Banc of California Reports First Quarter 2021 Financial Results

Rhea-AI Summary

Banc of California, Inc. (NYSE: BANC) reported Q1 2021 net income of $14.4 million, translating to $0.15 earnings per share. Notable metrics include a 0.74% return on average assets and a 1.43% allowance for credit losses. The cost of total deposits decreased to 0.28%. The merger with Pacific Mercantile Bancorp, valued at $1.6 billion, is expected to enhance earnings. Common Equity Tier 1 capital stood at 11.50%. Adjusted net income, excluding non-core items, would have been $12.9 million, or $0.25 per diluted share.

Positive

• Net income available to common stockholders was $7.8 million.
• Return on average assets at 0.74%.
• Decrease in average cost of total deposits to 0.28%.
• Noninterest-bearing deposits increased to 28% of total deposits.
• Merger expected to enhance profitability, closing in Q3 2021.
• Common Equity Tier 1 capital at a strong 11.50%.

Negative

• Net interest income decreased by $3.6 million to $57.9 million.
• Total delinquent loans increased by $29.7 million.
• Non-performing loans rose by $19.3 million.

Banc of California, Inc. (NYSE: BANC) today reported net income of $14.4 million and net income available to common stockholders for the first quarter of 2021 of $7.8 million, or diluted earnings per common share of $0.15.

Highlights for the first quarter included:

• Return on average assets of 0.74%
• Average cost of total deposits of 0.28%, an 8 basis point decrease from the prior quarter, and period-end total cost of deposits of 0.24%
• Noninterest-bearing deposit balances represented 28% of total deposits at March 31, 2021, up from 23% a year earlier
• Allowance for credit losses at 1.43% of total loans and 148% of non-performing loans
• Total deferrals/forbearances declined to $108.7 million at March 31, 2021 from $251.9 million at December 31, 2020
• Common Equity Tier 1 capital at 11.50%
• Entered into an agreement and plan of merger with Pacific Mercantile Bancorp, a commercial bank headquartered in Costa Mesa, California with total assets of $1.6 billion at December 31, 2020
• Redemption of all Series D Preferred Stock for total consideration of $93.3 million

Jared Wolff, President & CEO of Banc of California, commented, “Our first quarter results reflected solid core operating performance and execution on the strategies that are enhancing the value of our franchise. We continued to grow average loans and earning assets, improve our deposit mix, reduce our cost of deposits, and maintain disciplined expense control. Certain non-core items in the quarter masked some of these results but, adjusted for these items, our quarterly results were very good.”

Mr. Wolff continued, “Strong loan production helped to offset runoff in certain legacy areas of our portfolio. Our loan pipeline is steadily building which should support continued loan and earning asset growth through the year, assuming economic trends continue. During the first quarter, we also announced that we entered into a definitive agreement to acquire Pacific Mercantile Bancorp. The transaction is currently on track to close during the third quarter of 2021 and both organizations are excited about the opportunities to leverage the collective strengths of the combined company, and to realize the earnings accretion and other benefits that will further accelerate profitability.”

Lynn Hopkins, Chief Financial Officer of Banc of California, said, “Given the high level of reserves we built during 2020 and improving economic forecasts, we had a small reserve release in the first quarter, and our allowance for credit losses to total loans ratio was unchanged from the prior quarter. We continued to see a significant decline in loan deferrals during the first quarter, although non-performing loans increased due to the downgrade of well-secured single family residential loans. We are pleased we were able to redeem our Series D Preferred Stock during the first quarter, which we expect to be accretive to our earnings per share going forward. With the improvement we are seeing in our financial performance and strong capital ratios, we remain well positioned to redeem our Series E Preferred Stock late in 2021 or in early 2022, which we expect will provide additional earnings accretion.”

Ms. Hopkins continued, “Our net income available to common stockholders and earnings per share in the first quarter included $3.6 million in pre-tax losses on alternative energy investment partnership investments, $1.4 million in pre-tax merger-related and indemnified professional fees, $3.4 million in Series D preferred stock redemption expense, and $2.1 million in tax benefits related to the exercise of all previously issued outstanding stock appreciation rights. Excluding these items, net of a more normalized effective tax rate of 25%, our adjusted net income available to common stockholders for the quarter would have been $12.9 million or $0.25 per diluted share.”

Income Statement Highlights

		Three Months Ended
		March 31, 2021					December 31, 2020				September 30, 2020				June 30, 2020					March 31, 2020
		($ in thousands)
Total interest and dividend income		$	68,618				$	73,530			$	69,666			$	72,697				$	74,714
Total interest expense		10,702					11,967				13,811				17,382					22,853
Net interest income		57,916					61,563				55,855				55,315					51,861
Total noninterest income		4,381					6,975				3,954				5,528					2,061
Total revenue		62,297					68,538				59,809				60,843					53,922
Total noninterest expense		46,735					38,950				40,394				72,770					46,919
Pre-tax / pre-provision income (loss)		15,562					29,588				19,415				(11,927		)			7,003
(Reversal of) provision for credit losses		(1,107		)			991				1,141				11,826					15,761
Income tax expense (benefit)		2,294					6,894				2,361				(5,304		)			(2,165		)
Net income (loss)		$	14,375				$	21,703			$	15,913			$	(18,449	)			$	(6,593	)
Net income (loss) available to common stockholders(1)		$	7,825				$	17,706			$	12,084			$	(21,936	)			$	(9,694	)

(1)

Balance represents the net income (loss) available to common stockholders after subtracting preferred stock dividends, income allocated to participating securities, participating securities dividends, and impact of preferred stock redemption from net income (loss). Refer to the Statements of Operations for additional detail on these amounts.

Net interest income

Q1-2021 vs Q4-2020

Net interest income decreased $3.6 million to $57.9 million for the first quarter due to lower prepayment fees, higher net nonaccrual interest reversal, lower amortized fee income from PPP loan forgiveness, and 2 less days in the current quarter, offset by higher average interest-earning assets and lower interest expense. Compared to the prior quarter, average interest-earning assets increased by $110.0 million to $7.36 billion, including higher average loans of $39.1 million and higher other interest-earning assets of $74.1 million.

The net interest margin decreased 19 basis points to 3.19% for the first quarter of 2021 from 3.38% for the fourth quarter of 2020 as the average earning-assets yield decreased 26 basis points and the average cost of total funding decreased 7 basis points. The yield on average interest-earning assets decreased to 3.78% for the first quarter from 4.04% for the fourth quarter due mostly to lower loan yields. The average yield on loans decreased 28 basis points to 4.30% during the first quarter due to impact of lower prepayment penalty fees, higher net reversal of nonaccrual loan interest, and lower amortized fees from PPP loan forgiveness; these items increased the first quarter loan yield by 13 basis points and the fourth quarter loan yield by 34 basis points. The average yield on securities remained flat at 2.13% between quarters. The average yield on our collateralized loan obligations (CLOs) decreased 3 basis points to 1.91% for the first quarter from 1.94% for the fourth quarter as these securities reprice quarterly.

The average cost of total funding decreased 7 basis points to 0.63% for the first quarter from 0.70% for the fourth quarter. This decrease was driven by the lower average cost of interest-bearing liabilities and improved funding mix, including higher average noninterest-bearing deposits during the first quarter. During the first quarter, average deposits increased $164.2 million, consisting of higher average noninterest-bearing deposits of $205.1 million and lower average interest-bearing deposits of $40.9 million. Average Federal Home Loan Bank (FHLB) advances decreased $87.7 million primarily due to maturities of $105.0 million in advances during the prior quarter. The average cost of interest-bearing liabilities decreased 6 basis points to 0.83% for the first quarter of 2021 from 0.89% for the fourth quarter of 2020 due to actively managing down the cost of interest-bearing deposits into the current rate environment. The average cost of interest-bearing deposits declined 9 basis points to 0.38% for the first quarter from 0.47% for the prior quarter. Additionally, average noninterest-bearing deposits represented 27% of total average deposits for the first quarter compared to 24% of total average deposits for the fourth quarter. The average cost of total deposits decreased 8 basis points to 0.28% for the first quarter. The spot rate of total deposits at the end of the first quarter of 2021 was 0.24%.

