Banc of California Reports Third Quarter 2020 Financial Results

Rhea-AI Summary

Banc of California reported third-quarter net income available to common stockholders of $12.1 million ($0.24 per share) as of September 30, 2020. Notable highlights include a 24% increase in noninterest-bearing deposits, and a stable net interest margin of 3.09%. Total loans rose, driven by commercial banking growth, while the allowance for credit losses remained strong at 1.66%. The total deferrals/forbearances decreased significantly to $282.5 million. The management expressed optimism regarding future earnings despite pandemic uncertainties.

Positive

• Net income increased to $12.1 million from prior losses.
• Noninterest-bearing deposit balances rose by $59.2 million, representing 24% of total deposits.
• Total loan balances increased due to a focus on commercial loans.
• Allowance for credit losses remained healthy at 1.66%.
• Stable net interest margin of 3.09% maintained.

Negative

• Total interest income declined to $69.7 million, down from $92.7 million year-over-year.
• Noninterest income dropped by 28% to $4.0 million compared to the previous quarter.
• Provision for credit losses was significantly lower than the prior quarter but reflects ongoing economic uncertainty.

SANTA ANA, Calif.--(BUSINESS WIRE)--Banc of California, Inc. (NYSE: BANC) today reported net income available to common stockholders for the third quarter of 2020 of $12.1 million, or diluted earnings per common share of $0.24.

Highlights for the third quarter included:

• Noninterest-bearing deposit balances increased $59.2 million during the quarter and represented 24% of total deposits at September 30, 2020, up from 19% a year earlier
• Total checking balances increased $257.7 million during the quarter and represented 58% of total deposits at September 30, 2020, up from 45% a year earlier
• Net interest margin remained stable at 3.09%
• Average cost of total deposits declined 20 basis points from the prior quarter to 0.51%, with period-end cost of deposits at 0.39%
• Total deferrals/forbearances declined to $282.5 million at September 30, 2020 from $604.2 million
• Allowance for credit losses remained strong at 1.66% of total loans
• Common Equity Tier 1 capital at 11.64%

Jared Wolff, President & CEO of Banc of California, commented, “Our third quarter results reflect the growing earnings momentum that we have been building following nearly 18 months of restructuring our operations. Our strong execution on the strategies we have identified to enhance the value of our franchise continued to result in positive trends on many fronts including a further reduction in our cost of deposits, a stable net interest margin, and improved operating efficiencies. These efforts translated into a significant improvement in earnings and pre-tax pre-provision income."

“Our business development efforts continue to gain traction despite the impact of the COVID-19 pandemic. We are consistently adding new commercial banking relationships, which resulted in our fifth consecutive quarter of demand deposit account growth and further improvement in our mix of deposits. The commercial banking team we have built is also effectively bringing in new, high quality commercial loans to offset the planned run-off of our single-family residential portfolio. As a result, we saw an increase in total loan balances in the third quarter, while our mix of loans continued to shift more towards relationship-based business loans.”

“We believe that we continue to have many levers to pull that will further improve our financial performance. While the ongoing pandemic creates a level of near-term uncertainty, we believe that over the longer-term, we are very well positioned to generate earning asset growth, expand our net interest margin, realize additional operating leverage, and deliver a higher level of earnings and returns for our shareholders as the economy strengthens,” said Mr. Wolff.

Lynn Hopkins, Chief Financial Officer of Banc of California, said, “We are very pleased with our third quarter performance and results which are a reflection of executing on our strategic vision. Our net interest margin remained unchanged at 3.09% as we successfully lowered our average cost of funds 21 basis points which helped absorb the decrease in our average earning assets yield. Our period end total deposits costs also fell 20 basis points to 39 basis points. Our loan portfolio remains well-positioned as it is heavily weighted towards real estate loans with low loan-to-values and we saw lower levels of loans on deferment and forbearance. Our allowance for credit losses to total loans was 1.66% and is a reflection of the considerable uncertainty of the timing and magnitude of the impact of the pandemic. Nonetheless, we are confident in our ability to continue to execute on our initiatives and optimize our capital in ways that will be accretive to earnings and create further value for our shareholders.”

Income Statement Highlights

		Three Months Ended																			Nine Months Ended
		September 30, 2020			June 30, 2020				March 31, 2020				December 31, 2019				September 30, 2019				September 30, 2020				September 30, 2019
		($ in thousands)
Total interest and dividend income		$	69,666		$	72,697			$	74,714			$	83,702			$	92,657			$	217,077			$	307,409
Total interest expense		13,811			17,382				22,853				27,042				33,742				54,046				115,906
Net interest income		55,855			55,315				51,861				56,660				58,915				163,031				191,503
Total noninterest income		3,954			5,528				2,061				4,930				3,181				11,543				7,186
Total revenue		59,809			60,843				53,922				61,590				62,096				174,574				198,689
Total noninterest expense		40,394			72,770				46,919				47,483				43,240				160,083				148,989
Pre-tax / pre-provision income (loss)		19,415			(11,927		)		7,003				14,107				18,856				14,491				49,700
Provision for (reversal of) credit losses		1,141			11,826				15,761				(2,976		)		38,607				28,728				38,805
Income tax expense (benefit)		2,361			(5,304		)		(2,165		)		2,811				(5,619		)		(5,108		)		1,408
Net income (loss)		$	15,913		$	(18,449	)		$	(6,593	)		$	14,272			$	(14,132	)		$	(9,129	)		$	9,487
Net income (loss) available to common stockholders(1)		$	12,084		$	(21,936	)		$	(9,694	)		$	10,415			$	(22,722	)		$	(19,265	)		$	(8,015	)

(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 Statement of Operations for additional detail on these amounts.

