(0.16

)

$

0.26

Income from discontinued operations

—

—

—

0.01

0.01

—

0.06

Net income

$

(0.45

)

$

0.23

$

0.05

$

0.13

$

0.07

$

(0.16

)

$

0.32

Diluted (loss) earnings per common share

(Loss) income from continuing operations

$

(0.45

)

$

0.23

$

0.05

$

0.12

$

0.06

$

(0.16

)

$

0.26

Income from discontinued operations

—

—

—

0.01

0.01

—

0.06

Net (loss) income

$

(0.45

)

$

0.23

$

0.05

$

0.13

$

0.07

$

(0.16

)

$

0.32

Weighted average number of common shares outstanding

Basic

50,882,227

50,857,137

50,676,722

50,651,805

50,656,076

50,804,429

50,613,590

Diluted

50,882,227

50,964,956

50,846,722

50,812,874

50,899,464

50,896,437

50,896,437

Dividends declared per common share

$

0.06

$

0.06

$

0.13

$

0.13

$

0.13

$

0.19

$

0.39

Banc of California, Inc.

Selected Financial Data

(Unaudited)

Three Months Ended

September 30,
2019

June 30,
2019

March 31,
2019

December 31,
2018

September 30,
2018

Profitability and other ratios of consolidated operations

Return on average assets(1)

(0.64

)%

0.69

%

0.28

%

0.43

%

0.43

%

Return on average equity(1)

(5.83

)%

6.91

%

2.98

%

4.56

%

4.40

%

Return on average tangible common equity(2)

(12.49

)%

7.43

%

1.91

%

4.19

%

2.49

%

Dividend payout ratio(3)

(13.33

)%

26.09

%

260.00

%

100.00

%

185.71

%

Net interest spread

2.47

%

2.50

%

2.47

%

2.56

%

2.62

%

Net interest margin(1)

2.86

%

2.86

%

2.81

%

2.88

%

2.93

%

Noninterest income (loss) to total revenue(4)

5.12

%

(3.66

)%

8.49

%

3.60

%

7.42

%

Noninterest income (loss) to average total assets(1)

0.15

%

(0.10

)%

0.25

%

0.10

%

0.22

%

Noninterest expense to average total assets(1)

1.98

%

1.82

%

2.43

%

1.92

%

2.38

%

Efficiency ratio(2)(5)

69.74

%

69.75

%

83.44

%

67.47

%

79.15

%

Adjusted efficiency ratio including the pre-tax effect of investments in alternative energy partnerships(2)(5)

68.31

%

67.84

%

83.00

%

67.09

%

77.88

%

Average loans held-for-investment to average deposits

105.92

%

104.38

%

100.45

%

97.40

%

97.00

%

Average securities available-for-sale to average total assets

12.71

%

13.58

%

17.00

%

19.85

%

21.28

%

Average stockholders’ equity to average total assets

11.06

%

10.02

%

9.29

%

9.38

%

9.85

%

(1)

Ratios are presented on an annualized basis.

(2)

The ratios are determined by methods other than in accordance with U.S. generally accepted accounting principles (GAAP). See Non-GAAP measures section for reconciliation of the calculation.

(3)

The ratio is calculated by dividing dividends declared per common share by basic earnings per common share.

(4)

Total revenue is equal to the sum of net interest income before provision for loan and lease losses and noninterest income (loss).

(5)

The ratios are calculated by dividing noninterest expense by the sum of net interest income before provision for loan and lease losses and noninterest income (loss).

Banc of California, Inc.