Provision for credit losses

Q1-2021 vs Q4-2020

The provision for credit losses was a reversal of $1.1 million for the first quarter, compared to a provision for credit losses of $1.0 million for the fourth quarter. The first quarter reversal of credit losses was due primarily to improvements in key macro-economic forecast variables, such as unemployment and gross domestic product, consideration of credit quality metrics, and lower period end loan balances of $134.0 million.

Noninterest income

Q1-2021 vs Q4-2020

Noninterest income decreased $2.6 million, to $4.4 million for the first quarter due mostly to lower other income from legacy legal settlements for the benefit of the Company which totaled $2.8 million during the fourth quarter of 2020. Customer service fees decreased by $195 thousand due to lower loan fees of $367 thousand, offset by higher deposit activity fees of $172 thousand. The increase in deposit activity fees is attributed to higher balances and our initiative to bring our service fee schedules more in line with market.

Noninterest expense

Q1-2021 vs Q4-2020

Noninterest expense increased $7.8 million to $46.7 million for the first quarter compared to the prior quarter. The increase was primarily due to higher professional fees of $4.0 million, higher merger-related costs of $700 thousand, and higher net losses in alternative energy partnership investments of $4.3 million. Professional fees included indemnified legal expenses, net of recoveries, of $721 thousand in the first quarter compared to net recoveries of $4.2 million during the fourth quarter. These increases were offset by lower occupancy and equipment of $364 thousand due mostly to lower rent and other facility-related expenses and a $566 thousand decrease in all other expense. The fourth quarter all other expenses included the write-off of capitalized software costs of $336 thousand; there were no similar charges in the first quarter. Total operating costs, defined as noninterest expense adjusted for certain non-core items (refer to section Non-GAAP Measures), decreased $2.3 million to $41.7 million for the first quarter compared to $44.0 million for the prior quarter primarily due to lower professional fees, occupancy and equipment, and other expenses.

Income taxes

Q1-2021 vs Q4-2020

Income tax expense totaled $2.3 million for the first quarter resulting in an effective tax rate of 13.8% compared to $6.9 million for the fourth quarter and an effective tax rate of 24.1%. The lower effective tax rate between quarters was due to a tax benefit resulting from the exercise of all previously issued outstanding stock appreciation rights, including a net benefit of $2.1 million in the first quarter. The effective tax rate is expected to be in the 25% to 27% range for the remaining quarters in 2021.

Balance Sheet

At March 31, 2021, total assets were $7.93 billion, which represented a linked-quarter increase of $56.1 million. The following table shows selected balance sheet line items as of the dates indicated.

																						Amount Change
		March 31, 2021				December 31, 2020				September 30, 2020				June 30, 2020				March 31, 2020				Q1-21 vs. Q4-20					Q1-21 vs. Q1-20
		($ in thousands)
Securities available-for-sale		$	1,270,830			$	1,231,431			$	1,245,867			$	1,176,029			$	969,427			$	39,399				$	301,403
Loans held-for-investment		$	5,764,401			$	5,898,405			$	5,678,002			$	5,627,696			$	5,667,464			$	(134,004	)			$	96,937
Loans held-for-sale		$	1,408			$	1,413			$	1,849			$	19,768			$	20,234			$	(5	)			$	(18,826	)
Total assets		$	7,933,459			$	7,877,334			$	7,738,106			$	7,770,138			$	7,662,607			$	56,125				$	270,852
Noninterest-bearing deposits		$	1,700,343			$	1,559,248			$	1,450,744			$	1,391,504			$	1,256,081			$	141,095				$	444,262
Total deposits		$	6,142,042			$	6,085,800			$	6,032,266			$	6,037,465			$	5,562,838			$	56,242				$	579,204
Borrowings(1)		$	891,546			$	796,110			$	733,105			$	790,707			$	1,151,479			$	95,436				$	(259,933	)
Total liabilities		$	7,128,766			$	6,980,127			$	6,863,852			$	6,923,179			$	6,827,605			$	148,639				$	301,161
Total equity		$	804,693			$	897,207			$	874,254			$	846,959			$	835,002			$	(92,514	)			$	(30,309	)

(1)

Represents Advances from Federal Home Loan Bank and Notes payable, net

Investments

Securities available-for-sale increased $39.4 million during the first quarter to $1.27 billion at March 31, 2021 primarily due to purchases of $52.8 million, offset by principal payments of $9.4 million and lower unrealized net gains of $3.6 million. The decrease in the unrealized net gains was due mostly to decreases in the value of mortgage-backed securities as a result of increases in longer term interest rates, offset by improved pricing of CLOs and corporate debt securities due to lower credit spreads. There were no sales of securities during the first quarter. As of March 31, 2021, our securities portfolio included $683.9 million of CLOs, $334.3 million of agency securities, $85.5 million of municipal securities, $150.3 million of corporate debt securities, and $16.7 million of SBA pool securities. The CLO portfolio, which is comprised only of AA and AAA rated securities, represented 53.8% of the total securities portfolio and the carrying value included an unrealized net loss of $3.6 million at March 31, 2021 compared to an unrealized net loss of $9.7 million at December 31, 2020.

Loans

The following table sets forth the composition, by loan category, of our loan portfolio as of the dates indicated:

		March 31, 2021				December 31, 2020				September 30, 2020				June 30, 2020				March 31, 2020
		($ in thousands)
Composition of held-for-investment loans
Commercial real estate		$	839,965			$	807,195			$	826,683			$	822,694			$	810,024
Multifamily		1,258,278				1,289,820				1,476,803				1,434,071				1,466,083
Construction		169,122				176,016				197,629				212,979				227,947
Commercial and industrial		1,878,325				2,088,308				1,586,824				1,436,990				1,578,223
SBA		338,903				273,444				320,573				310,784				70,583
Total commercial loans		4,484,593				4,634,783				4,408,512				4,217,518				4,152,860
Single-family residential mortgage		1,253,251				1,230,236				1,234,479				1,370,785				1,467,375
Other consumer		26,557				33,386				35,011				39,393				47,229
Total consumer loans		1,279,808				1,263,622				1,269,490				1,410,178				1,514,604
Total gross loans		$	5,764,401			$	5,898,405			$	5,678,002			$	5,627,696			$	5,667,464
Composition percentage of held-for-investment loans
Commercial real estate		14.6		%		13.7		%		14.6		%		14.6		%		14.3		%
Multifamily		21.8		%		21.9		%		26.0		%		25.5		%		25.9		%
Construction		2.9		%		3.0		%		3.5		%		3.8		%		4.0		%
Commercial and industrial		32.6		%		35.3		%		28.0		%		25.5		%		27.9		%
SBA		5.9		%		4.6		%		5.6		%		5.5		%		1.2		%
Total commercial loans		77.8		%		78.5		%		77.7		%		74.9		%		73.3		%
Single-family residential mortgage		21.7		%		20.9		%		21.7		%		24.4		%		25.9		%
Other consumer		0.5		%		0.6		%		0.6		%		0.7		%		0.8		%
Total consumer loans		22.2		%		21.5		%		22.3		%		25.1		%		26.7		%
Total gross loans		100.0		%		100.0		%		100.0		%		100.0		%		100.0		%

Held-for-investment loans decreased $134.0 million to $5.76 billion from the prior quarter, resulting from lower commercial and industrial (C&I) loans of $210.0 million due, in part, to decreased utilization of credit facilities and decreases in multifamily loans of $31.5 million, and construction loans of $6.9 million due to prepayment activity. The decreases were partially offset by increases in commercial real estate loans of $32.8 million and SBA loans of $65.5 million due mostly to $131.9 million in new PPP loans originated, offset by the SBA processing forgiveness requests of $62.5 million during the quarter. At March 31, 2021, SBA loans included $276.0 million of PPP loans, net of fees.

