Banc of California Reports Net Income of $42.6 million, with Stable Deposit Mix and Improved Net Interest Margin in Third Quarter 2023 Financial Results

Rhea-AI Summary

Banc of California reports net income of $42.6 million for Q3 2023, up 138% from Q2. The bank strategically positioned its balance sheet ahead of the merger with PacWest, resulting in a gain from derivative instruments. The merger is expected to close on November 30, 2023.

Positive

• Net income of $42.6 million, up 138% from Q2
• Stable overall deposit mix
• Net interest margin improvement of 8 basis points
• High liquidity levels with $3.67 billion in unused borrowing capacity
• Strong capital ratios above regulatory thresholds
• Continued growth in book value and tangible book value

Negative

• $9.3 million of transaction costs
• Unrealized pre-tax losses on securities

SANTA ANA, Calif.--(BUSINESS WIRE)-- Banc of California, Inc. (NYSE: BANC) (“Banc of California”) today reported net income of $42.6 million, or $0.74 per diluted common share, for the third quarter of 2023. This compares to net income of $17.9 million, or $0.31 per diluted common share for the second quarter of 2023. On an adjusted basis, net income was $17.1 million for the quarter, or $0.30 per diluted common share.⁽¹⁾ This compares to adjusted net income of $18.4 million, or $0.32 per diluted common share, for the second quarter of 2023.⁽¹⁾ The third quarter of 2023 included a $46.2 million pre-tax mark-to-market gain on derivative instruments used to hedge the interest rate risk associated with various assets on the Company’s balance sheet, in anticipation of the anticipated sale of such assets in connection with the proposed merger with PacWest Bancorp (“PacWest”). The gain was partly offset by $9.3 million of other transaction costs.

Third quarter highlights:

• Net income of $42.6 million, or $0.74 per diluted common share, up 138% from the prior quarter as the bank strategically positioned the balance sheet ahead of the merger, which included a $46.2 million gain from derivative instruments, partly offset by $9.3 million of transaction costs.
• Stable overall deposit mix, with the period-end noninterest-bearing deposit percentage consistent with the prior quarter at 36% of total deposits.
• Addition of new clients with noninterest-bearing deposits, which contributed inflows of $52.2 million in the quarter and $201.5 million year-to-date.
• Net interest margin improvement of 8 basis points from 3.11% to 3.19% in comparison to the prior quarter, as the increase in the yield on loans and securities exceeded the increase in the cost of funds.
• Disciplined noninterest expense management, with total noninterest expense of $56.2 million reflecting an increase of $7.0 million over the prior quarter. Excluding the impact of $9.3 million of merger-related expenses, adjusted noninterest expense⁽¹⁾ decreased $2.2 million to $46.2 million for the third quarter.
• High liquidity levels, with immediately available on-balance sheet liquidity and unused borrowing capacity of $3.67 billion. Available liquidity was 2.1 times the level of uninsured and uncollateralized deposits, which was consistent with the prior quarter.
• Strong capital ratios⁽²⁾ well above the regulatory thresholds for "well capitalized" banks, including an estimated 14.48% Total risk-based capital ratio, 12.19% Tier 1 capital ratio, 12.19% CET1 capital ratio and 10.15% Tier 1 leverage ratio.
• Low unrealized losses relative to capital, with AFS unrealized pre-tax losses of $51.9 million on securities of $915.1 million, representing 3.9% of CET1 capital. Total AFS and HTM unrealized pre-tax losses of $129.9 million on total securities of $1.24 billion represented 9.8% of CET1 capital.
• Continued growth in book value and tangible book value, with book value per share of $17.44, up from $16.67, and tangible book value per share of $15.34, up from $14.56.⁽¹⁾

(1)		Non-GAAP measures; refer to section 'Non-GAAP Measures'
(2)		Capital ratios are preliminary.

Jared Wolff, Chairman, President & CEO of Banc of California, commented, "Our third quarter results reflect the impact of our strategic approach to positioning our balance sheet ahead of our merger with PacWest, continuing to bring new relationships to the bank, limiting reliance on high cost deposits, effectively hedging interest rate risk on our balance sheet, and accelerating the resolution of certain acquired credits. Due in large part to this strategic approach, we generated net income of $42.6 million during the quarter, which resulted in increases in all of our capital ratios, a 4.6% increase in our book value per share and a 5.4% increase in our tangible book value per share. We also continue to be active in our new business development efforts with $201.5 million in noninterest-bearing deposits added from new commercial relationships year-to-date.”

Mr. Wolff continued, “As announced last week, we are very pleased to have received regulatory approval for the merger. We expect to close the merger on or about November 30, 2023. We remain focused on our overall strategy for the combined company which includes a strong, liquid balance sheet with strong credit, ample reserves and capital, and growth centered around relationship banking and high quality commercial clients. Our two organizations have made significant progress on our integration planning that will enable our combined institution post-closing to immediately focus on the strategic market opportunities presented by our merger, generate long-term profitable growth, and further enhance the value of our franchise.”

Proposed Merger with PacWest

On July 25, 2023, we announced the signing of a definitive agreement with PacWest pursuant to which the companies will combine in an all-stock merger transaction. Under the terms of the agreement, which was unanimously approved by the boards of directors of both companies, PacWest will merge into Banc of California, and Banc of California, N.A. will merge into Pacific Western Bank (together, the “Merger”). The combined holding company and bank will operate under the Banc of California name and brand following closing of the Merger. Under the terms of the merger agreement, PacWest stockholders will receive 0.6569 of a share of Banc of California common stock for each share of PacWest common stock. On October 19, 2023, we announced that the Board of Governors of the Federal Reserve System granted its approval of the Merger. In addition, on October 5, 2023, the California Department of Financial Protection and Innovation granted its approval of the merger of Banc of California, N.A. and Pacific Western Bank. No further regulatory approvals are required to complete the proposed transaction. Banc of California and PacWest will each hold a special meeting of its respective stockholders in connection with the Merger on November 22, 2023. The consummation of the proposed transaction is expected to close on or about November 30, 2023, subject to the satisfaction of the remaining closing conditions set forth in the merger agreement, including receipt of the requisite stockholder approvals, and the concurrent closing of a $400 million equity capital raise.

We are monitoring the economic environment and its impact on the projected combined company’s opening day and post-restructuring balance sheets and the combined company’s projected performance in future periods as compared to the estimates and projections set forth in the Investor Presentation dated July 25, 2023 (the “Investor Presentation”).

After considering developments occurring subsequent to the issuance of the Investor Presentation, including the volatility and changes in the interest rate environment, the relative performance of the two companies, the potential impacts on the opening day and post-restructuring balance sheets, and refinements to many of the assumptions and estimates used in the creation of projections included in the Investor Presentation, we are not aware of any material changes to the projected 2024 EPS range or CET1 regulatory capital levels for the combined company as stated in the Investor Presentation.

The recent volatility and resulting increase in longer term (7 and 10-year) interest rates decreased the current valuation of PacWest’s portfolio of available-for-sale securities which, with the corresponding increase in unrealized losses included in accumulated other comprehensive income (AOCI), reduced PacWest’s tangible book value. If these conditions persist through the closing date of the merger, there would be a corresponding decrease in the opening day tangible book value of the combined company as compared to the projections included in the Investor Presentation. In addition, PacWest’s third quarter 2023 net income was lower than forecasted in the estimates set forth in the Investor Presentation, which could also negatively impact the opening day tangible book value of the combined company. The noninterest-bearing deposit percentage at PacWest has decreased from the projections used in the Investor Presentation, which could impact the percentage of noninterest-bearing deposits forecasted in the opening day and the post-restructuring balance sheets.

The economic environment remains dynamic with heightened levels of volatility in interest rates, market levels and potentially other economic impacts. Accordingly, we will continue to monitor the effects of these and other potential impacts on the financial projections and estimates included in the Investor Presentation.

Income Statement Highlights

	Three Months Ended																	Nine Months Ended
	September 30, 2023			June 30, 2023			March 31, 2023				December 31, 2022				September 30, 2022			September 30, 2023			September 30, 2022
	($ in thousands)
Total interest and dividend income	$	116,222		$	116,151		$	106,919			$	104,112			$	95,973		$	339,292		$	268,660
Total interest expense		47,004			46,519			33,866				23,895				16,565			127,389			34,512
Net interest income		69,218			69,632			73,053				80,217				79,408			211,903			234,148
Net (loss) gain on sale of securities available for sale		—			—			—				(7,708	)			—			—			16
Change in fair value of derivative instruments(1)		46,186			10			(24	)			(8	)			39			46,172			224
Other noninterest income		4,592			6,014			7,883				6,289				5,642			18,489			18,537
Total noninterest income		50,778			6,024			7,859				(1,427	)			5,681			64,661			18,777
Total revenue		119,996			75,656			80,912				78,790				85,089			276,564			252,925
Acquisition, integration and transaction costs		9,329			—			—				—				2,080			9,329			2,080
Other noninterest expense		46,835			49,132			51,239				48,203				48,882			147,206			144,090
Total noninterest expense		56,164			49,132			51,239				48,203				50,962			156,535			146,170
Pre-tax / pre-provision income(2)		63,832			26,524			29,673				30,587				34,127			120,029			106,755
Provision for (reversal of) credit losses		5,000			1,900			2,000				—				—			8,900			(31,542	)
Income tax expense		16,258			6,745			7,395				9,068				9,931			30,398			38,877
Net income	$	42,574		$	17,879		$	20,278			$	21,519			$	24,196		$	80,731		$	99,420
Net income available to common stockholders(3)	$	42,574		$	17,879		$	20,278			$	21,519			$	24,196		$	80,731		$	94,253

(1)		For the three and nine months ended September 30, 2023, balance includes a $46.2 million pre-tax mark-to-market gain on derivative instruments, including interest rate swaptions and a contingent forward sale agreement on the single family residential (SFR) loan portfolio executed concurrently with the announcement of the proposed merger with PacWest
(2)		Non-GAAP Measure; refer to section 'Non-GAAP Measures'
(3)		For the nine months ended September 30, 2022, balance represents the net income available to common stockholders after subtracting preferred stock dividends and the impact of preferred stock redemption from net income. Refer to the Statements of Operations for additional detail on these amounts.