Selected Financial Data, Continued

(Dollars in thousands)

(Unaudited)

September 30,
2019

June 30,
2019

March 31,
2019

December 31,
2018

September 30,
2018

Loans and ALLL by loan origination type

Loan breakdown by origination type

Originated loans

$

5,888,647

$

6,181,583

$

6,991,056

$

7,105,171

$

6,683,683

Acquired loans not impaired at acquisition

494,612

537,987

566,144

595,702

569,610

Total loans

$

6,383,259

$

6,719,570

$

7,557,200

$

7,700,873

$

7,253,293

ALLL breakdown by origination type

Originated loans

$

61,306

$

58,135

$

63,003

$

61,256

$

56,672

Acquired loans not impaired at acquisition

1,621

1,388

882

937

1,110

Total ALLL

$

62,927

$

59,523

$

63,885

$

62,193

$

57,782

Discount on acquired loans not impaired at acquisition

$

9,062

$

10,680

$

11,184

$

11,645

$

12,311

Percentage of ALLL to:

Originated loans

1.04

%

0.94

%

0.90

%

0.86

%

0.85

%

Originated loans and acquired loans not impaired at acquisition

0.99

%

0.89

%

0.85

%

0.81

%

0.80

%

Total loans

0.99

%

0.89

%

0.85

%

0.81

%

0.80

%

Banc of California, Inc.

Average Balance, Average Yield Earned, and Average Cost Paid

(Dollars in thousands)

(Unaudited)

Three Months Ended

September 30, 2019

June 30, 2019

March 31, 2019

Average

Yield

Average

Yield

Average

Yield

Balance

Interest

/ Cost

Balance

Interest

/ Cost

Balance

Interest

/ Cost

Interest earning assets

Loans held-for-sale (1)

$

216,746

$

1,894

3.47

%

$

47,233

$

265

2.25

%

$

31,374

$

228

2.95

%

SFR mortgage

1,866,103

19,179

4.08

%

2,059,704

21,390

4.17

%

2,312,900

24,062

4.22

%

Commercial real estate, multifamily, and construction

2,717,609

33,343

4.87

%

3,406,672

39,659

4.67

%

3,387,698

38,117

4.56

%

Commercial and industrial, SBA, and lease financing

1,840,202

24,970

5.38

%

1,872,289

26,940

5.77

%

1,920,220

27,235

5.75

%

Other consumer

58,652

901

6.09

%

59,806

905

6.07

%

62,558

916

5.94

%

Gross loans and leases

6,699,312

80,287

4.75

%

7,445,704

89,159

4.80

%

7,714,750

90,558

4.76

%

Securities

1,105,499

10,024

3.60

%

1,304,876

12,457

3.83

%

1,751,509

17,841

4.13

%

Other interest-earning assets

362,613

2,346

2.57

%

342,908

2,424

2.84

%

321,823

2,313

2.91

%

Total interest-earning assets

8,167,424

92,657

4.50

%

9,093,488

104,040

4.59

%

9,788,082

110,712

4.59

%

Allowance for loan losses

(55,976

)

(63,046

)

(61,924

)