We continue to focus the real estate loan portfolio toward relationship-based multifamily, bridge, light infill construction, and commercial real estate loans. Currently, loans secured by residential real estate (single-family, multifamily, single-family construction, and credit facilities) represent approximately 66% of our total loans outstanding.

The C&I portfolio has limited exposure to certain business sectors undergoing severe stress. The C&I industry concentrations in dollars and as a percentage of total outstanding C&I loan balances are summarized below:

		March 31, 2021
		Amount				% of Portfolio
		($ in thousands)
C&I Portfolio by Industry
Finance and insurance (includes Warehouse lending)		$	1,220,408			65	%
Real Estate & Rental Leasing		230,781				12	%
Gas Stations		68,672				4	%
Healthcare		68,964				4	%
Wholesale Trade		40,803				2	%
Television / Motion Pictures		34,067				2	%
Manufacturing		25,198				1	%
Food Services		31,366				2	%
Other Retail Trade		21,167				1	%
Professional Services		16,993				1	%
Transportation		4,773				—	%
Accommodations		2,427				—	%
All other		112,706				6	%
Total		$	1,878,325			100	%

Deposits

The following table sets forth the composition of our deposits at the dates indicated.

		March 31, 2021				December 31, 2020				September 30, 2020				June 30, 2020				March 31, 2020
		($ in thousands)
Composition of deposits
Noninterest-bearing checking		$	1,700,343			$	1,559,248			$	1,450,744			$	1,391,504			$	1,256,081
Interest-bearing checking		2,088,528				2,107,942				2,045,115				1,846,698				1,572,389
Money market		775,072				714,297				689,769				765,854				575,820
Savings		909,631				932,363				946,293				939,018				877,947
Non-brokered certificates of deposit		668,468				755,727				820,531				924,630				1,071,936
Brokered certificates of deposit		—				16,223				79,814				169,761				208,665
Total deposits		$	6,142,042			$	6,085,800			$	6,032,266			$	6,037,465			$	5,562,838
Composition percentage of deposits
Noninterest-bearing checking		27.7		%		25.6		%		24.1		%		23.0		%		22.6		%
Interest-bearing checking		34.0		%		34.6		%		33.9		%		30.6		%		28.3		%
Money market		12.6		%		11.7		%		11.4		%		12.7		%		10.3		%
Savings		14.8		%		15.3		%		15.7		%		15.6		%		15.8		%
Non-brokered certificates of deposit		10.9		%		12.4		%		13.6		%		15.3		%		19.3		%
Brokered certificates of deposit		—		%		0.4		%		1.3		%		2.8		%		3.7		%
Total deposits		100.0		%		100.0		%		100.0		%		100.0		%		100.0		%

Total deposits increased $56.2 million during the first quarter of 2021 to $6.14 billion due to higher noninterest-bearing checking balances of $141.1 million and money market balances of $60.8 million, offset by lower interest-bearing checking of $19.4 million, savings balances of $22.7 million, and non-brokered certificates of deposit of $87.3 million. We continue to focus on growing relationship-based deposits, strategically augmented by wholesale funding, as we actively managed down deposit costs in response to the current interest rate environment. Noninterest-bearing deposits totaled $1.70 billion and represented 27.7% of total deposits at March 31, 2021 compared to $1.56 billion, or 25.6% of total deposits, at December 31, 2020.

Debt

Advances from the FHLB increased $95.3 million, or 18%, to $635.1 million, as of March 31, 2021, due to higher overnight advances, offset by maturities of $45.0 million in term advances. At the end of the first quarter, FHLB advances included $225.0 million in overnight borrowings, $5.0 million in term advances maturing within three months, and $411.0 million maturing beyond three months with a weighted average life of 4.7 years and weighted average interest rate of 2.53%.

Equity

At March 31, 2021, total stockholders’ equity decreased by $92.5 million to $804.7 million and tangible common equity decreased by $2.3 million to $670.2 million on a linked-quarter basis. The decrease in total stockholders’ equity for the first quarter, was a result of the redemption of all remaining Series D Preferred Stock for $93.3 million, lower net accumulated other comprehensive income of $2.6 million, dividends to common and preferred stockholders of $6.2 million and the impact of vested and exercised share-based awards of $6.4 million, offset by net income of $14.4 million and share-based award compensation of $1.5 million. Tangible book value per share decreased to $13.24 as of March 31, 2021 from $13.39 at December 31, 2020.

Capital ratios remain strong with total risk-based capital at 15.87% and a tier 1 leverage ratio of 9.62%. The following table sets forth our regulatory capital ratios at March 31, 2021 and the previous four quarters. The interim capital relief related to the adoption of the current expected credit losses (CECL) accounting standard increased the Bank's leverage ratio by approximately 10 basis points at March 31, 2021.

		March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020			March 31, 2020
Capital Ratios(1)
Banc of California, Inc.
Total risk-based capital ratio		15.87	%		17.01	%		16.19	%		16.35	%		16.16	%
Tier 1 risk-based capital ratio		13.17	%		14.35	%		14.94	%		15.10	%		14.91	%
Common equity tier 1 capital ratio		11.50	%		11.19	%		11.59	%		11.68	%		11.58	%
Tier 1 leverage ratio		9.62	%		10.90	%		10.79	%		10.56	%		11.20	%
Banc of California, NA
Total risk-based capital ratio		17.82	%		17.27	%		18.14	%		18.17	%		18.21	%
Tier 1 risk-based capital ratio		16.57	%		16.02	%		16.89	%		16.92	%		16.96	%
Common equity tier 1 capital ratio		16.57	%		16.02	%		16.89	%		16.92	%		16.96	%
Tier 1 leverage ratio		12.13	%		12.19	%		12.21	%		11.84	%		12.67	%

(1)

March 31, 2021 capital ratios are preliminary.

Credit Quality

		March 31, 2021				December 31, 2020				September 30, 2020				June 30, 2020				March 31, 2020
Asset quality information and ratios		($ in thousands)
Delinquent loans held-for-investment
30 to 89 days delinquent		$	31,005			$	13,981			$	51,229			$	49,810			$	56,338
90+ days delinquent		30,292				17,636				31,809				45,384				28,632
Total delinquent loans		$	61,297			$	31,617			$	83,038			$	95,194			$	84,970
Total delinquent loans to total loans		1.06		%		0.54		%		1.46		%		1.69		%		1.50		%
Non-performing assets, excluding loans held-for-sale
Non-accrual loans		$	55,920			$	35,900			$	66,337			$	72,703			$	56,471
90+ days delinquent and still accruing loans		—				728				547				—				—
Non-performing loans		55,920				36,628				66,884				72,703				56,471
Other real estate owned		—				—				—				—				—
Non-performing assets		$	55,920			$	36,628			$	66,884			$	72,703			$	56,471
ALL to non-performing loans		141.90		%		221.22		%		135.95		%		124.30		%		138.55		%
Non-performing loans to total loans held-for-investment		0.97		%		0.62		%		1.18		%		1.29		%		1.00		%
Non-performing assets to total assets		0.70		%		0.46		%		0.86		%		0.94		%		0.74		%
Troubled debt restructurings (TDRs)
Performing TDRs		$	4,547			$	4,733			$	5,408			$	5,597			$	6,100
Non-performing TDRs		4,130				4,264				20,002				20,275				20,852
Total TDRs		$	8,677			$	8,997			$	25,410			$	25,872			$	26,952

Total delinquent loans increased $29.7 million in the first quarter to $61.3 million at March 31, 2021, due to $39.0 million of additions, offset by $9.2 million returning to current status and $0.2 million of principal payments or payoffs. Delinquent loans included single-family residential (SFR) loans of $47.8 million, or 78% of the total delinquent balance at quarter end, and represented $24.9 million of the quarter over quarter increase. Excluding delinquent SFR loans, the remaining delinquent loans totaled $13.5 million, or 0.30% of total loans at March 31, 2021.