Net interest income

Q3-2023 vs Q2-2023

Net interest income decreased $0.4 million, or 0.6%, to $69.2 million for the third quarter primarily due to lower average interest-earning assets partially offset by net interest margin expansion.

Average interest-earning assets of $8.61 billion decreased $360.4 million from the prior quarter as the Company used cash to pay down FHLB borrowings and other liabilities reducing the excess liquidity that was carried in the prior quarter. The net interest margin increased 8 basis points to 3.19% for the third quarter as average interest-earning assets yield increased 16 basis points while the average cost of funds increased 9 basis points.

The yield on average interest-earning assets increased 16 basis points to 5.36% for the third quarter from 5.20% in the second quarter mainly due to higher yields on loans, securities and other interest-earning assets. The yield on average loans increased 10 basis points to 5.38% during the third quarter as a result of higher market interest rates and changes in portfolio mix from originations and payoffs. The yield on average investment securities increased 34 basis points to 5.17% due mainly to rate resets in the collateralized loan obligations (CLO) portfolio.

The average cost of funds increased 9 basis points to 2.29% for the third quarter from 2.20% in the second quarter due mainly to higher market interest rates and changes in the balance sheet mix. The average cost of total deposits increased 19 basis points to 1.86% for the third quarter compared to 1.67% in the second quarter. The average cost of interest-bearing liabilities increased 13 basis points to 3.21% for the third quarter from 3.08% in the second quarter. Average noninterest-bearing deposits decreased $80.5 million for the third quarter compared to the second quarter and average total deposits decreased $83.2 million.

YTD 2023 vs YTD 2022

Net interest income decreased $22.2 million, or 9.5%, to $211.9 million for the nine months ended September 30, 2023 from the same period in 2022 due primarily to higher funding costs from higher market interest rates, changes in the balance sheet mix, and the enhanced liquidity management strategies in the first half of 2023 due to the operating environment.

The net interest margin decreased 32 basis points to 3.24% as the average cost of funds increased 150 basis points while the average interest-earning assets yield increased 110 basis points.

The yield on average interest-earning assets increased 110 basis points to 5.18% for the nine months ended September 30, 2023 from 4.08% for the same period in 2022 due mainly to higher market interest rates and changes in the mix of interest-earning assets. The yield on average loans increased 86 basis points to 5.24% for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. The yield on average investment securities increased 211 basis points to 4.89% for the same period. Average loans represented 80% of average earnings assets for the nine months ended September 30, 2023 compared to 83% for the nine months ended September 30, 2022. Average loans decreased by $248.1 million due mainly to lower average warehouse balances, partially offset by organic loan growth in other loan categories.

The average cost of funds increased 150 basis points to 2.06% for the nine months ended September 30, 2023 from 0.56% for the nine months ended September 30, 2022 due mainly to higher market interest rates and changes in the balance sheet mix. The average cost of total deposits increased 134 basis points to 1.58% for the nine months ended September 30, 2023 compared to the same period in 2022. The average cost of interest-bearing liabilities increased 209 basis points to 2.93% for the nine months ended September 30, 2023 compared to 0.84% for the same period in 2022 driven primarily by a 210 basis point increase in the cost of average interest-bearing deposits to 2.49% from 0.39% for the same period in 2022. The increase in the cost of these funding sources was mainly due to the impact of higher market interest rates as the average effective Federal Funds rate increased 389 basis points to 4.92% for the nine months ended September 30, 2023 from 1.03% in the same period in 2022. Average noninterest-bearing deposits decreased $356.8 million for the nine months ended September 30, 2023 compared to the same period in 2022 and average total deposits decreased $670.7 million. Average noninterest-bearing deposits represented 36% of total average deposits for the nine months ended September 30, 2023 compared to 38% for the same period in 2022.

Provision for credit losses

Q3-2023 vs Q2-2023

The provision for credit losses was $5.0 million for the third quarter and related entirely to the provision for loan losses which was driven primarily by net charge-offs of legacy loans from the acquisition of Pacific Mercantile Bank. The provision for credit losses was $1.9 million for the second quarter and included a $1.7 million provision for loan losses and a $1.0 million provision for credit loss for securities available-for-sale, partially offset by an $0.8 million reversal of the provision for credit losses related to lower unfunded commitments.

YTD 2023 vs YTD 2022

During the nine months ended September 30, 2023, the provision for credit losses was $8.9 million and included a $9.2 million provision for loan losses and a $1.0 million provision for credit loss for securities available-for-sale, partially offset by a $1.3 million reversal of the provision for credit losses related to lower unfunded commitments. The provision for credit losses was a reversal of $31.5 million during the nine months ended September 30, 2022, and included a $31.3 million recovery from the settlement of a loan previously charged-off in 2019.

Noninterest income

Q3-2023 vs Q2-2023

Noninterest income increased $44.8 million to $50.8 million for the third quarter primarily due to a $46.2 million mark-to-market gain recognized on derivative instruments, partially offset by a $1.7 million decrease in income from equity investments. Concurrently with the announcement of the proposed merger with PacWest, we entered into an aggregate of $3.1 billion in interest rate swaptions and a contingent forward sale agreement on the SFR loan portfolio of $1.8 billion to hedge the interest rate risk component of the change in fair value of our balance sheet in anticipation of the application of purchase accounting upon the closing of the proposed merger transaction with PacWest. These derivatives were marked to market at the end of the period and reflected an increase in value from the changes in market interest rates.

YTD 2023 vs YTD 2022

Noninterest income for the nine months ended September 30, 2023 increased $45.9 million to $64.7 million compared to the same period in 2022 mainly due to the $46.2 million market-to-market gain recognized on derivative instruments, higher loan servicing income from higher purchased mortgage servicing asset balances and higher rental income due to an increase in subleased facilities, partially offset by lower customer service fees.

Noninterest expense

Q3-2023 vs Q2-2023

Noninterest expense increased $7.0 million to $56.2 million for the third quarter compared to the second quarter. The increase was due mainly to acquisition, integration and transaction costs of $9.3 million incurred related to our proposed merger with PacWest, partially offset by lower salaries and employee benefits of $2.5 million.

Adjusted noninterest expense⁽¹⁾, which represents total operating costs, decreased $2.2 million to $46.2 million for the third quarter compared to $48.4 million for the second quarter mainly due to lower salaries and employee benefits of $2.5 million. Adjusted noninterest expense for the third quarter excludes acquisition, integration and transaction costs of $9.3 million incurred for the proposed merger with PacWest.

YTD 2023 vs YTD 2022

Noninterest expense for the nine months ended September 30, 2023 increased $10.4 million to $156.5 million compared to the same period in 2022. The increase was mainly due to higher (i) acquisition, integration and transaction costs of $7.2 million, (ii) software and technology expense of $1.6 million related to investments in technology infrastructure, (iii) regulatory assessments of $1.2 million as the FDIC increased assessment rates in 2023, (iv) marketing and other expenses of $1.0 million, and (v) professional fees of $0.9 million, including a $0.4 million increase in indemnified legal fees (net of insurance recoveries), partially offset by lower salaries and employee benefits of $1.5 million. Acquisition, integration and transactions costs related to the proposed merger with PacWest were $9.3 million for the nine months ended September 30, 2023, compared to $2.1 million related to the acquisition of Deepstack for the nine months ended September 30, 2022.

Adjusted noninterest expense⁽¹⁾ for the nine months ended September 30, 2023 increased $2.9 million to $143.9 million compared to the same period in 2022. The increase was mainly due to higher (i) software and technology expense of $1.6 million related to investments in technology infrastructure, (ii) regulatory assessments of $1.2 million as the FDIC increased assessment rates in 2023, (iii) marketing and other expenses of $1.0 million, and (iv) professional fees of $0.5 million, partially offset by lower salaries and employee benefits of $1.5 million. Adjusted noninterest expense excludes acquisition, integration and transactions costs, indemnified legal fees and loss in alternative energy partnership investments in both periods.

(1)

Non-GAAP measures; refer to section 'Non-GAAP Measures'

Income taxes

Q3-2023 vs Q2-2023

Income tax expense totaled $16.3 million for the third quarter resulting in an effective tax rate of 27.6% compared to $6.7 million for the second quarter and an effective tax rate of 27.4%. The effective tax rate for the full year 2023 is estimated to be 27% to 28%.

YTD 2023 vs YTD 2022

Income tax expense totaled $30.4 million for the nine months ended September 30, 2023, representing an effective tax rate of 27.4%, compared to $38.9 million and an effective tax rate of 28.1% for the nine months ended September 30, 2022.

Balance Sheet

At September 30, 2023, total assets were $9.25 billion, which represented a decrease of $123.2 million from the prior quarter. The following table shows selected balance sheet line items as of the dates indicated:

																Amount Change
	September 30, 2023			June 30, 2023			March 31, 2023			December 31, 2022			September 30, 2022			Q3-23 vs. Q2-23				Q3-23 vs. Q3-22
	($ in thousands)
Cash and cash equivalents	$	310,985		$	283,729		$	1,010,951		$	228,896		$	256,058		$	27,256			$	54,927
Securities held-to-maturity	$	328,287		$	328,405		$	328,520		$	328,641		$	328,757		$	(118	)		$	(470	)
Securities available-for-sale	$	915,054		$	922,091		$	958,427		$	868,297		$	847,565		$	(7,037	)		$	67,489
Loans held-for-investment	$	6,961,032		$	7,156,206		$	7,054,380		$	7,115,038		$	7,289,320		$	(195,174	)		$	(328,288	)
Total assets	$	9,247,072		$	9,370,265		$	10,038,901		$	9,197,016		$	9,368,578		$	(123,193	)		$	(121,506	)
Noninterest-bearing deposits	$	2,366,544		$	2,446,693		$	2,506,616		$	2,809,328		$	2,943,585		$	(80,149	)		$	(577,041	)
Total deposits	$	6,640,630		$	6,871,076		$	6,951,974		$	7,120,921		$	7,280,385		$	(230,446	)		$	(639,755	)
Borrowings (1)	$	1,468,374		$	1,422,118		$	2,007,665		$	1,002,254		$	1,011,767		$	46,256			$	456,607
Total liabilities	$	8,245,352		$	8,413,211		$	9,079,994		$	8,237,398		$	8,416,588		$	(167,859	)		$	(171,236	)
Total equity	$	1,001,720		$	957,054		$	958,907		$	959,618		$	951,990		$	44,666			$	49,730

(1)

Represents Federal Home Loan Bank (FHLB) advances and Federal Reserve Bank (FRB) borrowings, Other borrowings, and Long-term debt, net.