BOLI and noninterest earning assets

584,190

580,133

575,559

Total assets

$

8,695,638

$

9,610,575

$

10,301,717

Interest-bearing liabilities

Savings

$

1,055,086

$

4,722

1.78

%

$

1,083,571

$

4,950

1.83

%

$

1,201,802

$

5,480

1.85

%

Interest-bearing checking

1,511,432

4,483

1.18

%

1,580,165

4,554

1.16

%

1,554,846

4,525

1.18

%

Money market

755,114

3,093

1.63

%

853,007

3,902

1.83

%

887,538

4,128

1.89

%

Certificates of deposit

1,750,970

10,513

2.38

%

2,537,060

15,192

2.40

%

2,982,980

17,310

2.35

%

Total interest-bearing deposits

5,072,602

22,811

1.78

%

6,053,803

28,598

1.89

%

6,627,166

31,443

1.92

%

FHLB advances

1,333,739

8,519

2.53

%

1,287,121

8,289

2.58

%

1,422,100

9,081

2.59

%

Securities sold under repurchase agreements

1,922

13

2.68

%

2,173

16

2.95

%

2,350

18

3.11

%

Long-term debt and other interest-bearing liabilities

174,111

2,399

5.47

%

174,161

2,357

5.43

%

174,230

2,362

5.50

%

Total interest-bearing liabilities

6,582,374

33,742

2.03

%

7,517,258

39,260

2.09

%

8,225,846

42,904

2.12

%

Noninterest-bearing deposits

1,047,858

1,034,205

1,021,741

Noninterest-bearing liabilities

103,667

96,179

97,430

Total liabilities

7,733,899

8,647,642

9,345,017

Total stockholders’ equity

961,739

962,933

956,700

Total liabilities and stockholders’ equity

$

8,695,638

$

9,610,575

$

10,301,717

Net interest income/spread

$

58,915

2.47

%

$

64,780

2.50

%

$

67,808

2.47

%

Net interest margin

2.86

%

2.86

%

2.81

%

Ratio of interest-earning assets to interest-bearing liabilities

124.08

%

120.97

%

118.99

%

Total deposits

$

6,120,460

$

22,811

1.48

%

$

7,088,008

$

28,598

1.62

%

$

7,648,907

$

31,443

1.67

%

Total funding (2)

$

7,630,232

$

33,742

1.75

%

$

8,551,463

$

39,260

1.84

%

$

9,247,587

$

42,904

1.88

%

(1)

Includes loans held-for-sale of discontinued operations for the three months ended December 31, 2018.

(2)

Total funding is the sum of interest-bearing liabilities and noninterest-bearing deposits. The cost of total funding is calculated as annualized total interest expense divided by average total funding.

Three Months Ended

December 31, 2018

September 30, 2018

Average

Yield

Average

Yield

Balance

Interest

/ Cost

Balance

Interest

/ Cost

Interest earning assets

Loans held-for-sale (1)

$

33,243

$

221

2.64

%

$

42,754

$

263

2.44

%

SFR mortgage

2,260,205

23,585

4.14

%

2,222,602

23,461

4.19

%

Commercial real estate, multifamily, and construction

3,246,860

37,403

4.57

%

3,091,706

35,838

4.60

%

Commercial and industrial, SBA, and lease financing

1,791,708

26,219

5.81

%

1,739,711

24,382

5.56

%

Other consumer

68,479

990

5.74

%

69,600

981

5.59

%

Gross loans and leases

7,400,495

88,418

4.74

%

7,166,373

84,925

4.70

%

Securities

2,032,632

19,882

3.88

%

2,163,037

20,599

3.78

%

Other interest-earning assets

318,419

2,990

3.73

%

335,160

2,380

2.82

%

Total interest-earning assets

9,751,546

111,290

4.53

%

9,664,570

107,904

4.43

%

Allowance for loan losses

(58,099

)

(56,730

)

BOLI and non-interest earning assets

544,302

554,636

Total assets

$

10,237,749

$

10,162,476

Interest-bearing liabilities

Savings

1,279,155

5,663

1.76

%

1,231,696

5,122

1.65

%

Interest-bearing checking

1,666,884

4,916

1.17

%

1,789,679

5,054

1.12

%

Money market

803,157

3,168

1.56

%

966,165

3,455

1.42

%

Certificates of deposit

2,759,665

15,225

2.19

%

2,332,181

11,523

1.96

%

Total interest-bearing deposits

6,508,861

28,972

1.77

%

6,319,721

25,154

1.58

%

FHLB advances

1,447,348

9,068

2.49

%

1,528,674

8,996

2.33

%

Securities sold under repurchase agreements

3,116

25

3.18

%

6,418

47

2.91

%

Long-term debt and other interest-bearing liabilities

174,281

2,383

5.42

%

174,361

2,385

5.43

%

Total interest-bearing liabilities

8,133,606

40,448

1.97

%

8,029,174

36,582

1.81

%

Noninterest-bearing deposits

1,054,790

1,023,890

Non-interest-bearing liabilities

89,111

108,593

Total liabilities

9,277,507

9,161,657

Total stockholders’ equity

960,242

1,000,819

Total liabilities and stockholders’ equity

$

10,237,749

$

10,162,476

Net interest income/spread

$

70,842

2.56

%

$

71,322

2.62

%

Net interest margin

2.88

%

2.93

%

Ratio of interest-earning assets to interest-bearing liabilities

119.89

%

120.37

%

Total deposits

$

7,563,651

$

28,972

1.52

%

$

7,343,611

$

25,154

1.36

%

Total funding (2)

$

9,188,396

$

40,448

1.75

%

$

9,053,064

$

36,582

1.60

%

(1)

Includes loans held-for-sale of discontinued operations.