Non-performing loans increased $19.3 million to $55.9 million as of March 31, 2021, of which $18.1 million, or 32%, relates to loans in a current payment status. The first quarter increase was due to $22.5 million of loans placed on non-accrual status, offset by $3.2 million in cured loans and payoffs. Of the $22.5 million of loans placed on non-accrual status, $20.0 million, or 88.7%, of such loans, related to SFR loans.

At March 31, 2021, non-performing loans included (i) a legacy relationship totaling $7.3 million, or 13% of total non-performing loans, that is well-secured by a combination of commercial real estate and SFR properties with an average loan-to-value ratio of 51%, (ii) SFR loans totaling $32.4 million, or 58% of total non-performing loans, and (iii) other commercial loans of $16.1 million, or 29% of total non-performing loans.

In light of the pandemic, we provided support to clients by granting loan deferments or forbearances. The loans on deferment or forbearance status as of the dates indicated are shown below:

		March 31, 2021										December 31, 2020
		Count			Amount(1)				% of Loans in Category			Count			Amount				% of Loans in Category
		($ in thousands)
Single-family residential mortgage		47			$	48,831			4	%		123			$	138,771			11	%
All other loans		15			59,858				1	%		33			113,163				2	%
Total		62			$	108,689			2	%		156			$	251,934			4	%

(1)

Includes loans in the process of deferment or forbearance which are not reported as delinquent.

Loans on deferment or forbearance status decreased $143.2 million, or 57%, during the first quarter of 2021. Of the balances as of March 31, 2021, all other loans include 8 commercial loans totaling $34.0 million under review and pending approval for deferral, of which 3 loans totaling $17.3 million were initial deferral requests. We continue to actively monitor and manage all lending relationships in a manner that supports our clients and protects the Bank.

Allowance for Credit Losses

		Three Months Ended
		March 31, 2021					December 31, 2020					September 30, 2020					June 30, 2020					March 31, 2020
		($ in thousands)
Allowance for loan losses (ALL)
Balance at beginning of period		$	81,030				$	90,927				$	90,370				$	78,243				$	57,649
Adoption of ASU 2016-13(1)		—					—					—					—					7,609
Loans charged off		(565		)			(11,520		)			(1,821		)			—					(2,076		)
Recoveries		172					609					248					608					350
Net (charge-offs) recoveries		(393		)			(10,911		)			(1,573		)			608					(1,726		)
Provision for (reversal of) loan losses		(1,284		)			1,014					2,130					11,519					14,711
Balance at end of period		$	79,353				$	81,030				$	90,927				$	90,370				$	78,243
Reserve for unfunded loan commitments
Balance at beginning of period		$	3,183				$	3,206				$	4,195				$	3,888				$	4,064
Adoption of ASU 2016-13(1)		—					—					—					—					(1,226		)
Provision for (reversal of) credit losses		177					(23		)			(989		)			307					1,050
Balance at end of period		3,360					3,183					3,206					4,195					3,888
Allowance for credit losses (ACL)		$	82,713				$	84,213				$	94,133				$	94,565				$	82,131
ALL to total loans		1.38			%		1.37			%		1.60			%		1.61			%		1.38			%
ACL to total loans		1.43			%		1.43			%		1.66			%		1.68			%		1.45			%
ACL to total loans, excluding PPP loans		1.51			%		1.48			%		1.74			%		1.76			%		1.45			%
ACL to NPLs		147.91			%		229.91			%		140.74			%		130.07			%		145.44			%
Annualized net loan charge-offs (recoveries) to average total loans held-for-investment		0.03			%		0.77			%		0.12			%		(0.04		)	%		0.12			%
Reserve for loss on repurchased loans
Balance at beginning of period		$	5,515				$	5,487				$	5,567				$	5,601				$	6,201
Initial provision for loan repurchases		—					—					11					—					—
Provision for (reversal of) provision for loan repurchases		(132		)			28					(91		)			(34		)			(600		)
Balance at end of period		$	5,383				$	5,515				$	5,487				$	5,567				$	5,601

(1)

Represents the impact of adopting ASU 2016-13, Financial Instruments - Credit Losses on January 1, 2020. As a result of adopting ASU 2016-13, our methodology to compute our allowance for credit losses is based on a current expected credit loss methodology, rather than the previously applied incurred loss methodology.

The allowance for expected credit losses (ACL), which includes the reserve for unfunded loan commitments, totaled $82.7 million, or 1.43% of total loans, at March 31, 2021, compared to $84.2 million, or 1.43% of total loans, at December 31, 2020. The $1.5 million decrease in the ACL was due to: (i) lower general reserves of $1.0 million from portfolio mix, (ii) net charge-offs of $393 thousand, and (iii) lower specific reserves of $58 thousand. The ACL coverage of non-performing loans was 148% at March 31, 2021 compared to 230% at December 31, 2020.

Our ACL methodology and resulting provision continues to be impacted by the current economic uncertainty and volatility caused by the COVID-19 pandemic. The ACL methodology uses a nationally recognized, third-party model that includes many assumptions based on historical and peer loss data, current loan portfolio risk profile including risk ratings, and economic forecasts including macroeconomic variables (MEVs) released by our model provider during March 2021. In contrast to the December 2020 forecasts, the March forecasts reflect a more favorable view of the economy (i.e. higher GDP growth rates and lower unemployment rates). While the forecasts are improving and the economy is showing signs of recovery with the rollout of the vaccine and additional government stimulus, there remains uncertainty regarding the ultimate impact of the pandemic and the pace of the recovery. Accordingly, our economic assumptions and the resulting ACL level and provision reflect these uncertainties. The ACL also incorporated qualitative factors to account for certain loan portfolio characteristics that are not taken into consideration by the third-party model including underlying strengths and weaknesses in the loan portfolio. As is the case with all estimates, the ACL is expected to be impacted in future periods by economic volatility, changing economic forecasts, underlying model assumptions, and asset quality metrics, all of which may be better than or worse than current estimates.

The Company will host a conference call to discuss its first quarter 2021 financial results at 10:00 a.m. Pacific Time (PT) on Thursday, April 22, 2021. Interested parties are welcome to attend the conference call by dialing (888) 317-6003, and referencing event code 3056351. 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. A replay of the call will be made available approximately one hour after the call has ended on the Company’s Investor Relations website at www.bancofcal.com/investor or by dialing (877) 344-7529 and referencing event code 10145608.

About Banc of California, Inc.

Banc of California, Inc. (NYSE: BANC) is a bank holding company with approximately $7.9 billion in assets and one wholly-owned banking subsidiary, Banc of California, N.A. (the Bank). The Bank has 36 offices including 29 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 to 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 (SEC). In addition to those, statements about the potential effects of the COVID-19 pandemic on the business, financial results and condition of Banc of California, Inc. and its subsidiaries may constitute forward-looking statements and are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond the control of Banc of California, Inc., including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on Banc of California Inc. and its subsidiaries, their customers and third parties. Further, statements about the potential effects of the proposed acquisition of Pacific Mercantile Bancorp on the business, financial results and condition of Banc of California, Inc. and its subsidiaries may constitute forward-looking statements and are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond the control of Banc of California, Inc., including (i) the possibility that the merger does not close when expected or at all because required regulatory, shareholder or other approvals, financial tests or other conditions to closing are not received or satisfied on a timely basis or at all; (ii) changes in Banc of California Inc.’s or Pacific Mercantile Bancorp’s stock price before closing, including as a result of its financial performance prior to closing, or more generally due to broader stock market movements, and the performance of financial companies and peer group companies; (iii) the risk that the benefits from the transaction may not be fully realized or may take longer to realize than expected, including as a result of changes in general economic and market conditions, interest and exchange rates, monetary policy, laws and regulations and their enforcement, and the degree of competition in the geographic and business areas in which Banc of California Inc. and Pacific Mercantile Bancorp operate; (iv) the ability to promptly and effectively integrate the businesses of Banc of California Inc. and Pacific Mercantile Bancorp; (v) the reaction to the transaction of the companies’ customers, employees and counterparties; (vi) diversion of management time on merger-related issues; (vii) lower than expected revenues, credit quality deterioration or a reduction in real estate values or a reduction in net earnings; and (viii) other risks that are described in Banc of California Inc.’s and Pacific Mercantile Bancorp’s public filings with the SEC. 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.