Investments

Securities held-to-maturity (HTM) totaled $328.3 million at September 30, 2023 and included $214.1 million in agency securities and $114.2 million in municipal securities. As of September 30, 2023, HTM securities had aggregate unrealized net pre-tax losses of $78.0 million, of which $15.0 million related to unrealized losses from the transfer of certain fixed-rate mortgage-backed securities (MBS) and municipal securities from the available-for-sale portfolio to the HTM portfolio in the prior year. These HTM unrealized losses are related to changes in overall interest rates.

Securities available-for-sale (AFS) decreased $7.0 million during the third quarter to $915.1 million at September 30, 2023, primarily due to principal payments of $9.4 million partially offset by a reduction in unrealized net pre-tax losses of $2.2 million. The decrease in unrealized net losses was due to the impact of decreasing credit spreads within corporate debt securities and improvement in the valuation of CLOs, partially offset by the impact of higher market interest rates on agency collateralized mortgage obligations (CMOs) and non-agency residential MBS. AFS securities had aggregate unrealized net pre-tax losses of $51.9 million. These AFS unrealized net losses related primarily to changes in overall interest rates and spreads and the resulting impact on valuations of MBS, CMOs, CLOs and corporate debt securities.

As of September 30, 2023, the AFS securities portfolio included $483.8 million of CLOs, $162.7 million of agency securities, $154.9 million of corporate debt securities, $105.0 million of residential CMOs, and $8.7 million of Small Business Administration (SBA) securities. The CLO portfolio, which is comprised of AAA and AA-rated securities, represented 39% of the total securities portfolio and the carrying value included an unrealized net loss of $6.1 million at September 30, 2023, compared to 39% of the total securities portfolio and an unrealized net loss of $7.7 million at June 30, 2023.

Loans

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

	September 30, 2023				June 30, 2023				March 31, 2023				December 31, 2022				September 30, 2022
	($ in thousands)
Composition of loans
Commercial real estate	$	1,173,332			$	1,266,438			$	1,302,277			$	1,259,651			$	1,240,927
Multifamily		1,654,272				1,654,152				1,678,300				1,689,943				1,698,455
Construction		262,715				264,684				260,167				243,553				236,495
Commercial and industrial		1,295,270				1,214,314				1,150,416				1,243,452				1,227,054
Commercial and industrial - warehouse lending		647,694				786,094				636,731				602,508				766,362
SBA		56,600				62,898				65,040				68,137				85,674
Total commercial loans		5,089,883				5,248,580				5,092,931				5,107,244				5,254,967
Single-family residential mortgage		1,782,655				1,820,721				1,877,114				1,920,806				1,947,652
Other consumer		88,494				86,905				84,335				86,988				86,701
Total consumer loans		1,871,149				1,907,626				1,961,449				2,007,794				2,034,353
Total gross loans	$	6,961,032			$	7,156,206			$	7,054,380			$	7,115,038			$	7,289,320
Composition percentage of loans
Commercial real estate		16.9	%			17.7	%			18.5	%			17.7	%			17.0	%
Multifamily		23.8	%			23.1	%			23.8	%			23.8	%			23.3	%
Construction		3.7	%			3.7	%			3.7	%			3.4	%			3.2	%
Commercial and industrial		18.6	%			17.0	%			16.3	%			17.5	%			16.8	%
Commercial and industrial - warehouse lending		9.3	%			11.0	%			9.0	%			8.4	%			10.6	%
SBA		0.8	%			0.9	%			0.9	%			1.0	%			1.2	%
Total commercial loans		73.1	%			73.4	%			72.2	%			71.8	%			72.1	%
Single-family residential mortgage		25.6	%			25.4	%			26.6	%			27.0	%			26.7	%
Other consumer		1.3	%			1.2	%			1.2	%			1.2	%			1.2	%
Total consumer loans		26.9	%			26.6	%			27.8	%			28.2	%			27.9	%
Total gross loans		100.0	%			100.0	%			100.0	%			100.0	%			100.0	%

Total loans ended the third quarter of 2023 at $6.96 billion, down $195.2 million from $7.16 billion at June 30, 2023, primarily due to decreases in warehouse lending balances of $138.4 million, SFR loans of $38.1 million, commercial and industrial loans of $21.7 million, and SBA loans of $6.3 million, partially offset by an increase in commercial real estate (CRE) loans of $9.2 million. Additionally, $102.3 million of owner-occupied CRE loans were moved to the commercial and industrial category from the CRE category during the third quarter. Loan fundings were $266.0 million in the third quarter and were offset by loan paydowns and payoffs of $314.3 million and net warehouse paydowns of $135.3 million.

Loan concentrations were well-diversified between products and industries. Notably, the CRE portfolio of $1.17 billion had balances related to office loans of $327.6 million, which was 4.7% of total loans. This portfolio was comprised of general office loans of $256.5 million with a weighted average LTV of 53% and debt service coverage ratio of 1.6x and medical office loans of $71.2 million with a weighted average LTV of 53% and debt service coverage ratio of 1.3x.

In connection with our proposed merger with PacWest, we entered into a contingent forward sale agreement on our SFR mortgage portfolio of $1.8 billion. The contingent forward sale agreement was entered to reduce volatility related to the potential sale proceeds by determining a fixed price to be settled on a future date contingent upon completion of the proposed merger. At September 30, 2023, we continue to classify the SFR portfolio as held-for-investment as the sale agreement is contingent upon the closing of the merger with PacWest and should the merger not close for any reason, we intend to continue to hold the SFR portfolio for investment.

Deposits

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

	September 30, 2023				June 30, 2023				March 31, 2023				December 31, 2022				September 30, 2022
	($ in thousands)
Composition of deposits
Noninterest-bearing checking	$	2,366,544			$	2,446,693			$	2,506,616			$	2,809,328			$	2,943,585
Interest-bearing checking		1,531,306				1,713,465				1,862,003				1,947,247				1,921,816
Savings and money market		1,157,126				1,057,326				998,365				1,174,925				1,478,045
Non-brokered certificates of deposit		567,111				579,789				585,272				584,476				614,569
Brokered certificates of deposit		1,018,543				1,073,803				999,718				604,945				322,370
Total deposits	$	6,640,630			$	6,871,076			$	6,951,974			$	7,120,921			$	7,280,385
Composition percentage of deposits
Noninterest-bearing checking		35.6	%			35.6	%			36.1	%			39.5	%			40.4	%
Interest-bearing checking		23.1	%			24.9	%			26.8	%			27.3	%			26.4	%
Savings and money market		17.5	%			15.4	%			14.3	%			16.5	%			20.4	%
Non-brokered certificates of deposit		8.5	%			8.5	%			8.4	%			8.2	%			8.4	%
Brokered certificates of deposit		15.3	%			15.6	%			14.4	%			8.5	%			4.4	%
Total deposits		100.0	%			100.0	%			100.0	%			100.0	%			100.0	%

Total deposits decreased $230.4 million during the third quarter of 2023 to $6.64 billion at September 30, 2023, due to lower interest-bearing checking balances of $182.2 million, noninterest-bearing checking balances of $80.1 million, and certificate of deposit balances of $67.9 million, partially offset by higher savings and money market balances of $99.8 million.

Noninterest-bearing checking totaled $2.37 billion and represented 36% of total deposits at September 30, 2023, compared to $2.45 billion, or 36% of total deposits, at June 30, 2023. Period-end noninterest-bearing deposit percentage remained stable as we continued to focus on growing granular relationship-based deposits and strategically replacing short-term brokered deposits as we actively manage our funding costs.

Insured deposits of $4.57 billion and collateralized deposits of $312.5 million represented 74% of total deposits at September 30, 2023, compared to insured deposits of $4.80 billion and collateralized deposits of $314.8 million, or 74% of total deposits at June 30, 2023.

Debt

Advances from the FHLB and FRB borrowings decreased $139.7 million during the third quarter to $1.01 billion, while other borrowings increased $185.8 million due to higher unsecured overnight borrowings as we continue to actively manage our funding sources and costs.

At September 30, 2023, FHLB advances included $811.0 million in term advances with a weighted average life of 3.1 years and weighted average interest rate of 3.04%. We also utilized available capacity from the FRB through $200.0 million in short-term borrowings.

Equity

During the third quarter, total stockholders’ equity increased $44.7 million to $1.00 billion and tangible common equity⁽¹⁾ increased $45.1 million to $881.3 million at September 30, 2023. The increase in total stockholders’ equity for the third quarter resulted from (i) net income of $42.6 million, (ii) lower accumulated other comprehensive net loss of $6.3 million, and (iii) share-based compensation expense of $1.6 million, partially offset by dividends to common stockholders of $5.8 million.

Book value per common share increased $0.77 during the third quarter to $17.44 as of September 30, 2023 due mainly to net income and lower accumulated other comprehensive net loss, partially offset by dividends. Tangible common equity per share⁽¹⁾ increased $0.78 during the third quarter to $15.34 as of September 30, 2023 due to the same drivers.