Net interest income

Q3-2020 vs Q2-2020

Net interest income increased $0.5 million to $55.9 million for the third quarter due mostly to lower funding costs, offset by lower yields on interest-earning assets. Compared to the prior quarter, average interest-earning assets declined by $14.4 million to $7.18 billion, due to lower average loans of $174.0 million, offset by higher average securities of $126.8 million and other interest-earning assets of $32.8 million. During the third quarter, average deposits increased $164.3 million, consisting of higher average interest-bearing deposits of $156.6 million and higher average noninterest-bearing deposits of $7.7 million. Average FHLB advances decreased $211.0 million due to current quarter deposit growth and the impact of the early payoff of $100.0 million in FHLB advances at the end of the second quarter.

The net interest margin remained unchanged compared to the prior quarter at 3.09% for the third quarter as the average cost of funds decreased 21 basis points, offset by a 20 basis point decrease in the average earning-assets yield. The yield on average interest-earning assets decreased to 3.86% for the third quarter from 4.06% for the second quarter due to lower yields on most interest-earning asset classes and the change in the mix of interest-earning assets. The average yield on loans declined only 2 basis points to 4.46% during the third quarter as higher prepayment penalty fees and PPP fee income helped to offset the decreases in loan yields due to the mix of loans and lower interest rate environment. The third quarter includes $2.1 million of PPP fee income, which increased the net interest margin by 11 basis points, compared to $1.7 million in the second quarter which increased the net interest margin by 10 basis points. The average yield on securities decreased 69 basis points to 2.26% due mostly to a 106 basis point decrease in the collateralized loan obligations (CLOs) yield to 2.16% for the third quarter from 3.22% for the second quarter as these securities reprice quarterly.

The average cost of funds decreased 21 basis points to 0.82% for the third quarter from 1.03% for the second 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 third quarter. We continue to reduce our reliance on high cost transaction accounts, non-brokered certificates of deposits, and wholesale funds as we continue to execute on our relationship-focused business banking strategy. The average cost of interest-bearing liabilities decreased 27 basis points to 1.02% for the third quarter from 1.29% for the second quarter due to actively managing down the cost of interest-bearing deposits into the current rate environment. The average cost of interest-bearing deposits declined 27 basis points to 0.66% for the third quarter from 0.93% for the prior quarter. Additionally, average noninterest-bearing deposits increased by $7.7 million and represented 22.9% of total average deposits in the third quarter compared to 23.4% of total average deposits for the second quarter. Our total cost of average deposits decreased 20 basis points to 0.51% for the third quarter. The spot rate of total deposits at the end of the third quarter of 2020 was 0.39%.

YTD 2020 vs YTD 2019

Net interest income for the nine months ended September 30, 2020 decreased $28.5 million to $163.0 million from $191.5 million for the same 2019 period. Net interest income was impacted by the overall decrease in market interest rates between periods and lower average interest-earning assets, as a result of targeted sales of securities and loans during 2019, in line with our strategy of remixing the loan portfolio towards relationship-based lending, offset by a higher net interest margin. For the nine months ended September 30, 2020, average interest-earning assets declined $1.87 billion to $7.14 billion, and the net interest margin increased 21 basis points to 3.05% for the nine months ended September 30, 2020 compared to 2.84% for the same 2019 period.

Our average yield on interest-earning assets decreased 50 basis points to 4.06% for the nine months ended September 30, 2020 as compared to 4.56% during the same 2019 period. The decrease in yield was primarily attributable to lower average yields on the loan and securities portfolios. Our average yield on loans was 4.50% for the nine months ended September 30, 2020, compared to 4.77% for the same 2019 period, primarily due to lower market interest rates and a lower percentage of higher-yielding commercial and industrial balances in the portfolio. Our average yield on securities decreased 109 basis points due mostly to CLOs repricing into the lower rate environment and a decrease in average CLO balances.

The average cost of funds decreased to 1.08% for the nine months ended September 30, 2020 from 1.83% for the same 2019 period. This decrease was driven by the lower average cost of interest-bearing liabilities and the improved funding mix, including higher average noninterest-bearing deposits. The 74 basis point decline in the average cost of interest-bearing liabilities to 1.34% for the nine months ended September 30, 2020 from 2.08% for the same 2019 period was driven by the lower average cost of interest-bearing deposits as they reprice into the lower interest rate environment and the lower average cost of FHLB term advances resulting from maturities and early repayments during the year and as a result of the refinancing of advances during the second quarter of 2020. The average cost of interest-bearing deposits declined 89 basis points to 0.98% from the prior period due to actively managing down deposit rates in response to the interest rate cuts by the Federal Reserve in March of 2020 and a lower reliance on brokered deposits. Additionally, average noninterest-bearing deposits increased by $245.8 million when compared to the same 2019 period. Our cost of average total deposits decreased 83 basis points to 0.76% for the nine months ended September 30, 2020 when compared to the same 2019 period.