(2)

Total funding is the sum of interest-bearing liabilities and noninterest-bearing deposits. The cost of total funding is calculated as annualized total interest expense divided by average total funding.

Nine Months Ended

September 30, 2019

September 30, 2018

Average

Yield

Average

Yield

Balance

Interest

/ Cost

Balance

Interest

/ Cost

Interest earning assets

Loans held-for-sale (1)

$

99,130

$

2,388

3.22

%

$

64,681

$

888

1.84

%

SFR mortgage

2,077,932

64,631

4.16

%

2,189,991

67,603

4.13

%

Commercial real estate, multifamily, and construction

3,168,206

111,119

4.69

%

2,979,866

101,013

4.53

%

Commercial and industrial, SBA, and lease financing

1,877,277

79,145

5.64

%

1,691,331

68,896

5.45

%

Other consumer

60,324

2,721

6.03

%

84,363

3,119

4.94

%

Gross loans and leases

7,282,869

260,004

4.77

%

7,010,232

241,519

4.61

%

Securities

1,384,928

40,322

3.89

%

2,321,231

63,685

3.67

%

Other interest-earning assets

342,597

7,083

2.76

%

377,925

6,967

2.46

%

Total interest-earning assets

9,010,394

307,409

4.56

%

9,709,388

312,171

4.30

%

Allowance for loan losses

(60,294

)

(53,657

)

BOLI and non-interest earning assets

579,992

564,856

Total assets

$

9,530,092

$

10,220,587

Interest-bearing liabilities

Savings

1,112,949

15,152

1.82

%

1,114,888

12,308

1.48

%

Interest-bearing checking

1,548,655

13,562

1.17

%

1,862,215

13,345

0.96

%

Money market

831,401

11,124

1.79

%

1,058,451

9,978

1.26

%

Certificates of deposit

2,419,158

43,014

2.38

%

2,107,782

26,633

1.69

%

Total interest-bearing deposits

5,912,163

82,852

1.87

%

6,143,336

62,264

1.36

%

FHLB advances

1,347,330

25,889

2.57

%

1,688,355

25,927

2.05

%

Securities sold under repurchase agreements

2,146

47

2.93

%

51,542

1,008

2.61

%

Long-term debt and other interest-bearing liabilities

174,167

7,118

5.46

%

174,360

7,073

5.42

%

Total interest-bearing liabilities

7,435,806

115,906

2.08

%

8,057,593

96,272

1.60

%

Noninterest-bearing deposits

1,034,697

1,028,245

Non-interest-bearing liabilities

99,113

127,607

Total liabilities

8,569,616

9,213,445

Total stockholders’ equity

960,476

1,007,142

Total liabilities and stockholders’ equity

$

9,530,092

$

10,220,587

Net interest income/spread

$

191,503

2.48

%

$

215,899

2.70

%

Net interest margin

2.84

%

2.97

%

Ratio of interest-earning assets to interest-bearing liabilities

121.18

%

120.50

%

Total deposits

$

6,946,860

$

82,852

1.59

%

$

7,171,581

$

62,264

1.16

%

Total funding (2)

$

8,470,503

$

115,906

1.83

%

$

9,085,838

$

96,272

1.42

%

(1)

Includes loans held-for-sale of discontinued operations.

(2)

Total funding is the sum of interest-bearing liabilities and noninterest-bearing deposits. The cost of total funding is calculated as annualized total interest expense divided by average total funding.

Banc of California, Inc.
Consolidated Operations
Non-GAAP Measures
(Dollars in thousands, except per share data)
(Unaudited)

Under Item 10(e) of SEC Regulation S-K, public companies disclosing financial measures in filings with the SEC that are not calculated in accordance with GAAP must also disclose, along with each non-GAAP financial measure, certain additional information, including a presentation of the most directly comparable GAAP financial measure, a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP financial measure, as well as a statement of the reasons why the company's management believes that presentation of the non-GAAP financial measure provides useful information to investors regarding the company's financial condition and results of operations and, to the extent material, a statement of the additional purposes, if any, for which the company's management uses the non-GAAP financial measure.