(1)

Non-GAAP measures; refer to section 'Non-GAAP Measures'

Capital and Liquidity

Capital ratios remain strong with total risk-based capital at 14.48% and a tier 1 leverage ratio of 10.15% at September 30, 2023. The following table sets forth our regulatory capital ratios as of the dates indicated:

	September 30, 2023		June 30, 2023		March 31, 2023		December 31, 2022		September 30, 2022
Capital Ratios(1)
Banc of California, Inc.
Total risk-based capital ratio	14.48%		14.25%		14.22%		14.18%		13.83%
Tier 1 risk-based capital ratio	12.19%		11.88%		11.79%		11.78%		11.41%
Common equity tier 1 capital ratio	12.19%		11.88%		11.79%		11.78%		11.41%
Tier 1 leverage ratio	10.15%		9.39%		9.65%		9.70%		9.52%
Banc of California, NA
Total risk-based capital ratio	15.97%		15.64%		15.93%		16.00%		15.67%
Tier 1 risk-based capital ratio	15.00%		14.60%		14.83%		14.92%		14.54%
Common equity tier 1 capital ratio	15.00%		14.60%		14.83%		14.92%		14.54%
Tier 1 leverage ratio(2)	12.47%		11.56%		12.14%		12.25%		12.12%

(1)		September 30, 2023 capital ratios are preliminary.
(2)		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 5 basis points at September 30, 2023.

At September 30, 2023, total cash and cash equivalents were $311.0 million, an increase of $27.3 million from June 30, 2023. Combined with unpledged securities available-for-sale of $717.7 million and total available borrowing capacity of $2.67 billion, total liquid assets and unused borrowing capacity of $3.67 billion was 2.1 times greater than total uninsured and uncollateralized deposits of $1.76 billion.

Credit Quality

	September 30, 2023				June 30, 2023				March 31, 2023				December 31, 2022				September 30, 2022
Asset quality information and ratios	($ in thousands)
Delinquent loans held-for-investment
30 to 89 days delinquent	$	50,558			$	64,746			$	35,581			$	46,666			$	38,694
90+ days delinquent		39,692				40,169				37,060				44,554				18,843
Total delinquent loans	$	90,250			$	104,915			$	72,641			$	91,220			$	57,537
Total delinquent loans to total loans		1.30	%			1.47	%			1.03	%			1.28	%			0.79	%
Non-performing assets, excluding loans held-for-sale
Non-accrual loans	$	60,556			$	67,306			$	56,545			$	55,251			$	42,674
90+ days delinquent and still accruing loans		—				—				—				—				—
Non-performing loans		60,556				67,306				56,545				55,251				42,674
Other real estate owned		882				882				—				—				—
Non-performing assets	$	61,438			$	68,188			$	56,545			$	55,251			$	42,674
ALL to non-performing loans		122.84	%			120.17	%			149.54	%			155.58	%			216.63	%
Non-performing loans to total loans held-for-investment		0.87	%			0.94	%			0.80	%			0.78	%			0.59	%
Non-performing assets to total assets		0.66	%			0.73	%			0.56	%			0.60	%			0.46	%

At September 30, 2023, total delinquent loans were $90.3 million, and included SFR mortgages of $62.2 million, or 68.9% of total delinquent loans. During the third quarter, delinquent loans decreased $14.7 million due to borrowers that became current of $26.3 million and amortization and other removals of $15.6 million, partially offset by total additions of $27.2 million.

At September 30, 2023, non-performing loans were $60.6 million, and included $39.8 million of SFR mortgage loans, $9.7 million of commercial and industrial loans, $7.6 million of SBA loans, $1.9 million of CRE loans and $1.1 million of multifamily loans. During the third quarter, non-performing loans decreased $6.8 million due to charge-offs of $11.6 million, amortization and other removals of $2.4 million and borrowers that became current of $1.8 million, partially offset by additions of $9.2 million. Excluding SFR mortgages, which are well-secured with low loan-to-value ratios, non-performing loans decreased $13.1 million from the prior quarter. At September 30, 2023, there were $7.1 million of non-performing loans, primarily consisting of SFR mortgages, that despite having a current payment status are considered nonaccrual based on other criteria.

At September 30, 2023, non-performing assets included $0.9 million of real estate owned, consisting of one single-family residence we acquired in the second quarter.

Allowance for Credit Losses - Loans

	Three Months Ended
	September 30, 2023				June 30, 2023				March 31, 2023				December 31, 2022				September 30, 2022
	($ in thousands)
Allowance for loan losses (ALL)
Balance at beginning of period	$	80,883			$	84,560			$	85,960			$	92,444			$	93,793
Loans charged off		(11,644	)			(5,667	)			(3,949	)			(7,641	)			(912	)
Recoveries		151				326				49				57				63
Net (charge-offs) recoveries		(11,493	)			(5,341	)			(3,900	)			(7,584	)			(849	)
Provision for (reversal of) loan losses		5,000				1,664				2,500				1,100				(500	)
Balance at end of period	$	74,390			$	80,883			$	84,560			$	85,960			$	92,444
Reserve for unfunded loan commitments (RUC)
Balance at beginning of period	$	4,005			$	4,805			$	5,305			$	6,405			$	5,905
(Reversal of) provision for credit losses		—				(800	)			(500	)			(1,100	)			500
Balance at end of period		4,005				4,005				4,805				5,305				6,405
Allowance for credit losses (ACL) - Loans	$	78,395			$	84,888			$	89,365			$	91,265			$	98,849
ALL to total loans		1.07	%			1.13	%			1.20	%			1.21	%			1.27	%
ACL to total loans		1.13	%			1.19	%			1.27	%			1.28	%			1.36	%
ACL to NPLs		129.46	%			126.12	%			158.04	%			165.18	%			231.64	%
ACL to NPAs		127.60	%			124.49	%			158.04	%			165.18	%			231.64	%
Annualized net loan charge-offs (recoveries) to average total loans held-for-investment		0.65	%			0.30	%			0.22	%			0.42	%			0.05	%

The allowance for credit losses, which includes the reserve for unfunded loan commitments, totaled $78.4 million, or 1.13% of total loans, at September 30, 2023, compared to $84.9 million, or 1.19% of total loans, at June 30, 2023. The ACL decreased by $6.5 million due to: (i) net charge-offs of $11.5 million of which $5.9 million was specifically reserved for at June 30, 2023, (ii) lower reserves of $1.4 million due to changes in specific reserves, partially offset by (iii) $1.4 million increase related to changes in portfolio mix. ACL provision for the third quarter was $5.0 million. The ACL coverage of non-performing loans was 129% at September 30, 2023 compared to 126% at June 30, 2023.

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 released by the model provider during September 2023. The published forecasts consider the Federal Reserve's monetary policy, labor market constraints, inflation levels, global oil prices and changes in real estate values, among other factors.

Conference Call

The Company will host a conference call to discuss its third quarter 2023 financial results at 10:00 a.m. Pacific Time (PT) on Tuesday, October 24, 2023. Interested parties are welcome to attend the conference call by dialing (888) 317-6003, and referencing event code 5886712. 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 2187312.

About Banc of California, Inc.

Banc of California, Inc. (NYSE: BANC) is a bank holding company with $9.25 billion in assets at September 30, 2023 and one wholly-owned banking subsidiary, Banc of California, N.A. (the Bank). The Bank has 32 offices including 26 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, and full stack payment processing solution through our subsidiary Deepstack Technologies. 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. Words or phrases such as “believe,” “will,” “should,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” “strategy,” or similar expressions are intended to identify these forward-looking statements. You are cautioned not to place undue reliance on any forward-looking statements. 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. (the Company) with the Securities and Exchange Commission (SEC). The Company undertakes no obligation to revise or publicly release any revision or update to these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made, except as required by law.

Factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to: (i) changes in general economic conditions, either nationally or in our market areas, including the impact of supply chain disruptions, and the risk of recession or an economic downturn; (ii) changes in the interest rate environment, including the recent and potential future increases in the FRB benchmark rate, which could adversely affect our revenue and expenses, the value of assets and obligations, the availability and cost of capital and liquidity, the impacts of continuing inflation; (iii) the credit risks of lending activities, which may be affected by deterioration in real estate markets and the financial condition of borrowers, and the operational risk of lending activities, including the effectiveness of our underwriting practices and the risk of fraud, any of which may lead to increased loan delinquencies, losses, and non-performing assets, and may result in our allowance for credit losses not being adequate; (iv) fluctuations in the demand for loans, and fluctuations in commercial and residential real estate values in our market area; (v) the quality and composition of our securities portfolio; (vi) our ability to develop and maintain a strong core deposit base or other low cost funding sources necessary to fund our activities particularly in a rising or high interest rate environment; (vii) the rapid withdrawal of a significant amount of demand deposits over a short period of time; (viii) the costs and effects of litigation; (ix) risks related to the Company’s acquisitions, including disruption to current plans and operations; difficulties in customer and employee retention; fees, expenses and charges related to these transactions being significantly higher than anticipated; and our inability to achieve expected revenues, cost savings, synergies, and other benefits; and in the case of our recent acquisition of Deepstack Technologies, LLC (Deepstack), reputational risk, regulatory risk and potential adverse reactions of the Company's or Deepstack's customers, suppliers, vendors, employees or other business partners; (x) results of examinations by regulatory authorities of the Company and the possibility that any such regulatory authority may, among other things, limit our business activities, restrict our ability to invest in certain assets, refrain from issuing an approval or non-objection to certain capital or other actions, increase our allowance for credit losses, result in write-downs of asset values, restrict our ability or that of our bank subsidiary to pay dividends, or impose fines, penalties or sanctions; (xi) legislative or regulatory changes that adversely affect our business, including changes in tax laws and policies, accounting policies and practices, privacy laws, and regulatory capital or other rules; (xii) the risk that our enterprise risk management framework may not be effective in mitigating risk and reducing the potential for losses; (xiii) errors in estimates of the fair values of certain of our assets and liabilities, which may result in significant changes in valuation; (xiv) failures or security breaches with respect to the network, applications, vendors and computer systems on which we depend, including due to cybersecurity threats; (xv) our ability to attract and retain key members of our senior management team; (xvi) the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, and other external events on our business; (xvii) the impact of bank failures or other adverse developments at other banks on general investor sentiment regarding the stability and liquidity of banks; (xviii) the possibility that our recorded goodwill could become impaired, which may have an adverse impact on our earnings and capital; and (xix) the risks, uncertainties and assumptions set forth under the heading “Cautionary Statement Regarding Forward-Looking Statements” in the registration statement (as defined below); and (xx) other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and the other risks described in this press release and from time to time in other documents that we file with or furnish to the SEC.