Provision for credit losses

Q3-2020 vs Q2-2020

The provision for credit losses totaled $1.1 million for the third quarter, compared to $11.8 million for the second quarter. The third quarter provision for credit losses is comprised of $0.9 million in general reserves and $1.2 million related to specific reserves, offset by provision release of $1.0 million related to unfunded commitments. The general provision is due to changes in key macro-economic forecast variables, such as unemployment and gross domestic product, improved credit quality metrics, and higher period end loan balances of $50.3 million.

YTD 2020 vs YTD 2019

During the nine months ended September 30, 2020, the provision for credit losses totaled $28.7 million under the CECL model, compared to $38.8 million under the incurred loss model during 2019. The lower provision for credit losses was primarily the result of lower net charge-offs and lower period end loan balances of $705.3 million, offset by increases from using the new CECL model, the estimated future impact of the health crisis on our loans, and higher specific reserves.

Noninterest income

Q3-2020 vs Q2-2020

Noninterest income decreased $1.6 million, or 28%, to $4.0 million for the third quarter due mostly to lower gains on sale of securities. The second quarter of 2020 included a $2.0 million gain on the sale of $20.7 million in securities; there were no sales of securities in the third quarter. The third quarter included a $0.3 million gain on sale of $17.8 million in single-family residential mortgage loans held for sale; there were no sales of loans during second quarter of 2020.

YTD 2020 vs YTD 2019

Noninterest income for the nine months ended September 30, 2020 increased $4.4 million, or 60.6%, to $11.5 million compared to the prior year. The increase was primarily attributable to (i) higher net gain on sale of investment securities of $6.9 million, and (ii) higher other income of $7.4 million as the third quarter of 2019 included a previously reported $9.6 million realized loss from interest rate swap agreements entered into in order to offset variability in the fair value of the Freddie Mac securitization completed during the third quarter of 2019. These increases were partially offset by (i) lower net gain on sale of loans of $8.4 million as the third quarter of 2019 included a $9.0 million realized gain from the aforementioned securitization, (ii) a $1.6 million loss due to decreases in the fair value of loans held for sale, and (iii) lower customer fees of $0.7 million.

Noninterest expense

Q3-2020 vs Q2-2020

Noninterest expense decreased $32.4 million to $40.4 million for the third quarter compared to the prior quarter. The decrease was primarily due to the second quarter of 2020 including a $26.8 million charge related to the termination of the LAFC naming rights agreements and a $2.5 million debt extinguishment fee, included in all other expenses, associated with the early repayment of certain FHLB term advances. There were no similar expenses during the third quarter. In addition, noninterest expense decreased during the quarter due to (i) lower salaries and benefits expense of $1.0 million due mostly to lower incentive accruals, (ii) a larger gain on investments in alternative energy partnerships of $1.3 million, and (iii) lower advertising costs of $0.9 million due to the termination of the LAFC naming rights agreements. These decreases were partially offset by higher professional fees of $0.6 million. Total operating costs, defined as noninterest expense adjusted for certain non-core items (refer to section Non-GAAP Measures), decreased $2.1 million to $40.7 million for the third quarter compared to $42.8 million for the prior quarter.

YTD 2020 vs YTD 2019

Noninterest expense for the nine months ended September 30, 2020 increased $11.1 million, or 7.4%, to $160.1 million compared to the prior year. The increase was primarily due to: (i) the aforementioned $26.8 million one-time charge related to the termination of our LAFC naming rights agreements, (ii) a $2.5 million debt extinguishment fee, included in all other expenses, associated with the early repayment of certain FHLB term advances, and (iii) higher professional fees of $6.1 million, due to overall reductions in recoveries of $18.4 million related to indemnified legal fees for resolved legal proceedings and various other litigations. These increases were offset by: (i) $4.0 million in lower consulting fees for bank projects and initiatives, (ii) lower salaries and benefits expense of $10.9 million resulting from lower headcount, (iii) lower advertising costs of $3.1 million due to the termination of our LAFC naming rights agreements and reductions in overall events and media spending, and (iv) lower regulatory assessments of $3.9 million due to changes in our asset size and an FDIC assessment credit.

Income taxes

Q3-2020 vs Q2-2020

Income tax expense totaled $2.4 million for the third quarter resulting in an effective tax rate of 12.9% compared to a $5.3 million benefit for the second quarter resulting in an effective tax rate of 22.3%. Based on our actual and projected level of earnings and permanent tax differences for 2020, our estimated effective tax rate for the full year was refined this quarter to a negative tax rate ranging from approximately 10% to 15%. As a result of the change, we expect our fourth quarter effective tax rate to be approximately 25%.

YTD 2020 vs YTD 2019

Income tax benefit totaled $5.1 million for the nine months ended September 30, 2020, representing an effective tax rate of 35.9%, compared to a $1.4 million expense and an effective tax rate of 12.9% for nine months ended September 30, 2019.

Balance Sheet

At September 30, 2020, total assets were $7.74 billion, which represented a linked-quarter decrease of $32.0 million. The following table shows selected balance sheet line items as of the dates indicated.