Additional Information About the Merger and Where to Find It

Investors and security holders are urged to carefully review and consider each of Banc of California Inc.’s and Pacific Mercantile Bancorp’s public filings with the SEC, including but not limited to their Annual Reports on Form 10-K, their proxy statements, their Current Reports on Form 8-K and their Quarterly Reports on Form 10-Q. The documents filed by Banc of California Inc. with the SEC may be obtained free of charge at Banc of California Inc.’s website at www.bancofcal.com or at the SEC’s website at www.sec.gov. These documents may also be obtained free of charge from Banc of California Inc. by requesting them in writing to Banc of California, Inc., 3 MacArthur Place, Santa Ana, CA 92707; Attention: Investor Relations, by submitting an email request to ir@bancofcal.com or by telephone at (855) 361-2262.

The documents filed by Pacific Mercantile Bancorp with the SEC may be obtained free of charge at Pacific Mercantile Bancorp’s website at www.pmbank.com or at the SEC’s website at www.sec.gov. These documents may also be obtained free of charge from Pacific Mercantile Bancorp by requesting them in writing to Pacific Mercantile Bancorp, 949 South Coast Drive, Suite 300, Costa Mesa, CA 92626; Attention: Investor Relations, or by telephone at 714-438-2500.

Banc of California Inc. intends to file a registration statement with the SEC, which will include a joint proxy statement of Banc of California Inc. and Pacific Mercantile Bancorp and a prospectus of Banc of California Inc., and each party will file other documents regarding the proposed transaction with the SEC. Before making any voting or investment decision, investors and security holders of Banc of California Inc. and Pacific Mercantile Bancorp are urged to carefully read the entire registration statement and joint proxy statement/prospectus, when they become available, as well as any amendments or supplements to these documents, because they will contain important information about the proposed transaction. A definitive joint proxy statement/prospectus will be sent to the shareholders of Banc of California Inc. and Pacific Mercantile Bancorp seeking any required shareholder approvals. Investors and security holders will be able to obtain the registration statement and the joint proxy statement/prospectus free of charge from the SEC’s website or from Banc of California Inc. or Pacific Mercantile Bancorp by writing to the addresses provided for each company set forth in the paragraphs above.

Banc of California Inc., Pacific Mercantile Bancorp, their directors, executive officers and certain other persons may be deemed to be participants in the solicitation of proxies from Banc of California Inc. and Pacific Mercantile Bancorp shareholders in favor of the approval of the transaction. Information about the directors and executive officers of Banc of California Inc. and their ownership of Banc of California Inc. common stock is set forth in the proxy statement for Banc of California Inc.’s 2021 annual meeting of stockholders, as previously filed with the SEC. Information about the directors and executive officers of Pacific Mercantile Bancorp and their ownership of Pacific Mercantile Bancorp common stock is set forth in the proxy statement for PMB’s 2020 annual meeting of shareholders, as previously filed with the SEC. Shareholders may obtain additional information regarding the interests of such participants by reading the registration statement and the joint proxy statement/prospectus when they become available.

Banc of California, Inc. Consolidated Statements of Financial Condition (Unaudited) (Dollars in thousands)
		March 31, 2021					December 31, 2020					September 30, 2020					June 30, 2020					March 31, 2020
ASSETS
Cash and cash equivalents		$	379,509				$	220,819				$	292,490				$	420,640				$	435,992
Securities available-for-sale		1,270,830					1,231,431					1,245,867					1,176,029					969,427
Loans held-for-sale		1,408					1,413					1,849					19,768					20,234
Loans held-for-investment		5,764,401					5,898,405					5,678,002					5,627,696					5,667,464
Allowance for loan losses		(79,353		)			(81,030		)			(90,927		)			(90,370		)			(78,243		)
Federal Home Loan Bank and other bank stock		44,964					44,506					44,809					46,585					57,237
Servicing rights, net		1,407					1,454					1,621					1,753					2,009
Premises and equipment, net		120,071					121,520					123,812					125,247					127,379
Alternative energy partnership investments, net		23,809					27,977					27,786					26,967					27,347
Goodwill		37,144					37,144					37,144					37,144					37,144
Other intangible assets, net		2,351					2,633					2,939					3,292					3,722
Deferred income tax, net		47,877					45,957					43,744					48,288					63,849
Income tax receivable		210					1,105					10,701					13,094					7,198
Bank owned life insurance investment		112,479					111,807					111,115					110,487					110,397
Right of use assets		22,069					19,633					18,909					19,408					20,882
Other assets		184,283					192,560					188,245					184,110					190,569
Total assets		$	7,933,459				$	7,877,334				$	7,738,106				$	7,770,138				$	7,662,607
LIABILITIES AND STOCKHOLDERS’ EQUITY
Noninterest-bearing deposits		$	1,700,343				$	1,559,248				$	1,450,744				$	1,391,504				$	1,256,081
Interest-bearing deposits		4,441,699					4,526,552					4,581,522					4,645,961					4,306,757
Total deposits		6,142,042					6,085,800					6,032,266					6,037,465					5,562,838
Advances from Federal Home Loan Bank		635,105					539,795					559,482					617,170					978,000
Notes payable, net		256,441					256,315					173,623					173,537					173,479
Reserve for loss on repurchased loans		5,383					5,515					5,487					5,567					5,601
Lease liabilities		23,173					20,647					19,938					20,531					22,075
Accrued expenses and other liabilities		66,622					72,055					73,056					68,909					85,612
Total liabilities		7,128,766					6,980,127					6,863,852					6,923,179					6,827,605
Commitments and contingent liabilities
Preferred stock		94,956					184,878					184,878					185,037					187,687
Common stock		526					522					522					522					520
Common stock, class B non-voting non-convertible		5					5					5					5					5
Additional paid-in capital		629,844					634,704					633,409					632,117					631,125
Retained earnings		115,004					110,179					95,001					85,670					110,640
Treasury stock		(40,827		)			(40,827		)			(40,827		)			(40,827		)			(40,827		)
Accumulated other comprehensive income (loss), net		5,185					7,746					1,266					(15,565		)			(54,148		)
Total stockholders’ equity		804,693					897,207					874,254					846,959					835,002
Total liabilities and stockholders’ equity		$	7,933,459				$	7,877,334				$	7,738,106				$	7,770,138				$	7,662,607