No Offer or Solicitation

This press release is not a proxy statement or solicitation or a proxy, consent or authorization with respect to any securities or in respect of the proposed transaction and shall not constitute an offer to sell or a solicitation of an offer to buy the securities of the Company, PacWest Bancorp or the combined company, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall be deemed to be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act, and otherwise in accordance with applicable law.

Additional Information and Where to Find It

This press release includes information relating to the proposed transaction between the Company and PacWest Bancorp and the proposed investment in the Company by Warburg Pincus LLC and Centerbridge Partners, L.P. The Company filed a registration statement on Form S-4 (the registration statement) with the SEC on August 28, 2023 (as amended on September 29, 2023, further amended on October 16, 2023 and as further amended on October 19, 2023), which includes a joint proxy statement (the joint proxy statement / prospectus) of the Company and PacWest Bancorp distributed to holders of the Company’s common stock and PacWest Bancorp’s common stock in connection with the Company’s and PacWest Bancorp’s solicitation of proxies for the vote by the Company’s stockholders and PacWest Bancorp’s stockholders with respect to the proposed transaction and also constitutes a prospectus of the Company. The registration statement was declared effective by the SEC on October 20, 2023 and the definitive joint proxy statement / prospectus was first mailed on or around October 23, 2023 to the Company’s and PacWest Bancorp’s respective stockholders that, as of the applicable record date, are entitled to vote on the matters being considered at the Company stockholder meeting and at the PacWest Bancorp stockholder meeting, as applicable.

BEFORE MAKING ANY VOTING OR INVESTMENT DECISION, INVESTORS AND SECURITY HOLDERS ARE URGED TO CAREFULLY READ THE ENTIRE REGISTRATION STATEMENT AND DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS (INCLUDING ALL AMENDMENTS AND SUPPLEMENTS THERETO), AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, AND THE DEFINITIVE VERSIONS THEREOF, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO SUCH DOCUMENTS, CAREFULLY AND IN THEIR ENTIRETY BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION.

Investors and security holders may obtain free copies of the registration statement, the definitive joint proxy statement/prospectus and all other relevant documents filed with the SEC by the Company or PacWest Bancorp through the website maintained by the SEC at www.sec.gov.

The documents filed by the Company or PacWest Bancorp with the SEC also may be obtained free of charge at the Company’s or PacWest Bancorp’s website at https://investors.bancofcal.com, under the heading “Financials and Filings” or www.pacwestbancorp.com, under the heading “SEC Filings”, respectively, or upon written request to the Company, Attention: Investor Relations, 3 MacArthur Place, Santa Ana, CA 92707 or PacWest Bancorp, Attention: Investor Relations, 9701 Wilshire Boulevard, Suite 700, Beverly Hills, CA 90212, respectively.

Participants in Solicitation

The Company and PacWest Bancorp and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the Company’s stockholders or PacWest Bancorp’s stockholders in connection with the proposed transaction under the rules of the SEC. The Company’s stockholders, PacWest Bancorp’s stockholders and other interested persons may obtain, without charge, more detailed information regarding the names, affiliations and interests of directors and executive officers of the Company and PacWest Bancorp in the registration statement, as well as other documents filed by the Company or PacWest Bancorp from time to time with the SEC. Other information regarding persons who may, under the rules of the SEC, be deemed the participants in the proxy solicitation of the Company’s or PacWest Bancorp’s stockholders in connection with the proposed transaction and a description of their direct and indirect interests, by security holdings or otherwise, is included in the definitive joint proxy statement/prospectus and other relevant materials filed with the SEC regarding the proposed transaction. You may obtain free copies of these documents at the SEC’s website at www.sec.gov. Copies of documents filed with the SEC by the Company or PacWest Bancorp will also be available free of charge from the Company or PacWest Bancorp using the contact information above.

Banc of California, Inc.
Consolidated Statements of Financial Condition (Unaudited)
(Dollars in thousands)
	September 30, 2023				June 30, 2023				March 31, 2023				December 31, 2022				September 30, 2022
ASSETS
Cash and cash equivalents	$	310,985			$	283,729			$	1,010,951			$	228,896			$	256,058
Securities held-to-maturity		328,287				328,405				328,520				328,641				328,757
Securities available-for-sale		915,054				922,091				958,427				868,297				847,565
Loans		6,961,032				7,156,206				7,054,380				7,115,038				7,289,320
Allowance for loan losses		(74,390	)			(80,883	)			(84,560	)			(85,960	)			(92,444	)
Federal Home Loan Bank and other bank stock		60,336				60,281				70,334				57,092				54,428
Premises and equipment, net		109,141				108,235				108,087				107,345				107,728
Goodwill		114,312				114,312				114,312				114,312				114,312
Other intangible assets, net		6,142				6,603				7,065				7,526				8,081
Deferred income tax, net		51,461				64,001				54,450				50,518				56,376
Bank owned life insurance investment		129,939				128,973				128,022				127,122				126,199
Derivative assets		70,625				2,199				1,650				2,292				2,677
Other assets		264,148				276,113				287,263				275,897				269,521
Total assets	$	9,247,072			$	9,370,265			$	10,038,901			$	9,197,016			$	9,368,578
LIABILITIES AND STOCKHOLDERS’ EQUITY
Noninterest-bearing deposits	$	2,366,544			$	2,446,693			$	2,506,616			$	2,809,328			$	2,943,585
Interest-bearing deposits		4,274,086				4,424,383				4,445,358				4,311,593				4,336,800
Total deposits		6,640,630				6,871,076				6,951,974				7,120,921				7,280,385
FHLB advances and FRB borrowings		1,008,293				1,147,997				1,732,670				727,348				727,021
Other borrowings		185,802				—				—				—				10,000
Long-term debt, net		274,279				274,121				274,995				274,906				274,746
Accrued expenses and other liabilities		136,348				120,017				120,355				114,223				124,436
Total liabilities		8,245,352				8,413,211				9,079,994				8,237,398				8,416,588
Commitments and contingent liabilities
Common stock		653				653				653				651				652
Common stock, class B non-voting non-convertible		5				5				5				5				5
Additional paid-in capital		869,565				867,994				866,306				866,478				864,806
Retained earnings		312,219				275,430				263,524				248,988				231,084
Treasury stock		(137,269	)			(137,270	)			(121,092	)			(115,907	)			(96,978	)
Accumulated other comprehensive loss, net		(43,453	)			(49,758	)			(50,489	)			(40,597	)			(47,579	)
Total stockholders’ equity		1,001,720				957,054				958,907				959,618				951,990
Total liabilities and stockholders’ equity	$	9,247,072			$	9,370,265			$	10,038,901			$	9,197,016			$	9,368,578

Banc of California, Inc.
Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share data)
	Three Months Ended																				Nine Months Ended
	September 30, 2023				June 30, 2023				March 31, 2023				December 31, 2022				September 30, 2022				September 30, 2023				September 30, 2022
Interest and dividend income
Loans, including fees	$	95,613			$	92,889			$	87,418			$	88,717			$	83,699			$	275,920			$	238,828
Securities		16,335				15,804				14,909				12,905				10,189				47,048				25,622
Other interest-earning assets		4,274				7,458				4,592				2,490				2,085				16,324				4,210
Total interest and dividend income		116,222				116,151				106,919				104,112				95,973				339,292				268,660
Interest expense
Deposits		31,360				28,118				20,527				14,278				8,987				80,005				13,555
FHLB advances and FRB borrowings		7,773				14,703				9,648				5,528				3,558				32,124				9,625
Other interest-bearing liabilities		7,871				3,698				3,691				4,089				4,020				15,260				11,332
Total interest expense		47,004				46,519				33,866				23,895				16,565				127,389				34,512
Net interest income		69,218				69,632				73,053				80,217				79,408				211,903				234,148
Provision for (reversal of) credit losses		5,000				1,900				2,000				—				—				8,900				(31,542	)
Net interest income after provision for (reversal of) credit losses		64,218				67,732				71,053				80,217				79,408				203,003				265,690
Noninterest income
Customer service fees		2,114				2,022				1,979				2,066				2,462				6,115				7,474
Loan servicing income		563				574				547				561				636				1,684				957
Income from bank owned life insurance		966				951				900				923				873				2,817				2,479
Change in fair value of derivative instruments		46,186				10				(24	)			(8	)			39				46,172				224
Net (loss) gain on sale of securities available for sale		—				—				—				(7,708	)			—				—				16
All other income		949				2,467				4,457				2,739				1,671				7,873				7,627
Total noninterest income		50,778				6,024				7,859				(1,427	)			5,681				64,661				18,777
Noninterest expense
Salaries and employee benefits		25,819				28,282				29,656				27,812				27,997				83,757				85,248
Occupancy and equipment		5,804				5,603				5,526				5,740				5,796				16,933				17,174
Professional fees		3,616				4,001				4,072				3,193				3,957				11,689				10,797
Data processing		1,657				1,686				1,563				1,744				1,699				4,906				5,309
Regulatory assessments		1,410				1,301				1,202				905				925				3,913				2,721
Software and technology		3,811				3,579				3,274				3,197				3,659				10,664				9,106
Reversal of loan repurchase reserves		—				(808	)			(11	)			(17	)			(26	)			(819	)			(987	)
Amortization of intangible assets		461				462				461				555				396				1,384				1,150
Acquisition, integration and transaction costs		9,329				—				—				—				2,080				9,329				2,080
All other expense		4,291				5,062				3,878				4,466				3,975				13,231				11,867
Total noninterest expense before loss (gain) in alternative energy partnership investments		56,198				49,168				49,621				47,595				50,458				154,987				144,465
Loss (gain) in alternative energy partnership investments		(34	)			(36	)			1,618				608				504				1,548				1,705
Total noninterest expense		56,164				49,132				51,239				48,203				50,962				156,535				146,170
Income before income taxes		58,832				24,624				27,673				30,587				34,127				111,129				138,297
Income tax expense		16,258				6,745				7,395				9,068				9,931				30,398				38,877
Net income		42,574				17,879				20,278				21,519				24,196				80,731				99,420
Preferred stock dividends		—				—				—				—				—				—				1,420
Impact of preferred stock redemption		—				—				—				—				—				—				3,747
Net income available to common stockholders	$	42,574			$	17,879			$	20,278			$	21,519			$	24,196			$	80,731			$	94,253
Earnings per common share:
Basic	$	0.74			$	0.31			$	0.34			$	0.36			$	0.40			$	1.39			$	1.54
Diluted	$	0.74			$	0.31			$	0.34			$	0.36			$	0.40			$	1.39			$	1.53
Weighted average number of common shares outstanding
Basic		57,434,374				57,980,534				59,014,187				59,252,995				60,044,403				58,137,245				61,324,119
Diluted		57,521,836				58,026,007				59,206,619				59,725,283				60,492,460				58,230,137				61,659,900
Dividends declared per common share	$	0.10			$	0.10			$	0.10			$	0.06			$	0.06			$	0.30			$	0.18