		As of and for the Three Months Ended																				Amount Change
		September 30, 2020				June 30, 2020				March 31, 2020				December 31, 2019				September 30, 2019				Q3-20 vs. Q2-20				Q3-20 vs. Q3-19
		($ in thousands)
Total assets		$	7,738,106			$	7,770,138			$	7,662,607			$	7,828,410			$	8,625,337			$	(32,032	)		$	(887,231	)
Securities available-for-sale		$	1,245,867			$	1,176,029			$	969,427			$	912,580			$	775,662			$	69,838			$	470,205
Loans held-for-investment		$	5,678,002			$	5,627,696			$	5,667,464			$	5,951,885			$	6,383,259			$	50,306			$	(705,257	)
Loans held-for-sale		$	1,849			$	19,768			$	20,234			$	22,642			$	23,936			$	(17,919	)		$	(22,087	)
Demand deposits		$	3,495,859			$	3,238,202			$	2,828,470			$	2,622,398			$	2,602,011			$	257,657			$	893,848
Other core deposits		2,446,593				2,619,502				2,515,703				2,794,769				3,074,936				(172,909		)		(628,343		)
Brokered deposits		89,814				179,761				218,665				10,000				93,111				(89,947		)		(3,297		)
Total Deposits		$	6,032,266			$	6,037,465			$	5,562,838			$	5,427,167			$	5,770,058			$	(5,199	)		$	262,208
As percentage of total deposits
Demand deposits		57.95		%		53.64		%		50.85		%		48.32		%		45.10		%		4.31		%		12.85		%
Other core deposits		40.56		%		43.39		%		45.22		%		51.50		%		53.29		%		(2.83		)%		(12.73		)%
Brokered deposits		1.49		%		2.98		%		3.93		%		0.18		%		1.61		%		(1.49		)%		(0.12		)%
Average loan yield		4.46		%		4.48		%		4.56		%		4.71		%		4.75		%		(0.02		)%		(0.29		)%
Average cost of interest-bearing deposits		0.66		%		0.93		%		1.41		%		1.57		%		1.78		%		(0.27		)%		(1.12		)%
Average cost of total deposits		0.51		%		0.71		%		1.11		%		1.27		%		1.48		%		(0.20		)%		(0.97		)%

Investments

Securities available-for-sale increased $69.8 million to $1.25 billion at September 30, 2020 due to purchases of $48.5 million and lower unrealized net losses of $23.9 million. The decrease in the unrealized net losses was due mostly to credit spreads tightening during the quarter for a positive change on the pricing of the CLOs and corporate debt securities. Securities purchased included municipal bonds, government agency securities and floating rate SBA pool securities. There were no sales of securities during the third quarter. As of September 30, 2020, our securities portfolio included $685.9 million of CLOs, $325.8 million of agency securities, $69.2 million of municipal securities, $146.9 million of corporate debt securities, and $17.8 million of SBA pool securities. The CLO portfolio, which is comprised only of AA and AAA rated securities, represented 55.1% of the total securities portfolio and the carrying value included an unrealized net loss of $17.7 million at September 30, 2020 compared to an unrealized net loss of $35.3 million at June 30, 2020.

Loans

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

		September 30, 2020				June 30, 2020				March 31, 2020				December 31, 2019				September 30, 2019
		($ in thousands)
Composition of held-for-investment loans
Commercial real estate		$	826,683			$	822,694			$	810,024			$	818,817			$	891,029
Multifamily		1,476,803				1,434,071				1,466,083				1,494,528				1,563,757
Construction		197,629				212,979				227,947				231,350				228,561
Commercial and industrial		1,586,824				1,436,990				1,578,223				1,691,270				1,789,478
SBA		320,573				310,784				70,583				70,981				75,359
Total commercial loans		4,408,512				4,217,518				4,152,860				4,306,946				4,548,184
Single-family residential mortgage		1,234,479				1,370,785				1,467,375				1,590,774				1,775,953
Other consumer		35,011				39,393				47,229				54,165				59,122
Total consumer loans		1,269,490				1,410,178				1,514,604				1,644,939				1,835,075
Total gross loans		$	5,678,002			$	5,627,696			$	5,667,464			$	5,951,885			$	6,383,259
Composition percentage of held-for-investment loans
Commercial real estate		14.6		%		14.6		%		14.3		%		13.8		%		14.0		%
Multifamily		26.0		%		25.5		%		25.9		%		25.1		%		24.5		%
Construction		3.5		%		3.8		%		4.0		%		3.9		%		3.6		%
Commercial and industrial		28.0		%		25.5		%		27.9		%		28.4		%		28.0		%
SBA		5.6		%		5.5		%		1.2		%		1.2		%		1.2		%
Total commercial loans		77.7		%		74.9		%		73.3		%		72.4		%		71.3		%
Single-family residential mortgage		21.7		%		24.4		%		25.9		%		26.7		%		27.8		%
Other consumer		0.6		%		0.7		%		0.8		%		0.9		%		0.9		%
Total consumer loans		22.3		%		25.1		%		26.7		%		27.6		%		28.7		%
Total gross loans		100.0		%		100.0		%		100.0		%		100.0		%		100.0		%

Held-for-investment loans increased $50.3 million to $5.68 billion from the prior quarter, resulting from higher commercial and industrial (C&I) loans of $149.8 million due, in part, to increased utilization of credit facilities, and higher multifamily loans of $42.7 million. These increases were offset partially by lower single-family residential mortgage loans of $136.3 million and construction loans of $15.4 million. The decline in single-family residential is attributed to payoffs as the loans refinance away in the lower rate environment. The decline in construction loans is attributed to general fluctuations in volume and certain payoffs. At September 30, 2020, SBA loans included $255.8 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 warehouse credit facilities) represent approximately 67% 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:

		September 30, 2020
		Amount				% of Portfolio
		($ in thousands)
C&I Portfolio by Industry
Finance and insurance (includes Warehouse lending)		$	932,887			59	%
Real estate and rental leasing		204,182				13	%
Gas stations		70,630				4	%
Manufacturing		50,747				3	%
Healthcare		67,789				4	%
Wholesale trade		40,232				3	%
Other retail trade		37,157				2	%
Television/motion pictures		31,310				2	%
Food services		29,835				2	%
Professional services		13,878				1	%
Transportation		5,480				—	%
Accommodations		1,473				—	%
All other		101,224				6	%
Total		$	1,586,824			100	%

Deposits

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

		September 30, 2020				June 30, 2020				March 31, 2020				December 31, 2019				September 30, 2019
		($ in thousands)
Composition of deposits
Noninterest-bearing checking		$	1,450,744			$	1,391,504			$	1,256,081			$	1,088,516			$	1,107,442
Interest-bearing checking		2,045,115				1,846,698				1,572,389				1,533,882				1,503,208
Money market		689,769				765,854				575,820				715,479				695,530
Savings		946,293				939,018				877,947				885,246				1,042,162
Non-brokered certificates of deposit		820,531				924,630				1,071,936				1,204,044				1,367,284
Brokered certificates of deposit		79,814				169,761				208,665				—				54,432
Total deposits		$	6,032,266			$	6,037,465			$	5,562,838			$	5,427,167			$	5,770,058
Composition percentage of deposits
Noninterest-bearing checking		24.1		%		23.0		%		22.6		%		20.1		%		19.2		%
Interest-bearing checking		33.9		%		30.6		%		28.3		%		28.2		%		26.1		%
Money market		11.4		%		12.7		%		10.3		%		13.2		%		12.0		%
Savings		15.7		%		15.6		%		15.8		%		16.3		%		18.1		%
Non-brokered certificates of deposit		13.6		%		15.3		%		19.3		%		22.2		%		23.7		%
Brokered certificates of deposit		1.3		%		2.8		%		3.7		%		—		%		0.9		%
Total deposits		100.0		%		100.0		%		100.0		%		100.0		%		100.0		%

Total deposits decreased $5.2 million during the third quarter of 2020 to $6.03 billion due to lower brokered certificates of deposit of $89.9 million, non-brokered certificates of deposit of $104.1 million, and money market balances of $76.1 million, offset by higher noninterest-bearing checking balances of $59.2 million, interest-bearing checking of $198.4 million, and savings balances of $7.3 million. We continue to focus on growing relationship-based deposits, strategically augmented by wholesale funding, as we proactively reduce our deposit costs in response to the interest rate cuts by the Federal Reserve in March of 2020. Noninterest-bearing deposits totaled $1.45 billion and represented 24.1% of total deposits at September 30, 2020 compared to $1.39 billion, or 23.0% of total deposits, at June 30, 2020 and $1.11 billion, or 19.2% of total deposits, one year ago.

Debt

Advances from the FHLB decreased $57.7 million, or 9%, to $559.5 million, as of September 30, 2020, due to maturities of $58.0 million. At the end of the third quarter, FHLB advances included no overnight borrowings, $105.0 million maturing within three months, and $461.0 million maturing beyond three months with a weighted average life of 4.7 years and weighted average interest rate of 2.51%.

Equity

At September 30, 2020, total stockholders’ equity increased by $27.3 million to $874.3 million and tangible common equity increased by $27.8 million to $649.3 million on a linked-quarter basis. The increase in total stockholders’ equity for the three months ended September 30, 2020, was a result of net income of $15.9 million and lower net accumulated other comprehensive loss of $16.8 million, offset by dividends to common and preferred stockholders of $6.6 million, and redemption of preferred stock of $0.2 million. Tangible book value per share increased to $12.92 as of September 30, 2020 from $12.37 at June 30, 2020.

Capital ratios remain strong with total risk-based capital at 16.24% and a tier 1 leverage ratio of 10.83%. The following table sets forth our regulatory capital ratios at September 30, 2020 and the previous four quarters. The interim capital relief related to the adoption of CECL increased the Bank's leverage ratio approximately 12 basis points at September 30, 2020.

		September 30, 2020			June 30, 2020			March 31, 2020			December 31, 2019			September 30, 2019
Capital Ratios(1)
Banc of California, Inc.
Total risk-based capital ratio		16.24	%		16.35	%		16.16	%		15.90	%		14.37	%
Tier 1 risk-based capital ratio		14.98	%		15.10	%		14.91	%		14.83	%		13.32	%
Common equity tier 1 capital ratio		11.64	%		11.68	%		11.58	%		11.56	%		10.34	%
Tier 1 leverage ratio		10.83	%		10.56	%		11.20	%		10.89	%		9.84	%
Banc of California, NA
Total risk-based capital ratio		18.20	%		18.17	%		18.21	%		17.46	%		15.65	%
Tier 1 risk-based capital ratio		16.94	%		16.92	%		16.96	%		16.39	%		14.60	%
Common equity tier 1 capital ratio		16.94	%		16.92	%		16.96	%		16.39	%		14.60	%
Tier 1 leverage ratio		12.24	%		11.84	%		12.67	%		12.02	%		10.75	%

(1)		September 30, 2020 capital ratios are preliminary.