Return on average tangible common equity and efficiency ratio, as adjusted, tangible common equity, tangible common equity to tangible assets, and tangible common equity per common share constitute supplemental financial information determined by methods other than in accordance with GAAP. These non-GAAP measures are used by management in its analysis of the Company's performance.

Tangible common equity is calculated by subtracting preferred stock, goodwill, and other intangible assets from stockholders' equity. Tangible assets is calculated by subtracting goodwill and other intangible assets from total assets. Banking regulators also exclude goodwill and other intangible assets from stockholders' equity when assessing the capital adequacy of a financial institution.

Adjusted efficiency ratio is calculated by subtracting loss on investments in alternative energy partnerships from noninterest expense and adding total pre-tax return, which includes the loss on investments in alternative energy partnerships, to the sum of net interest income and noninterest income (total revenue). Management believes the presentation of these financial measures adjusting the impact of these items provides useful supplemental information that is essential to a proper understanding of the final results and operating performance of the Company.

This disclosure should not be viewed as a substitute for results determined in accordance with GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.

The following tables provide reconciliations of the non-GAAP measures with financial measures defined by GAAP.

September 30,
2019

June 30,
2019

March 31,
2019

December 31,
2018

September 30,
2018

Tangible common equity, and tangible common equity to tangible assets ratio

Total assets

$

8,625,337

$

9,359,931

$

9,886,525

$

10,630,067

$

10,260,822

Less goodwill

(37,144

)

(37,144

)

(37,144

)

(37,144

)

(37,144

)

Less other intangible assets

(4,605

)

(5,105

)

(5,726

)

(6,346

)

(6,990

)

Tangible assets(1)

$

8,583,588

$

9,317,682

$

9,843,655

$

10,586,577

$

10,216,688

Total stockholders' equity

$

900,988

$

963,544

$

948,325

$

945,534

$

946,678

Less goodwill

(37,144

)

(37,144

)

(37,144

)

(37,144

)

(37,144

)

Less other intangible assets

(4,605

)

(5,105

)

(5,726

)

(6,346

)

(6,990

)

Tangible equity(1)

859,239

921,295

905,455

902,044

902,544

Less preferred stock

(189,825

)

(231,128

)

(231,128

)

(231,128

)

(231,128

)

Tangible common equity(1)

$

669,414

$

690,167

$

674,327

$

670,916

$

671,416

Total stockholders' equity to total assets

10.45

%

10.29

%

9.59

%

8.89

%

9.23

%

Tangible equity to tangible assets(1)

10.01

%

9.89

%

9.20

%

8.52

%

8.83

%

Tangible common equity to tangible assets(1)

7.80

%

7.41

%

6.85

%

6.34

%

6.57

%

Common shares outstanding

50,406,763

50,397,769

50,315,490

50,172,018

50,180,607

Class B non-voting non-convertible common shares outstanding

477,321

477,321

477,321

477,321

477,321

Total common shares outstanding

50,884,084

50,875,090

50,792,811

50,649,339

50,657,928

Tangible common equity per common share(1)

$

13.16

$

13.57

$

13.28

$

13.25

$

13.25

Book value per common share

$

13.98

$

14.40

$

14.12

$

14.10

$

14.13

(1)

Non-GAAP measure.

Banc of California, Inc.

Consolidated Operations

Non-GAAP Measures, Continued

(Dollars in thousands, except per share data)

(Unaudited)

Three Months Ended

September 30,
2019

June 30,
2019

March 31,
2019

December 31,
2018

September 30,
2018

Return on tangible common equity

Average total stockholders' equity

$

961,739

$

962,933

$

956,700

$

960,242

$

1,000,819

Less average preferred stock

(213,619

)

(231,128

)

(231,128

)

(231,128

)

(260,822

)

Less average goodwill

(37,144

)

(37,144

)

(37,144

)

(37,144

)

(37,144

)

Less average other intangible assets

(4,935

)

(5,503

)

(6,128

)

(6,731

)

(7,412

)

Average tangible common equity(1)

$

706,041

$

689,158

$

682,300

$

685,239

$

695,441

Net (loss) income

$

(14,132

)