Banc of California, Inc.
Selected Financial Data
(Unaudited)
	Three Months Ended															Nine Months Ended
	September 30, 2023			June 30, 2023			March 31, 2023			December 31, 2022			September 30, 2022			September 30, 2023			September 30, 2022
Profitability and other ratios of consolidated operations
Return on average assets (ROAA)(1)	1.82	%		0.75	%		0.88	%		0.92	%		1.02	%		1.15	%		1.42	%
Adjusted ROAA(1)(2)	0.73	%		0.77	%		0.94	%		1.15	%		1.13	%		0.81	%		1.47	%
Return on average equity(1)	17.28	%		7.19	%		8.18	%		8.63	%		9.99	%		10.87	%		13.38	%
Return on average tangible common equity(1)(2)	19.87	%		8.34	%		9.46	%		10.02	%		11.33	%		12.53	%		14.66	%
Pre-tax pre-provision income ROAA(1)(2)	2.73	%		1.11	%		1.29	%		1.31	%		1.44	%		1.71	%		1.52	%
Adjusted pre-tax pre-provision income ROAA(1)(2)	1.18	%		1.14	%		1.38	%		1.63	%		1.59	%		1.23	%		1.59	%
Dividend payout ratio(3)	13.51	%		32.26	%		29.41	%		16.67	%		15.00	%		21.58	%		11.69	%
Average loan yield	5.38	%		5.28	%		5.07	%		4.92	%		4.54	%		5.24	%		4.38	%
Average cost of interest-bearing deposits	2.87	%		2.60	%		1.98	%		1.34	%		0.77	%		2.49	%		0.39	%
Average cost of total deposits	1.86	%		1.67	%		1.22	%		0.79	%		0.47	%		1.58	%		0.24	%
Net interest spread	2.15	%		2.12	%		2.52	%		2.98	%		3.13	%		2.25	%		3.24	%
Net interest margin(1)	3.19	%		3.11	%		3.41	%		3.69	%		3.58	%		3.24	%		3.56	%
Noninterest income to total revenue(4)	42.32	%		7.96	%		9.71	%		(1.81	)%		6.68	%		23.38	%		7.42	%
Adjusted noninterest income to adjusted total revenue(2)(4)	6.25	%		7.96	%		9.71	%		7.26	%		6.68	%		8.03	%		7.42	%
Noninterest expense to average total assets(1)	2.41	%		2.05	%		2.23	%		2.07	%		2.15	%		2.23	%		2.08	%
Adjusted noninterest expense to average total assets(1)(2)	1.98	%		2.02	%		2.14	%		2.08	%		2.00	%		2.05	%		2.01	%
Efficiency ratio(2)(5)	46.80	%		64.94	%		63.33	%		61.18	%		59.89	%		56.60	%		57.79	%
Adjusted efficiency ratio(2)(6)	62.62	%		63.99	%		60.86	%		56.03	%		55.66	%		62.45	%		55.76	%
Average loans to average deposits	105.32	%		104.25	%		102.35	%		100.25	%		97.34	%		103.98	%		97.94	%
Average securities to average total assets	13.52	%		13.64	%		13.93	%		13.19	%		12.70	%		13.70	%		13.16	%
Average stockholders’ equity to average total assets	10.55	%		10.37	%		10.78	%		10.69	%		10.21	%		10.57	%		10.59	%

(1)		Ratio presented on an annualized basis.
(2)		Ratio 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)		Ratio 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 (reversal of) credit losses and noninterest income.
(5)		Ratio calculated by dividing noninterest expense by the sum of net interest income before provision for (reversal of) credit losses and noninterest income.
(6)		Ratio calculated by dividing adjusted noninterest expense by the sum of net interest income before provision for (reversal of) credit losses and adjusted noninterest income.

Banc of California, Inc.
Average Balance, Average Yield Earned, and Average Cost Paid
(Dollars in thousands)
(Unaudited)
	Three Months Ended
	September 30, 2023										June 30, 2023										March 31, 2023
	Average							Yield			Average							Yield			Average							Yield
	Balance				Interest			/ Cost			Balance				Interest			/ Cost			Balance				Interest			/ Cost
Interest-earning assets
Commercial real estate, multifamily, and construction	$	3,175,592			$	38,304		4.79	%		$	3,240,280			$	38,350		4.75	%		$	3,242,780			$	37,066		4.64	%
Commercial and industrial and SBA		1,976,919				36,778		7.38	%			1,882,673				34,222		7.29	%			1,765,299				29,544		6.79	%
SFR mortgage		1,802,091				18,980		4.18	%			1,848,747				18,901		4.10	%			1,897,763				19,441		4.15	%
Other consumer		86,978				1,437		6.55	%			84,916				1,371		6.48	%			84,786				1,308		6.26	%
Loans held-for-sale		4,112				114		11.00	%			4,400				45		4.10	%			4,330				59		5.53	%
Gross loans and leases		7,045,692				95,613		5.38	%			7,061,016				92,889		5.28	%			6,994,958				87,418		5.07	%
Securities		1,252,361				16,335		5.17	%			1,311,362				15,804		4.83	%			1,297,640				14,909		4.66	%
Other interest-earning assets		309,159				4,274		5.48	%			595,234				7,458		5.03	%			389,051				4,592		4.79	%
Total interest-earning assets		8,607,212				116,222		5.36	%			8,967,612				116,151		5.20	%			8,681,649				106,919		4.99	%
Allowance for loan losses		(79,883	)									(82,282	)									(84,267	)
BOLI and noninterest-earning assets		733,944										725,909										719,827
Total assets	$	9,261,273									$	9,611,239									$	9,317,209
Interest-bearing liabilities
Interest-bearing checking	$	1,663,803			$	10,240		2.44	%		$	1,761,341			$	9,751		2.22	%		$	1,951,618			$	8,514		1.77	%
Savings and money market		1,024,127				3,075		1.19	%			1,015,181				2,609		1.03	%			1,070,911				2,001		0.76	%
Certificates of deposit		1,652,445				18,045		4.33	%			1,566,636				15,758		4.03	%			1,189,658				10,012		3.41	%
Total interest-bearing deposits		4,340,375				31,360		2.87	%			4,343,158				28,118		2.60	%			4,212,187				20,527		1.98	%
FHLB advances and FRB borrowings		897,020				7,773		3.44	%			1,441,244				14,703		4.09	%			1,067,125				9,648		3.67	%
Other borrowings		304,138				4,136		5.40	%			358				3		3.36	%			4,773				57		4.84	%
Long-term debt		274,199				3,735		5.40	%			275,012				3,695		5.39	%			274,939				3,634		5.36	%
Total interest-bearing liabilities		5,815,732				47,004		3.21	%			6,059,772				46,519		3.08	%			5,559,024				33,866		2.47	%
Noninterest-bearing deposits		2,345,262										2,425,719										2,617,973
Noninterest-bearing liabilities		122,869										128,699										135,418
Total liabilities		8,283,863										8,614,190										8,312,415
Total stockholders’ equity		977,410										997,049										1,004,794
Total liabilities and stockholders’ equity	$	9,261,273									$	9,611,239									$	9,317,209
Net interest income/spread					$	69,218		2.15	%						$	69,632		2.12	%						$	73,053		2.52	%
Net interest margin								3.19	%									3.11	%									3.41	%
Ratio of interest-earning assets to interest-bearing liabilities		148	%									148	%									156	%
Total deposits	$	6,685,637			$	31,360		1.86	%		$	6,768,877			$	28,118		1.67	%		$	6,830,160			$	20,527		1.22	%
Total funding (1)	$	8,160,994			$	47,004		2.29	%		$	8,485,491			$	46,519		2.20	%		$	8,176,997			$	33,866		1.68	%

(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
	December 31, 2022										September 30, 2022
	Average							Yield			Average							Yield
	Balance				Interest			/ Cost			Balance				Interest			/ Cost
Interest-earning assets
Commercial real estate, multifamily, and construction	$	3,223,614			$	36,214		4.46	%		$	3,142,772			$	34,269		4.33	%
Commercial and industrial and SBA		1,909,144				31,492		6.54	%			2,151,511				29,296		5.40	%
SFR mortgage		1,932,397				19,661		4.04	%			1,927,694				18,699		3.85	%
Other consumer		86,273				1,335		6.14	%			87,335				1,331		6.05	%
Loans held-for-sale		4,352				15		1.37	%			4,207				104		9.81	%
Gross loans and leases		7,155,780				88,717		4.92	%			7,313,519				83,699		4.54	%
Securities		1,221,147				12,905		4.19	%			1,194,942				10,189		3.38	%
Other interest-earning assets		239,336				2,490		4.13	%			292,819				2,085		2.82	%
Total interest-earning assets		8,616,263				104,112		4.79	%			8,801,280				95,973		4.33	%
Allowance for loan losses		(91,606	)									(93,517	)
BOLI and noninterest-earning assets		732,654										700,977
Total assets	$	9,257,311									$	9,408,740
Interest-bearing liabilities
Interest-bearing checking	$	1,854,333			$	4,998		1.07	%		$	2,285,071			$	3,880		0.67	%
Savings and money market		1,308,383				2,379		0.72	%			1,536,438				2,236		0.58	%
Certificates of deposit		1,072,953				6,901		2.55	%			832,506				2,871		1.37	%
Total interest-bearing deposits		4,235,669				14,278		1.34	%			4,654,015				8,987		0.77	%
FHLB advances		684,177				5,528		3.21	%			482,842				3,558		2.92	%
Other borrowings		41,075				414		4.00	%			70,431				412		2.32	%
Long-term debt		274,812				3,675		5.31	%			274,665				3,608		5.21	%
Total interest-bearing liabilities		5,235,733				23,895		1.81	%			5,481,953				16,565		1.20	%
Noninterest-bearing deposits		2,897,755										2,855,220
Noninterest-bearing liabilities		134,409										110,761
Total liabilities		8,267,897										8,447,934
Total stockholders’ equity		989,414										960,806
Total liabilities and stockholders’ equity	$	9,257,311									$	9,408,740
Net interest income/spread					$	80,217		2.98	%						$	79,408		3.13	%
Net interest margin								3.69	%									3.58	%
Ratio of interest-earning assets to interest-bearing liabilities		165	%									161	%
Total deposits	$	7,133,424			$	14,278		0.79	%		$	7,509,235			$	8,987		0.47	%
Total funding (1)	$	8,133,488			$	23,895		1.17	%		$	8,337,173			$	16,565		0.79	%

(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.