Banc of California, Inc. Consolidated Statements of Operations (Unaudited) (Dollars in thousands, except per share data)
		Three Months Ended
		March 31, 2021					December 31, 2020					September 30, 2020					June 30, 2020					March 31, 2020
Interest and dividend income
Loans, including fees		$	61,345				$	66,105				$	62,019				$	63,642				$	65,534
Securities		6,501					6,636					6,766					7,816					7,820
Other interest-earning assets		772					789					881					1,239					1,360
Total interest and dividend income		68,618					73,530					69,666					72,697					74,714
Interest expense
Deposits		4,286					5,436					7,564					10,205					14,611
Federal Home Loan Bank advances		3,112					3,479					3,860					4,818					5,883
Notes payable and other interest-bearing liabilities		3,304					3,052					2,387					2,359					2,359
Total interest expense		10,702					11,967					13,811					17,382					22,853
Net interest income		57,916					61,563					55,855					55,315					51,861
(Reversal of) provision for credit losses		(1,107		)			991					1,141					11,826					15,761
Net interest income after (reversal of) provision for credit losses		59,023					60,572					54,714					43,489					36,100
Noninterest income
Customer service fees		1,758					1,953					1,498					1,224					1,096
Loan servicing income		268					149					186					95					75
Income from bank owned life insurance		672					691					629					591					578
Net gain (loss) on sale of securities available for sale		—					—					—					2,011					—
Fair value adjustment on loans held for sale		—					36					24					25					(1,586		)
Net gain (loss) on sale of loans		—					—					272					—					(27		)
All other income		1,683					4,146					1,345					1,582					1,925
Total noninterest income		4,381					6,975					3,954					5,528					2,061
Noninterest expense
Salaries and employee benefits		25,719					25,836					23,277					24,260					23,436
Naming rights termination		—					—					—					26,769					—
Occupancy and equipment		7,196					7,560					7,457					7,090					7,243
Professional fees		4,022					29					5,147					4,596					5,964
Data processing		1,655					1,608					1,657					1,536					1,773
Advertising		118					171					219					1,157					1,756
Regulatory assessments		774					748					784					725					484
Reversal of loan repurchase reserves		(132		)			28					(91		)			(34		)			(600		)
Amortization of intangible assets		282					306					353					430					429
Merger-related costs		700					—					—					—					—
All other expense		2,771					3,337					3,021					6,408					4,529
Total noninterest expense before loss (gain) in alternative energy partnership investments		43,105					39,623					41,824					72,937					45,014
Loss (gain) in alternative energy partnership investments		3,630					(673		)			(1,430		)			(167		)			1,905
Total noninterest expense		46,735					38,950					40,394					72,770					46,919
Income (loss) before income taxes		16,669					28,597					18,274					(23,753		)			(8,758		)
Income tax expense (benefit)		2,294					6,894					2,361					(5,304		)			(2,165		)
Net income (loss)		14,375					21,703					15,913					(18,449		)			(6,593		)
Preferred stock dividends		3,141					3,447					3,447					3,442					3,533
Income allocated to participating securities		62					456					281					—					—
Participating securities dividends		—					94					94					94					94
Impact of preferred stock redemption		3,347					—					7					(49		)			(526		)
Net income (loss) available to common stockholders		$	7,825				$	17,706				$	12,084				$	(21,936	)			$	(9,694	)
Earnings (loss) per common share:
Basic		$	0.16				$	0.35				$	0.24				$	(0.44	)			$	(0.19	)
Diluted		$	0.15				$	0.35				$	0.24				$	(0.44	)			$	(0.19	)
Weighted average number of common shares outstanding
Basic		50,350,897					50,125,462					50,108,655					50,030,919					50,464,777
Diluted		50,750,522					50,335,271					50,190,933					50,030,919					50,464,777
Dividends declared per common share		$	0.06				$	0.06				$	0.06				$	0.06				$	0.06

Banc of California, Inc. Selected Financial Data (Unaudited)
		Three Months Ended
		March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020				March 31, 2020
Profitability and other ratios of consolidated operations
Return on average assets(1)		0.74	%		1.11	%		0.82	%		(0.96	)	%		(0.35	)	%
Return on average equity(1)		6.56	%		9.67	%		7.32	%		(8.69	)	%		(2.89	)	%
Return on average tangible common equity(2)		4.81	%		11.02	%		7.92	%		(13.77	)	%		(5.44	)	%
Pre-tax pre-provision income (loss) ROAA		0.80	%		1.52	%		1.00	%		(0.62	)	%		0.37		%
Adjusted pre-tax pre-provision income ROAA(1)(2)		1.06	%		1.25	%		0.98	%		0.83		%		0.65		%
Dividend payout ratio(3)		37.50	%		17.14	%		25.00	%		(13.64	)	%		(31.58	)	%
Average loan yield		4.30	%		4.58	%		4.46	%		4.48		%		4.56		%
Average cost of interest-bearing deposits		0.38	%		0.47	%		0.66	%		0.93		%		1.41		%
Average cost of total deposits		0.28	%		0.36	%		0.51	%		0.71		%		1.11		%
Net interest spread		2.95	%		3.15	%		2.84	%		2.77		%		2.56		%
Net interest margin(1)		3.19	%		3.38	%		3.09	%		3.09		%		2.97		%
Noninterest income to total revenue(4)		7.03	%		10.18	%		6.61	%		9.09		%		3.82		%
Noninterest income to average total assets(1)		0.23	%		0.36	%		0.20	%		0.29		%		0.11		%
Noninterest expense to average total assets(1)		2.41	%		2.00	%		2.09	%		3.78		%		2.50		%
Adjusted noninterest expense to average total assets(1)(2)		2.15	%		2.26	%		2.10	%		2.22		%		2.30		%
Efficiency ratio(2)(5)		75.02	%		56.83	%		67.54	%		119.60		%		87.01		%
Adjusted efficiency ratio(2)(5)		66.91	%		64.26	%		68.31	%		72.74		%		78.07		%
Average loans held-for-investment to average deposits		93.74	%		95.65	%		92.86	%		98.51		%		108.54		%
Average securities available-for-sale to average total assets		15.73	%		15.96	%		15.49	%		13.75		%		12.60		%
Average stockholders’ equity to average total assets		11.30	%		11.49	%		11.26	%		11.04		%		12.11		%

(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 (loss) per common share.
(4)		Total revenue is equal to the sum of net interest income before provision for (reversal of) credit losses and noninterest income.
(5)		The ratios are calculated by dividing noninterest expense by the sum of net interest income before provision for credit losses and noninterest income.

Banc of California, Inc. Average Balance, Average Yield Earned, and Average Cost Paid (Dollars in thousands) (Unaudited)
		Three Months Ended
		March 31, 2021												December 31, 2020												September 30, 2020
		Average									Yield			Average									Yield			Average									Yield
		Balance					Interest				/ Cost			Balance					Interest				/ Cost			Balance					Interest				/ Cost
Interest-earning assets
Loans held-for-sale		$	1,413				$	7			2.01	%		$	1,564				$	8			2.03	%		$	19,544				$	139			2.83	%
SFR mortgage		1,210,105					11,747				3.94	%		1,224,865					12,955				4.21	%		1,311,513					13,178				4.00	%
Commercial real estate, multifamily, and construction		2,322,509					26,387				4.61	%		2,507,950					30,371				4.82	%		2,493,408					29,666				4.73	%
Commercial and industrial, SBA, and lease financing		2,221,494					22,910				4.18	%		1,978,684					21,984				4.42	%		1,673,548					18,585				4.42	%
Other consumer		28,520					294				4.18	%		31,856					787				9.83	%		35,563					451				5.05	%
Gross loans and leases		5,784,041					61,345				4.30	%		5,744,919					66,105				4.58	%		5,533,576					62,019				4.46	%
Securities		1,236,138					6,501				2.13	%		1,239,295					6,636				2.13	%		1,190,765					6,766				2.26	%
Other interest-earning assets		336,443					772				0.93	%		262,363					789				1.20	%		457,558					881				0.77	%
Total interest-earning assets		7,356,622					68,618				3.78	%		7,246,577					73,530				4.04	%		7,181,899					69,666				3.86	%
Allowance for loan losses		(81,111		)										(83,745		)										(89,679		)
BOLI and noninterest-earning assets		585,441												602,165												594,885
Total assets		$	7,860,952											$	7,764,997											$	7,687,105
Interest-bearing liabilities
Savings		$	928,446				$	2,013			0.88	%		$	937,649				$	2,128			0.90	%		$	948,898				$	2,353			0.99	%
Interest-bearing checking		2,140,314					901				0.17	%		2,086,146					1,131				0.22	%		1,919,327					1,660				0.34	%
Money market		726,079					377				0.21	%		671,949					414				0.25	%		681,421					645				0.38	%
Certificates of deposit		720,180					995				0.56	%		860,131					1,763				0.82	%		1,030,829					2,906				1.12	%
Total interest-bearing deposits		4,515,019					4,286				0.38	%		4,555,875					5,436				0.47	%		4,580,475					7,564				0.66	%
FHLB advances		446,618					3,112				2.83	%		534,303					3,479				2.59	%		608,169					3,860				2.52	%
Securities sold under repurchase agreements		—					—				—	%		—					—				—	%		1,309					2				0.61	%
Long-term debt and other interest-bearing liabilities		260,488					3,304				5.14	%		238,265					3,052				5.10	%		173,911					2,385				5.46	%
Total interest-bearing liabilities		5,222,125					10,702				0.83	%		5,328,443					11,967				0.89	%		5,363,864					13,811				1.02	%
Noninterest-bearing deposits		1,653,517												1,448,422												1,357,411
Noninterest-bearing liabilities		97,136												95,567												100,424
Total liabilities		6,972,778												6,872,432												6,821,699
Total stockholders’ equity		888,174												892,565												865,406
Total liabilities and stockholders’ equity		$	7,860,952											$	7,764,997											$	7,687,105
Net interest income/spread							$	57,916			2.95	%							$	61,563			3.15	%							$	55,855			2.84	%
Net interest margin											3.19	%											3.38	%											3.09	%
Ratio of interest-earning assets to interest-bearing liabilities		141			%									136			%									134			%
Total deposits		$	6,168,536				$	4,286			0.28	%		$	6,004,297				$	5,436			0.36	%		$	5,937,886				$	7,564			0.51	%
Total funding(1)		$	6,875,642				$	10,702			0.63	%		$	6,776,865				$	11,967			0.70	%		$	6,721,275				$	13,811			0.82	%