$

16,582

$

7,037

$

11,038

$

11,096

Less preferred stock dividends and impact of preferred stock redemption

(8,496

)

(4,308

)

(4,308

)

(4,308

)

(7,277

)

Add amortization of intangible assets

500

621

620

644

693

Less tax effect on amortization and impairment of intangible assets

(105

)

(130

)

(130

)

(135

)

(146

)

Net (loss) income available to common stockholders(1)

$

(22,233

)

$

12,765

$

3,219

$

7,239

$

4,366

Return on average equity

(5.83

)%

6.91

%

2.98

%

4.56

%

4.40

%

Return on average tangible common equity(1)

(12.49

)%

7.43

%

1.91

%

4.19

%

2.49

%

Statutory tax rate utilized for calculating tax effect on amortization of intangible assets

21.00

%

21.00

%

21.00

%

21.00

%

21.00

%

Three Months Ended

September 30,
2019

June 30,
2019

March 31,
2019

December 31,
2018

September 30,
2018

Adjusted efficiency ratio including the pre-tax effect of
investments in alternative energy partnerships

Noninterest expense

$

43,307

$

43,587

$

61,835

$

49,578

$

60,977

Gain (loss) on investments in alternative energy partnerships

940

355

(1,950

)

(786

)

(2,484

)

Adjusted noninterest expense(1)

$

44,247

$

43,942

$

59,885

$

48,792

$

58,493

Net interest income

$

58,915

$

64,780

$

67,808

$

70,842

$

71,322

Noninterest income

3,181

(2,290

)

6,295

2,644

5,718

Total revenue

62,096

62,490

74,103

73,486

77,040

Tax credit from investments in alternative energy partnerships

1,757

1,680

—

—

412

Deferred tax expense on investments in alternative energy partnerships

(184

)

(176

)

—

—

(43

)

Tax effect on tax credit and deferred tax expense

162

426

—

26

180

Gain (loss) on investments in alternative energy partnerships

940

355

(1,950

)

(786

)

(2,484

)

Total pre-tax adjustments for investments in alternative energy partnerships

2,675

2,285

(1,950

)

(760

)

(1,935

)

Adjusted total revenue(1)

$

64,771

$

64,775

$

72,153

$

72,726

$

75,105

Efficiency ratio(1)

69.74

%

69.75

%

83.44

%

67.47

%

79.15

%

Adjusted efficiency ratio including the pre-tax effect of investments in alternative energy partnerships(1)

68.31

%

67.84

%

83.00

%

67.09

%

77.88

%

Effective tax rate utilized for calculating tax effect on tax credit and deferred tax expense

9.36

%

22.07

%

27.00

%

27.42

%

32.81

%

(1)

Non-GAAP measure.

Banc of California, Inc.

Consolidated Operations

Non-GAAP Measures, Continued

(Dollars in thousands, except per share data)

(Unaudited)

Three Months Ended

September 30,
2019

June 30,
2019

March 31,
2019

December 31,
2018

September 30,
2018

Total noninterest expense excluding loss (gain) on investments in alternative energy partnerships

$

44,247

$

43,942

$

59,885

$

48,783

$

58,393

(Gain) loss on investments in alternative energy partnerships

(940

)

(355

)

1,950

786

2,484

Total noninterest expense

43,307

43,587

61,835

49,569

60,877

Less: non-core items

Data processing

—

(797

)

—

—

—

Professional fees

2,615

6,214

(2,979

)

2,711

(5,919

)

Restructuring expense

—

158

(2,795

)

105

(554

)

Other expenses

(131

)

—

—

585

(1,478

)

Total

45,791

49,162

56,061

52,970

52,926

Add: Gain (loss) on investments in alternative energy partnerships

940

355

(1,950

)

(786

)

(2,484

)

Total operating expense

$

46,731

$

49,517

$

54,111

$

52,184

$

50,442

(1)

Non-GAAP measure.

INVESTOR RELATIONS INQUIRIES:

Banc of California, Inc.

Jared M. Wolff, (949) 385-8700

John A. Bogler, (855) 361-2262

Source: Banc of California, Inc.

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