	Nine Months Ended
	September 30, 2023										September 30, 2022
	Average							Yield			Average							Yield
	Balance				Interest			/ Cost			Balance				Interest			/ Cost
Interest-earning assets
Commercial real estate, multifamily, and construction	$	3,219,304			$	113,720		4.72	%		$	2,962,148			$	96,926		4.37	%
Commercial and industrial and SBA		1,875,739				100,545		7.17	%			2,473,666				88,672		4.79	%
SFR mortgage		1,849,183				57,321		4.14	%			1,749,968				48,767		3.73	%
Other consumer		85,568				4,116		6.43	%			92,633				4,305		6.21	%
Loans held-for-sale		4,280				218		6.81	%			3,754				158		5.63	%
Gross loans and leases		7,034,074				275,920		5.24	%			7,282,169				238,828		4.38	%
Securities		1,286,955				47,048		4.89	%			1,234,188				25,622		2.78	%
Other interest-earning assets		430,855				16,324		5.07	%			284,725				4,210		1.98	%
Total interest-earning assets		8,751,884				339,292		5.18	%			8,801,082				268,660		4.08	%
Allowance for credit losses		(82,124	)									(93,454	)
BOLI and noninterest-earning assets		726,608										673,679
Total assets	$	9,396,368									$	9,381,307
Interest-bearing liabilities
Interest-bearing checking	$	1,791,200			$	28,505		2.13	%		$	2,352,067			$	5,978		0.34	%
Savings and money market		1,036,568				7,685		0.99	%			1,602,280				3,606		0.30	%
Certificates of deposit		1,471,275				43,815		3.98	%			658,576				3,971		0.81	%
Total interest-bearing deposits		4,299,043				80,005		2.49	%			4,612,923				13,555		0.39	%
FHLB advances		1,134,507				32,124		3.79	%			476,158				9,625		2.70	%
Other borrowings		104,186				4,195		5.38	%			101,369				792		1.04	%
Long-term debt		274,714				11,065		5.39	%			274,533				10,540		5.13	%
Total interest-bearing liabilities		5,812,450				127,389		2.93	%			5,464,983				34,512		0.84	%
Noninterest-bearing deposits		2,461,985										2,818,795
Noninterest-bearing liabilities		128,949										104,321
Total liabilities		8,403,384										8,388,099
Total stockholders’ equity		992,984										993,208
Total liabilities and stockholders’ equity	$	9,396,368									$	9,381,307
Net interest income/spread					$	211,903		2.25	%						$	234,148		3.24	%
Net interest margin								3.24	%									3.56	%
Ratio of interest-earning assets to interest-bearing liabilities		151	%									161	%
Total deposits	$	6,761,028			$	80,005		1.58	%		$	7,431,718			$	13,555		0.24	%
Total funding (1)	$	8,274,435			$	127,389		2.06	%		$	8,283,778			$	34,512		0.56	%

(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 common equity to tangible assets, tangible common equity per share, return on average tangible common equity, adjusted noninterest income, adjusted noninterest expense, adjusted noninterest income to adjusted total revenue, adjusted noninterest expense to average total assets, pre-tax pre-provision (PTPP) income, adjusted PTPP income, PTPP income ROAA, adjusted PTPP income ROAA, efficiency ratio, adjusted efficiency ratio, adjusted net income, adjusted net income available to common stockholders, adjusted diluted earnings per share (EPS), adjusted return on average assets (ROAA) and adjusted common equity tier 1 (CET 1) 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, as applicable, from tangible equity. Return on average tangible common equity is calculated by dividing net income available to common stockholders, after adjustment for amortization of intangible assets, 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 calculated by dividing annualized PTPP income by average assets. Adjusted PTPP income ROAA is calculated by dividing annualized adjusted PTPP income by average assets. Efficiency ratio is calculated by dividing noninterest expense by total revenue. Adjusted efficiency ratio is calculated by dividing adjusted noninterest expense by adjusted total revenue.

Adjusted net income is calculated by adjusting net income for tax-effected noninterest income and noninterest expense adjustments and the tax impact from the exercise of stock appreciation rights for the periods indicated. Adjusted ROAA is calculated by dividing annualized adjusted net income by average assets. Adjusted net income available to common stockholders is calculated by removing the impact of preferred stock redemptions from adjusted net income. Adjusted diluted earnings per share is calculated by dividing adjusted net income available to common stockholders by the weighted average diluted common shares outstanding.

Common equity tier 1 and the common equity tier 1 ratio are defined by regulatory capital rules. Adjusted CET 1 is calculated by subtracting net unrealized losses on securities from CET 1 capital and provided to reflect management’s assessment of capital impacts from net unrealized losses on securities. Capital ratios as of September 30, 2023 are preliminary.

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)
	September 30, 2023				June 30, 2023				March 31, 2023				December 31, 2022				September 30, 2022
Tangible common equity, and tangible common equity to tangible assets ratio
Total assets	$	9,247,072			$	9,370,265			$	10,038,901			$	9,197,016			$	9,368,578
Less goodwill		(114,312	)			(114,312	)			(114,312	)			(114,312	)			(114,312	)
Less other intangible assets		(6,142	)			(6,603	)			(7,065	)			(7,526	)			(8,081	)
Tangible assets(1)	$	9,126,618			$	9,249,350			$	9,917,524			$	9,075,178			$	9,246,185
Total stockholders' equity	$	1,001,720			$	957,054			$	958,907			$	959,618			$	951,990
Less goodwill		(114,312	)			(114,312	)			(114,312	)			(114,312	)			(114,312	)
Less other intangible assets		(6,142	)			(6,603	)			(7,065	)			(7,526	)			(8,081	)
Tangible common equity(1)		881,266				836,139				837,530				837,780				829,597
Total stockholders' equity to total assets		10.83	%			10.21	%			9.55	%			10.43	%			10.16	%
Tangible common equity to tangible assets(1)		9.66	%			9.04	%			8.44	%			9.23	%			8.97	%
Common shares outstanding		56,959,141				56,944,706				58,237,303				58,544,534				59,679,558
Class B non-voting non-convertible common shares outstanding		477,321				477,321				477,321				477,321				477,321
Total common shares outstanding		57,436,462				57,422,027				58,714,624				59,021,855				60,156,879
Book value per common share	$	17.44			$	16.67			$	16.33			$	16.26			$	15.83
Tangible common equity per share(1)	$	15.34			$	14.56			$	14.26			$	14.19			$	13.79

(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																				Nine Months Ended
	September 30, 2023				June 30, 2023				March 31, 2023				December 31, 2022				September 30, 2022				September 30, 2023				September 30, 2022
Return on tangible common equity
Average total stockholders' equity	$	977,410			$	997,049			$	1,004,794			$	989,414			$	960,806			$	992,984			$	993,208
Less average preferred stock		—				—				—				—				—				—				(25,043	)
Average common stockholders' equity		977,410				997,049				1,004,794				989,414				960,806				992,984				968,165
Less average goodwill		(114,312	)			(114,312	)			(114,312	)			(114,312	)			(98,916	)			(114,312	)			(96,133	)
Less average other intangible assets		(6,430	)			(6,885	)			(7,355	)			(7,869	)			(4,570	)			(6,887	)			(5,216	)
Average tangible common equity(1)	$	856,668			$	875,852			$	883,127			$	867,233			$	857,320			$	871,785			$	866,816
Net income available to common stockholders	$	42,574			$	17,879			$	20,278			$	21,519			$	24,196			$	80,731			$	94,253
Add amortization of intangible assets		461				462				461				555				396				1,384				1,150
Less tax effect on amortization of intangible assets(2)		(136	)			(137	)			(136	)			(164	)			(117	)			(409	)			(340	)
Net income available to common stockholders after adjustments for intangible assets(1)	$	42,899			$	18,204			$	20,603			$	21,910			$	24,475			$	81,706			$	95,063
Return on average equity		17.28	%			7.19	%			8.18	%			8.63	%			9.99	%			10.87	%			13.38	%
Return on average tangible common equity(1)		19.87	%			8.34	%			9.46	%			10.02	%			11.33	%			12.53	%			14.66	%

(1)		Non-GAAP measure.
(2)		Adjustments shown at a statutory tax rate of 29.6%.