(1)		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
		June 30, 2020												March 31, 2020
		Average									Yield			Average									Yield
		Balance					Interest				/ Cost			Balance					Interest				/ Cost
Interest-earning assets
Loans held-for-sale		$	19,967				$	155			3.12	%		$	22,273				$	220			3.97	%
SFR mortgage		1,416,358					14,187				4.03	%		1,532,967					15,295				4.01	%
Commercial real estate, multifamily, and construction		2,524,477					29,459				4.69	%		2,564,485					30,223				4.74	%
Commercial and industrial, SBA, and lease financing		1,706,120					19,392				4.57	%		1,613,324					19,157				4.78	%
Other consumer		40,697					449				4.44	%		47,761					639				5.38	%
Gross loans and leases		5,707,619					63,642				4.48	%		5,780,810					65,534				4.56	%
Securities		1,063,941					7,816				2.95	%		952,966					7,820				3.30	%
Other interest-earning assets		424,776					1,239				1.17	%		297,444					1,360				1.84	%
Total interest-earning assets		7,196,336					72,697				4.06	%		7,031,220					74,714				4.27	%
Allowance for loan losses		(78,528		)										(60,470		)
BOLI and noninterest-earning assets		622,398												592,192
Total assets		$	7,740,206											$	7,562,942
Interest-bearing liabilities
Savings		905,997					2,718				1.21	%		890,830					3,296				1.49	%
Interest-bearing checking		1,710,038					2,186				0.51	%		1,520,922					3,728				0.99	%
Money market		592,872					850				0.58	%		608,926					1,760				1.16	%
Certificates of deposit		1,214,939					4,451				1.47	%		1,151,518					5,827				2.04	%
Total interest-bearing deposits		4,423,846					10,205				0.93	%		4,172,196					14,611				1.41	%
FHLB advances		819,166					4,818				2.37	%		1,039,055					5,883				2.28	%
Securities sold under repurchase agreements		1,024					2				0.79	%		—					—				—	%
Long-term debt and other interest-bearing liabilities		173,977					2,357				5.45	%		174,056					2,359				5.45	%
Total interest-bearing liabilities		5,418,013					17,382				1.29	%		5,385,307					22,853				1.71	%
Noninterest-bearing deposits		1,349,735												1,133,306
Noninterest-bearing liabilities		118,208												128,282
Total liabilities		6,885,956												6,646,895
Total stockholders’ equity		854,250												916,047
Total liabilities and stockholders’ equity		$	7,740,206											$	7,562,942
Net interest income/spread							$	55,315			2.77	%							$	51,861			2.56	%
Net interest margin											3.09	%											2.97	%
Ratio of interest-earning assets to interest-bearing liabilities		133			%									131			%
Total deposits		$	5,773,581				$	10,205			0.71	%		$	5,305,502				$	14,611			1.11	%
Total funding(1)		$	6,767,748				$	17,382			1.03	%		$	6,518,613				$	22,853			1.41	%

(1)		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.

Tangible assets, tangible equity, tangible common equity, tangible equity to tangible assets, tangible common equity to tangible assets, tangible common equity per common share, return on average tangible common equity, adjusted noninterest income, adjusted noninterest expense, adjusted noninterest expense to average assets, pre-tax pre-provision (PTPP) income (loss), adjusted PTPP income (loss), PTPP income (loss) ROAA, adjusted PTPP income (loss) ROAA, efficiency ratio, adjusted efficiency ratio, adjusted net income, adjusted net income available to common stockholders, adjusted diluted earnings per share (EPS) and adjusted return on average assets (ROAA) 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 assets and tangible equity are calculated by subtracting goodwill and other intangible assets from total assets and total equity. Tangible common equity is calculated by subtracting preferred stock from tangible equity. Return on average tangible common equity is computed by dividing net income (loss) available to common stockholders by average tangible common equity. Banking regulators also exclude goodwill and other intangible assets from stockholders' equity when assessing the capital adequacy of a financial institution.

PTPP income is calculated by adding net interest income and noninterest income (total revenue) and subtracting noninterest expense. Adjusted PTPP income is calculated by adding net interest income and adjusted noninterest income (adjusted total revenue) and subtracting adjusted noninterest expense. PTPP income ROAA is computed by dividing annualized PTPP income by average assets. Adjusted PTPP income ROAA is computed by dividing annualized adjusted PTPP income by average assets. Efficiency ratio is computed by dividing noninterest expense by total revenue. Adjusted efficiency ratio is computed by dividing adjusted noninterest expense by adjusted total revenue.

Adjusted net income (loss) is calculated by adjusting net income (loss) for tax-effected noninterest income and expense adjustments and the tax impact from the exercise of stock appreciation rights. Adjusted ROAA is computed by dividing annualized adjusted net income by average assets. Adjusted net income (loss) available to common shareholders is computed by removing the impact of preferred stock redemptions from adjusted net income (loss).

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 financial 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.

Banc of California, Inc. Consolidated Operations Non-GAAP Measures, Continued (Dollars in thousands, except per share data) (Unaudited)
		March 31, 2021					December 31, 2020					September 30, 2020					June 30, 2020					March 31, 2020
Tangible common equity, and tangible common equity to tangible assets ratio
Total assets		$	7,933,459				$	7,877,334				$	7,738,106				$	7,770,138				$	7,662,607
Less goodwill		(37,144		)			(37,144		)			(37,144		)			(37,144		)			(37,144		)
Less other intangible assets		(2,351		)			(2,633		)			(2,939		)			(3,292		)			(3,722		)
Tangible assets(1)		$	7,893,964				$	7,837,557				$	7,698,023				$	7,729,702				$	7,621,741
Total stockholders' equity		$	804,693				$	897,207				$	874,254				$	846,959				$	835,002
Less goodwill		(37,144		)			(37,144		)			(37,144		)			(37,144		)			(37,144		)
Less other intangible assets		(2,351		)			(2,633		)			(2,939		)			(3,292		)			(3,722		)
Tangible equity(1)		765,198					857,430					834,171					806,523					794,136
Less preferred stock		(94,956		)			(184,878		)			(184,878		)			(185,037		)			(187,687		)
Tangible common equity(1)		$	670,242				$	672,552				$	649,293				$	621,486				$	606,449
Total stockholders' equity to total assets		10.14			%		11.39			%		11.30			%		10.90			%		10.90			%
Tangible equity to tangible assets(1)		9.69			%		10.94			%		10.84			%		10.43			%		10.42			%
Tangible common equity to tangible assets(1)		8.49			%		8.58			%		8.43			%		8.04			%		7.96			%
Common shares outstanding		50,150,447					49,767,489					49,760,543					49,750,958					49,593,077
Class B non-voting non-convertible common shares outstanding		477,321					477,321					477,321					477,321					477,321
Total common shares outstanding		50,627,768					50,244,810					50,237,864					50,228,279					50,070,398
Tangible common equity per common share(1)		$	13.24				$	13.39				$	12.92				$	12.37				$	12.11
Book value per common share		$	14.02				$	14.18				$	13.72				$	13.18				$	12.93