Credit Quality

		September 30, 2020				June 30, 2020				March 31, 2020				December 31, 2019				September 30, 2019
Asset quality information and ratios		($ in thousands)
Delinquent loans held-for-investment
30 to 89 days delinquent		$	51,229			$	49,810			$	56,338			$	32,873			$	39,122
90+ days delinquent		31,809				45,384				28,632				24,734				17,220
Total delinquent loans		$	83,038			$	95,194			$	84,970			$	57,607			$	56,342
Total delinquent loans to total loans		1.46		%		1.69		%		1.50		%		0.97		%		0.88		%
Non-performing assets, excluding loans held-for-sale
Non-performing loans		$	66,337			$	72,703			$	56,471			$	43,354			$	45,169
90+ days delinquent and still accruing loans		547				—				—				—				—
Other real estate owned		—				—				—				—				—
Non-performing assets		$	66,884			$	72,703			$	56,471			$	43,354			$	45,169
ALL to non-performing loans		135.95		%		124.30		%		138.55		%		132.97		%		139.31		%
Non-performing loans to total loans held-for-investment		1.18		%		1.29		%		1.00		%		0.73		%		0.71		%
Non-performing assets to total assets		0.86		%		0.94		%		0.74		%		0.55		%		0.52		%
Troubled debt restructurings (TDRs)
Performing TDRs		$	5,408			$	5,597			$	6,100			$	6,620			$	6,800
Non-performing TDRs		20,002				20,275				20,852				21,837				14,605
Total TDRs		$	25,410			$	25,872			$	26,952			$	28,457			$	21,405

Total delinquent loans decreased $12.2 million in the third quarter to $83.0 million at September 30, 2020, due to $30.0 million returning to current status and $0.2 million of principal payments or payoffs, offset by $18.0 million of additions. Delinquent loans included primarily legacy single-family residential loans, which accounted for 86% of the balance at quarter end and represented an increase of $0.8 million quarter over quarter. Excluding delinquent single-family residential loans, delinquent loans totaled $12.0 million, or 0.27% of total loans at September 30, 2020.

Non-performing loans decreased $5.8 million to $66.9 million as of September 30, 2020, of which $31.5 million, or 47% relates to loans in a current payment status. The third quarter decrease was due primarily to $10.2 million in cured loans and payoffs, offset by $4.4 million of loans placed on nonaccrual status. The quarter-end balance includes three large loan relationships totaling $34.9 million, or 52% of total nonperforming loans, which consist of one $16.1 million legacy shared national credit, a $9.1 million single-family mortgage residential loan with a loan-to-value ratio of 58%, and a $9.6 million legacy relationship well-secured by commercial real estate and single-family residential properties with an average loan-to-value ratio of 51%. Aside from those three loan relationships, non-performing single-family residential loans totaled $17.7 million and the remaining non-performing loans totaled $14.3 million.

In light of the pandemic, during the second and third quarters we provided support to clients by granting loan deferments or forbearances. As of September 30, 2020 loans on deferment or forbearance status totaled $282.5 million as shown below:

		September 30, 2020										June 30, 2020
		Count			Amount(1)				% of Loans in Category			Count			Amount				% of Loans in Category
		($ in thousands)
Single-family residential mortgage		123			$	137,510			11	%		142			$	163,815			12	%
All other loans		35			145,036				3	%		156			440,420				10	%
Total		158			$	282,546			5	%		298			$	604,235			11	%

(1)		Loans in the process of deferment or forbearance are not reported as delinquent.

Of the balances as of September 30, 2020, $98.1 million of all other loans are in their second deferment. Further, as of September 30, 2020, 18 commercial loans totaling $45.3 million were under review and pending approval for a second deferral. 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
		September 30, 2020				June 30, 2020				March 31, 2020				December 31, 2019				September 30, 2019
		($ in thousands)
Allowance for loan losses (ALL)
Balance at beginning of period		$	90,370			$	78,243			$	57,649			$	62,927			$	59,523
Adoption of ASU 2016-13 (1)		—				—				7,609				—				—
Loans charged off		(1,821		)		—				(2,076		)		(2,706		)		(35,546		)
Recoveries		248				608				350				106				410
Net (charge-offs) recoveries		(1,573		)		608				(1,726		)		(2,600		)		(35,136		)
Provision for (reversal of) loan losses		2,130				11,519				14,711				(2,678		)		38,540
Balance at end of period		$	90,927			$	90,370			$	78,243			$	57,649			$	62,927
Reserve for unfunded loan commitments
Balance at beginning of period		$	4,195			$	3,888			$	4,064			$	4,362			$	4,295
Adoption of ASU 2016-13 (1)		—				—				(1,226		)		—				—
(Reversal of) provision for credit losses		(989		)		307				1,050				(298		)		67
Balance at end of period		3,206				4,195				3,888				4,064				4,362
Allowance for credit losses (ACL)		$	94,133			$	94,565			$	82,131			$	61,713			$	67,289
ALL to total loans		1.60		%		1.61		%		1.38		%		0.97		%		0.99		%
ACL to total loans		1.66		%		1.68		%		1.45		%		1.04		%		1.05		%
ACL to total loans, excluding PPP loans		1.74		%		1.76		%		1.45		%		1.04		%		1.05		%
Annualized net loan charge-offs (recoveries) to average total loans held-for-investment		0.12		%		(0.04		)%		0.12		%		0.17		%		2.19		%
Reserve for loss on repurchased loans
Balance at beginning of period		$	5,567			$	5,601			$	6,201			$	6,561			$	2,478
Initial provision for loan repurchases		11				—				—				—				4,415
Reversal of provision for loan repurchases		(91		)		(34		)		(600		)		(360		)		(123		)
Utilization of reserve for loan repurchases		—				—				—				—				(209		)
Balance at end of period		$	5,487			$	5,567			$	5,601			$	6,201			$	6,561