Banc of California, Inc.
Consolidated Operations
Non-GAAP Measures, Continued
(Dollars in thousands, except per share data)
(Unaudited)
	Three Months Ended																				Nine Months Ended
	September 30, 2023				June 30, 2023				March 31, 2023				December 31, 2022				September 30, 2022				September 30, 2023				September 30, 2022
Adjusted noninterest income
Total noninterest income	$	50,778			$	6,024			$	7,859			$	(1,427	)		$	5,681			$	64,661			$	18,777
Noninterest income adjustments:
Net loss (gain) on sale of securities available for sale		—				—				—				7,708				—				—				(16	)
Gain on merger-related derivative instruments(1)		(46,165	)			—				—				—				—				(46,165	)			—
Total noninterest income adjustments		(46,165	)			—				—				7,708				—				(46,165	)			(16	)
Adjusted noninterest income(2)	$	4,613			$	6,024			$	7,859			$	6,281			$	5,681			$	18,496			$	18,761
Adjusted noninterest expense
Total noninterest expense	$	56,164			$	49,132			$	51,239			$	48,203			$	50,962			$	156,535			$	146,170
Noninterest expense adjustments:
Indemnified legal (fees) recoveries		(634	)			(752	)			(380	)			869				(1,017	)			(1,766	)			(1,366	)
Acquisition, integration and transaction costs		(9,329	)			—				—				—				(2,080	)			(9,329	)			(2,080	)
Noninterest expense adjustments before (loss) gain in alternative energy partnership investments		(9,963	)			(752	)			(380	)			869				(3,097	)			(11,095	)			(3,446	)
(Loss) gain in alternative energy partnership investments		34				36				(1,618	)			(608	)			(504	)			(1,548	)			(1,705	)
Total noninterest expense adjustments		(9,929	)			(716	)			(1,998	)			261				(3,601	)			(12,643	)			(5,151	)
Adjusted noninterest expense(2)	$	46,235			$	48,416			$	49,241			$	48,464			$	47,361			$	143,892			$	141,019
Average assets	$	9,261,273			$	9,611,239			$	9,317,209			$	9,257,311			$	9,408,740			$	9,396,368			$	9,381,307
Noninterest income to total revenue(2)		42.32	%			7.96	%			9.71	%			(1.81	)%			6.68	%			23.38	%			7.42	%
Adjusted noninterest income to adjusted total revenue(2)		6.25	%			7.96	%			9.71	%			7.26	%			6.68	%			8.03	%			7.42	%
Noninterest expense to average total assets(3)		2.41	%			2.05	%			2.23	%			2.07	%			2.15	%			2.23	%			2.08	%
Adjusted noninterest expense to average total assets(2)(3)		1.98	%			2.02	%			2.14	%			2.08	%			2.00	%			2.05	%			2.01	%

(1)		Presents the mark-to-market gain on derivative instruments, including interest rate swaptions and a contingent forward sale agreement on the SFR loan portfolio executed concurrently with the announcement of the proposed merger with PacWest.
(2)		Non-GAAP measure.
(3)		Ratio presented on an annualized basis.

Banc of California, Inc.
Consolidated Operations
Non-GAAP Measures, Continued
(Dollars in thousands, except per share data)
(Unaudited)
	Three Months Ended																				Nine Months Ended
	September 30, 2023				June 30, 2023				March 31, 2023				December 31, 2022				September 30, 2022				September 30, 2023				September 30, 2022
Adjusted pre-tax pre-provision income
Net interest income	$	69,218			$	69,632			$	73,053			$	80,217			$	79,408			$	211,903			$	234,148
Noninterest income		50,778				6,024				7,859				(1,427	)			5,681				64,661				18,777
Total revenue		119,996				75,656				80,912				78,790				85,089				276,564				252,925
Noninterest expense		56,164				49,132				51,239				48,203				50,962				156,535				146,170
Pre-tax pre-provision income(1)	$	63,832			$	26,524			$	29,673			$	30,587			$	34,127			$	120,029			$	106,755
Total revenue	$	119,996			$	75,656			$	80,912			$	78,790			$	85,089			$	276,564			$	252,925
Total noninterest income adjustments		(46,165	)			—				—				7,708				—				(46,165	)			(16	)
Adjusted total revenue(1)		73,831				75,656				80,912				86,498				85,089				230,399				252,909
Noninterest expense		56,164				49,132				51,239				48,203				50,962				156,535				146,170
Total noninterest expense adjustments		(9,929	)			(716	)			(1,998	)			261				(3,601	)			(12,643	)			(5,151	)
Adjusted noninterest expense(1)		46,235				48,416				49,241				48,464				47,361				143,892				141,019
Adjusted pre-tax pre-provision income(1)	$	27,596			$	27,240			$	31,671			$	38,034			$	37,728			$	86,507			$	111,890
Average assets	$	9,261,273			$	9,611,239			$	9,317,209			$	9,257,311			$	9,408,740			$	9,396,368			$	9,381,307
Pre-tax pre-provision income ROAA(1)(2)		2.73	%			1.11	%			1.29	%			1.31	%			1.44	%			1.71	%			1.52	%
Adjusted pre-tax pre-provision income ROAA(1)(2)		1.18	%			1.14	%			1.38	%			1.63	%			1.59	%			1.23	%			1.59	%
Efficiency ratio(1)(2)		46.80	%			64.94	%			63.33	%			61.18	%			59.89	%			56.60	%			57.79	%
Adjusted efficiency ratio(1)(2)		62.62	%			63.99	%			60.86	%			56.03	%			55.66	%			62.45	%			55.76	%

(1)		Non-GAAP measure.
(2)		Ratio presented on an annualized basis.

Banc of California, Inc.
Consolidated Operations
Non-GAAP Measures, Continued
(Dollars in thousands, except per share data)
(Unaudited)
	Three Months Ended																				Nine Months Ended
	September 30, 2023				June 30, 2023				March 31, 2023				December 31, 2022				September 30, 2022				September 30, 2023				September 30, 2022
Adjusted net income
Net income (1)(2)(3)	$	42,574			$	17,879			$	20,278			$	21,519			$	24,196			$	80,731			$	99,420
Adjustments:
Noninterest income adjustments		(46,165	)			—				—				7,708				—				(46,165	)			(16	)
Noninterest expense adjustments		9,929				716				1,998				(261	)			3,601				12,643				5,151
Tax impact of adjustments above(4)		10,713				(212	)			(591	)			(2,202	)			(1,065	)			9,910				(1,518	)
Adjustments to net income		(25,523	)			504				1,407				5,245				2,536				(23,612	)			3,617
Adjusted net income(3)(5)	$	17,051			$	18,383			$	21,685			$	26,764			$	26,732			$	57,119			$	103,037
Average assets	$	9,261,273			$	9,611,239			$	9,317,209			$	9,257,311			$	9,408,740			$	9,396,368			$	9,381,307
ROAA(6)		1.82	%			0.75	%			0.88	%			0.92	%			1.02	%			1.15	%			1.42	%
Adjusted ROAA(5)(6)		0.73	%			0.77	%			0.94	%			1.15	%			1.13	%			0.81	%			1.47	%
Adjusted net income available to common stockholders
Net income available to common stockholders (1)(2)(3)	$	42,574			$	17,879			$	20,278			$	21,519			$	24,196			$	80,731			$	94,253
Adjustments to net income		(25,523	)			504				1,407				5,245				2,536				(23,612	)			3,617
Adjustments for impact of preferred stock redemption		—				—				—				—				—				—				3,747
Adjusted net income available to common stockholders (5)	$	17,051			$	18,383			$	21,685			$	26,764			$	26,732			$	57,119			$	101,617
Average diluted common shares		57,521,836				58,026,007				59,206,619				59,725,283				60,492,460				58,230,137				61,659,900
Diluted EPS	$	0.74			$	0.31			$	0.34			$	0.36			$	0.40			$	1.39			$	1.53
Adjusted diluted EPS(5)(7)	$	0.30			$	0.32			$	0.37			$	0.45			$	0.44			$	0.98			$	1.65

(1)		Net income for the three months ended September 30, 2023 includes a $46.2 million pre-tax mark-to-market gain on derivative instruments partially offset by acquisition costs of $9.3 million.
(2)		Net income for the three months ended December 31, 2022 includes a $7.7 million pre-tax loss on sale of securities.
(3)		Net income and adjusted net income for the nine months ended September 30, 2022 include a $31.3 million pre-tax reversal of credit losses due to the recovery from the settlement of a previously charged-off loan; there is no similar recovery in any of the other periods presented. The Bank previously recognized a $35.1 million charge-off for this loan during the third quarter of 2019.
(4)		Tax impact of adjustments shown at a statutory tax rate of 29.6%.
(5)		Non-GAAP measure.
(6)		Ratio presented on an annualized basis.
(7)		Represents adjusted net income available to common stockholders divided by average diluted common shares.

Banc of California, Inc.
Consolidated Operations
Non-GAAP Measures, Continued
(Dollars in thousands)
(Unaudited)
	September 30, 2023
Adjusted Common Equity Tier 1 (CET 1) capital(1)
CET 1 capital	$	928,862
Less unrealized loss on AFS securities, net of tax		(36,551	)
Less unrealized loss on HTM securities, net of tax		(54,913	)
Adjusted CET 1 capital(2)	$	837,398
Unrealized loss on AFS securities, net of tax, to CET 1 capital		3.9	%
Unrealized loss on HTM securities, net of tax, to CET 1 capital		5.9	%
Total unrealized loss on AFS and HTM securities, net of tax, to CET 1 capital		9.8	%

(1)		September 30, 2023 presented to reflect management’s assessment of capital impact from net unrealized losses on securities. Statutory tax rate of 29.6% used for calculation purposes.
(2)		Non-GAAP measure.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20231023732560/en/

Investor Relations Inquiries:

Banc of California, Inc.

(855) 361-2262

Jared Wolff, (949) 385-8700

Joe Kauder, (310) 844-5224



Media Contact:

Debora Vrana, Banc of California

(213) 999-4141

Deb.Vrana@bancofcal.com

Source: Banc of California, Inc.

FAQ

What was Banc of California's net income for Q3 2023?

Banc of California reported net income of $42.6 million for Q3 2023.

What is the status of the merger with PacWest?

The merger is expected to close on or about November 30, 2023.

What were the highlights of Banc of California's Q3 performance?

Highlights include a significant increase in net income, stable deposit mix, improved net interest margin, high liquidity levels, strong capital ratios, and continued growth in book value and tangible book value.

What were the negative factors in Banc of California's Q3 results?

The negative factors include $9.3 million of transaction costs and unrealized pre-tax losses on securities.