(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
		March 31, 2021					December 31, 2020					September 30, 2020					June 30, 2020					March 31, 2020
Return on tangible common equity
Average total stockholders' equity		$	888,174				$	892,565				$	865,406				$	854,250				$	916,047
Less average preferred stock		(164,895		)			(184,878		)			(184,910		)			(185,471		)			(189,607		)
Less average goodwill		(37,144		)			(37,144		)			(37,144		)			(37,144		)			(37,144		)
Less average other intangible assets		(2,517		)			(2,826		)			(3,172		)			(3,574		)			(4,003		)
Average tangible common equity(1)		$	683,618				$	667,717				$	640,180				$	628,061				$	685,293
Net income (loss)		$	14,375				$	21,703				$	15,913				$	(18,449	)			$	(6,593	)
Less preferred stock dividends and impact of preferred stock redemption		(6,488		)			(3,447		)			(3,454		)			(3,393		)			(3,007		)
Add amortization of intangible assets		282					306					353					430					429
Less tax effect on amortization of intangible assets		(59		)			(64		)			(74		)			(90		)			(90		)
Net income (loss) available to common stockholders(1)		$	8,110				$	18,498				$	12,738				$	(21,502	)			$	(9,261	)
Return on average equity		6.56			%		9.67			%		7.32			%		(8.69		)	%		(2.89		)	%
Return on average tangible common equity(1)		4.81			%		11.02			%		7.92			%		(13.77		)	%		(5.44		)	%
Statutory Federal tax rate utilized for calculating tax effect on amortization of intangible assets		21.00			%		21.00			%		21.00			%		21.00			%		21.00			%

(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
		March 31, 2021					December 31, 2020					September 30, 2020					June 30, 2020					March 31, 2020
Adjusted noninterest income and expense
Total noninterest income		$	4,381				$	6,975				$	3,954				$	5,528				$	2,061
Noninterest income adjustments:
Net (gain) loss on securities available for sale		—					—					—					(2,011		)			—
Net (gain) loss on sale of legacy SFR loans held for sale		—					—					(272		)			—					—
Fair value adjustment on legacy SFR loans held for sale		—					(36		)			(24		)			(25		)			1,586
Total noninterest income adjustments		—					(36		)			(296		)			(2,036		)			1,586
Adjusted noninterest income(1)		$	4,381				$	6,939				$	3,658				$	3,492				$	3,647
Total noninterest expense		$	46,735				$	38,950				$	40,394				$	72,770				$	46,919
Noninterest expense adjustments:
Naming rights termination		—					—					—					(26,769		)			—
Extinguishment of debt		—					—					—					(2,515		)			—
Professional (fees) recoveries		(721		)			4,398					(1,172		)			(875		)			(1,678		)
Merger-related costs		(700		)			—					—					—					—
Adjusted noninterest expense before gain (loss) in alternative energy partnership investments		(1,421		)			4,398					(1,172		)			(30,159		)			(1,678		)
Gain (loss) in alternative energy partnership investments		(3,630		)			673					1,430					167					(1,905		)
Total noninterest expense adjustments		(5,051		)			5,071					258					(29,992		)			(3,583		)
Adjusted noninterest expense(1)		$	41,684				$	44,021				$	40,652				$	42,778				$	43,336
Average assets		$	7,860,952				$	7,764,997				$	7,687,105				$	7,740,206				$	7,562,942
Noninterest expense to average total assets		2.41			%		2.00			%		2.09			%		3.78			%		2.50			%
Adjusted noninterest expense to average total assets(1)		2.15			%		2.26			%		2.10			%		2.22			%		2.30			%

(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
		March 31, 2021					December 31, 2020					September 30, 2020					June 30, 2020					March 31, 2020
Adjusted pre-tax pre-provision income
Net interest income		$	57,916				$	61,563				$	55,855				$	55,315				$	51,861
Noninterest income		4,381					6,975					3,954					5,528					2,061
Total revenue		62,297					68,538					59,809					60,843					53,922
Noninterest expense		46,735					38,950					40,394					72,770					46,919
Pre-tax pre-provision income (loss)(1)		$	15,562				$	29,588				$	19,415				$	(11,927	)			$	7,003
Total revenue		$	62,297				$	68,538				$	59,809				$	60,843				$	53,922
Total noninterest income adjustments		—					(36		)			(296		)			(2,036		)			1,586
Adjusted total revenue(1)		62,297					68,502					59,513					58,807					55,508
Noninterest expense		46,735					38,950					40,394					72,770					46,919
Total noninterest expense adjustments		(5,051		)			5,071					258					(29,992		)			(3,583		)
Adjusted noninterest expense(1)		41,684					44,021					40,652					42,778					43,336
Adjusted pre-tax pre-provision income(1)		$	20,613				$	24,481				$	18,861				$	16,029				$	12,172
Average assets		$	7,860,952				$	7,764,997				$	7,687,105				$	7,740,206				$	7,562,942
Pre-tax pre-provision income (loss) ROAA(1)		0.80			%		1.52			%		1.00			%		(0.62		)	%		0.37			%
Adjusted pre-tax pre-provision income ROAA(1)		1.06			%		1.25			%		0.98			%		0.83			%		0.65			%
Efficiency ratio(1)		75.02			%		56.83			%		67.54			%		119.60			%		87.01			%
Adjusted efficiency ratio(1)		66.91			%		64.26			%		68.31			%		72.74			%		78.07			%

(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
		March 31, 2021				December 31, 2020				September 30, 2020				June 30, 2020				March 31, 2020
Adjusted net income (loss)
Net income (loss)		$	14,375			$	21,703			$	15,913			$	(18,449)			$	(6,593)
Adjustments, net:(1)
Noninterest income		—				27				222				1,527				(1,190)
Noninterest expense		3,788				(3,803)				(194)				22,494				2,687
Adjusted net income (loss) before tax adjustment		18,163				17,927				15,941				5,572				(5,096)
Tax adjustment: tax impact from exercise of stock appreciation rights		2,093				—				—				—				—
Adjusted net income (loss)(2)		$	16,070			$	17,927			$	15,941			$	5,572			$	(5,096)
Average assets		$	7,860,952			$	7,764,997			$	7,687,105			$	7,740,206			$	7,562,942
ROAA		0.74		%		1.11		%		0.82		%		(0.96)		%		(0.35)		%
Adjusted ROAA(2)		0.83		%		0.92		%		0.82		%		0.29		%		(0.27)		%
Adjusted net income (loss) available to common stockholders
Net income (loss) available to common stockholders		$	7,825			$	17,706			$	12,084			$	(21,936)			$	(9,694)
Adjustments to net income (loss)(3)		1,695				(3,776)				28				24,021				1,497
Adjustments for impact of preferred stock redemption		3,347				—				7				(49)				(526)
Adjusted net income (loss) available to common stockholders(2)		$	12,867			$	13,930			$	12,119			$	2,036			$	(8,723)
Average diluted common shares		50,750,522				50,335,271				50,190,933				50,030,919				50,464,777
Diluted EPS		$	0.15			$	0.35			$	0.24			$	(0.44)			$	(0.19)
Adjusted diluted EPS(2)		$	0.25			$	0.28			$	0.24			$	0.04			$	(0.17)

(1)		Adjustments shown net of an effective tax rate of 25%
(2)		Non-GAAP measure.
(3)		Represents the difference between net income and adjusted net income

 

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FAQ

What were Banc of California's earnings for Q1 2021?

Banc of California reported earnings of $14.4 million, or $0.15 per share for Q1 2021.

How did the merger with Pacific Mercantile Bancorp affect Banc of California?

The merger, valued at $1.6 billion, is expected to enhance profitability and close in Q3 2021.

What is the current allowance for credit losses at Banc of California?

The allowance for credit losses was reported at 1.43% of total loans.

What was the net interest income for Banc of California in Q1 2021?

The net interest income for Q1 2021 was $57.9 million.

What is the common equity tier 1 capital ratio for Banc of California?

The common equity tier 1 capital ratio stood at 11.50% as of Q1 2021.