(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 $94.1 million, or 1.66% of total loans, at September 30, 2020 compared to $94.6 million or 1.68% of total loans, at June 30, 2020. The $0.4 million decrease in the ACL was due to: (i) net charge-offs of $1.6 million and (ii) a negative provision for unfunded loan commitments of $1.0 million, offset by (iii) specific reserves of $1.2 million, and (iv) general reserves of $0.9 million due to the impact of higher loan balances, updated forecasts, and improved credit quality metrics. The ACL coverage of nonperforming loans was 141% at September 30, 2020 compared to 130% at June 30, 2020 and 142% at December 31, 2019.

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 September 2020. In contrast to the June 2020 forecasts, these September forecasts reflect a more favorable view of the economy (i.e. higher GDP growth rates and lower unemployment rates). Despite this, the Company-specific economic view recognizes that the foreseeable future is uncertain with respect to the search for a vaccine and effective treatments for COVID-19; the lack of clarity regarding the timing and amount of a potential government stimulus; the unknown impact of the COVID-19 pandemic on the economy and certain industry segments; and the unknown benefit from Federal Reserve and other government actions. Accordingly, the ACL level and resulting 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 third quarter 2020 financial results at 10:00 a.m. Pacific Time (PT) on Thursday, October 22, 2020. Interested parties are welcome to attend the conference call by dialing (888) 317-6003, and referencing event code 8723927. 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 $7.7 billion in assets and one wholly-owned banking subsidiary, Banc of California, N.A. (the “Bank”). The Bank has 39 offices including 31 full-service branches located throughout Southern California. Through our dedicated professionals, we provide customized and innovative banking and lending solutions to businesses, entrepreneurs and individuals throughout California. We help to improve the communities where we live and work, by supporting organizations that provide financial literacy and job training, small business support and affordable housing. With a commitment to service and building enduring relationships, we provide a higher standard of banking. We look forward to helping you achieve your goals. For more information, please visit us at www.bancofcal.com.

Forward-Looking Statements

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

Banc of California, Inc.
Consolidated Statements of Financial Condition (Unaudited)
(Dollars in thousands)
		September 30, 2020				June 30, 2020				March 31, 2020				December 31, 2019				September 30, 2019
ASSETS
Cash and cash equivalents		$	292,490			$	420,640			$	435,992			$	373,472			$	526,874
Securities available-for-sale		1,245,867				1,176,029				969,427				912,580				775,662
Loans held-for-sale		1,849				19,768				20,234				22,642				23,936
Loans held-for-investment		5,678,002				5,627,696				5,667,464				5,951,885				6,383,259
Allowance for loan losses		(90,927		)		(90,370		)		(78,243		)		(57,649		)		(62,927		)
Federal Home Loan Bank and other bank stock		44,809				46,585				57,237				59,420				71,679
Servicing rights, net		1,621				1,753				2,009				2,299				2,407
Premises and equipment, net		123,812				125,247				127,379				128,021				128,979
Investments in alternative energy partnerships, net		27,786				26,967				27,347				29,300				27,039
Goodwill		37,144				37,144				37,144				37,144				37,144
Other intangible assets, net		2,939				3,292				3,722				4,151				4,605
Deferred income tax, net		43,744				48,288				63,849				44,906				45,950
Income tax receivable		10,701				13,094				7,198				4,233				4,459
Bank owned life insurance investment		111,115				110,487				110,397				109,819				108,720
Right of use assets		18,909				19,408				20,882				22,540				23,907
Due from unsettled securities sales		—				—				—				—				334,769
Other assets		188,245				184,110				190,569				183,647				188,875
Total assets		$	7,738,106			$	7,770,138			$	7,662,607			$	7,828,410			$	8,625,337
LIABILITIES AND STOCKHOLDERS’ EQUITY
Noninterest-bearing deposits		$	1,450,744			$	1,391,504			$	1,256,081			$	1,088,516			$	1,107,442
Interest-bearing deposits		4,581,522				4,645,961				4,306,757				4,338,651				4,662,616
Total deposits		6,032,266				6,037,465				5,562,838				5,427,167				5,770,058
Advances from Federal Home Loan Bank		559,482				617,170				978,000				1,195,000				1,650,000
Notes payable, net		173,623				173,537				173,479				173,421				173,339
Reserve for loss on repurchased loans		5,487				5,567				5,601				6,201				6,561
Lease liabilities		19,938				20,531				22,075				23,692				25,210
Accrued expenses and other liabilities		73,056				68,909				85,612				95,684				99,181
Total liabilities		6,863,852				6,923,179				6,827,605				6,921,165				7,724,349
Commitments and contingent liabilities
Preferred stock		184,878				185,037				187,687				189,825				189,825
Common stock		522				522				520				520				520
Common stock, class B non-voting non-convertible		5				5				5				5				5
Additional paid-in capital		633,409				632,117				631,125				629,848				628,774
Retained earnings		95,001				85,670				110,640				127,733				120,221
Treasury stock		(40,827		)		(40,827		)		(40,827		)		(28,786		)		(28,786		)
Accumulated other comprehensive income (loss), net		1,266				(15,565		)		(54,148		)		(11,900		)		(9,571		)
Total stockholders’ equity		874,254				846,959				835,002				907,245				900,988
Total liabilities and stockholders’ equity		$	7,738,106			$	7,770,138			$	7,662,607			$	7,828,410			$	8,625,337

Banc of California, Inc.
Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share data)
		Three Months Ended																				Nine Months Ended
		September 30, 2020				June 30, 2020				March 31, 2020				December 31, 2019				September 30, 2019				September 30, 2020				September 30, 2019
Interest and dividend income
Loans, including fees		$	62,019			$	63,642			$	65,534			$	73,930			$	80,287			$	191,195			$	260,004
Securities		6,766				7,816				7,820				7,812				10,024				22,402				40,322
Other interest-earning assets		881				1,239				1,360				1,960				2,346				3,480				7,083
Total interest and dividend income		69,666				72,697				74,714				83,702				92,657				217,077				307,409
Interest expense
Deposits		7,564				10,205				14,611				18,247				22,811				32,380				82,852
Federal Home Loan Bank advances		3,860				4,818				5,883				6,396				8,519				14,561				25,889
Notes payable and other interest-bearing liabilities		2,387				2,359				2,359				2,399				2,412				7,105				7,165
Total interest expense		13,811				17,382				22,853				27,042				33,742				54,046				115,906
Net interest income		55,855				55,315				51,861				56,660				58,915				163,031				191,503
Provision for (reversal of) credit losses		1,141				11,826				15,761				(2,976		)		38,607				28,728				38,805
Net interest income after provision for (reversal of) credit losses		54,714				43,489				36,100				59,636				20,308				134,303				152,698
Noninterest income
Customer service fees		1,498				1,224				1,096				1,451				1,582				3,818				4,531
Loan servicing income		186				95				75				312				128				356				367
Income from bank owned life insurance		629				591				578				599				588				1,798				1,693
Impairment loss on investment securities		—				—				—				—				(731		)		—				(731		)
Net gain (loss) on sale of securities available for sale		—				2,011				—				3				(5,063		)		2,011				(4,855		)
Fair value adjustment on loans held for sale		24				25				(1,586		)		30				16				(1,537		)		76
Net gain (loss) on sale of loans		272				—				(27		)		(863		)		4,310				245				8,629
All other income (loss)		1,345				1,582				1,925				3,398				2,351				4,852				(2,524		)
Total noninterest income		3,954				5,528				2,061				4,930				3,181				11,543				7,186
Noninterest expense
Salaries and employee benefits		23,277				24,260				23,436				24,036				25,934				70,973				81,879
Naming rights termination		—				26,769				—				—				—				26,769				—
Occupancy and equipment		7,457				7,090				7,243				7,900				7,767				21,790				23,408
Professional fees		5,147				4,596				5,964				2,611				1,463				15,707				9,601
Data processing		1,657				1,536				1,773				1,684				1,568				4,966				4,736
Advertising		219				1,157				1,756				2,227				2,090				3,132				6,195
Regulatory assessments		784				725				484				1,854				1,239				1,993				5,857
Reversal of loan repurchase reserves		(91		)		(34		)		(600		)		(360		)		(123		)		(725		)		(300		)
Amortization of intangible assets		353				430				429				454				500				1,212				1,741
Restructuring expense		—				—				—				1,626				—				—				2,637
All other expenses		3,021				6,408				4,529				4,412				3,742				13,958				12,580
Total noninterest expense excluding (gain) loss on investments in alternative energy partnerships		41,824				72,937				45,014				46,444				44,180				159,775				148,334
(Gain) loss on investments in alternative energy partnerships		(1,430		)		(167		)		1,905				1,039				(940		)		308				655
Total noninterest expense		40,394				72,770				46,919				47,483				43,240				160,083				148,989
Income (loss) from operations before income taxes		18,274				(23,753		)		(8,758		)		17,083				(19,751		)		(14,237		)		10,895
Income tax expense (benefit)		2,361				(5,304		)		(2,165		)		2,811				(5,619		)		(5,108		)		1,408
Net income (loss)		15,913				(18,449		)		(6,593		)		14,272				(14,132		)		(9,129		)		9,487
Preferred stock dividends		3,447				3,442				3,533				3,540				3,403				10,422				12,019
Income allocated to participating securities		281				—				—				224				—				—				—
Participating securities dividends		94				94				94				93				94				282				390
Impact of preferred stock redemption		7				(49		)		(526		)		—				5,093				(568		)		5,093
Net income (loss) available to common stockholders		$	12,084			$	(21,936	)		$	(9,694	)		$	10,415			$	(22,722	)		$	(19,265	)		$	(8,015	)
Earnings (loss) per common share:
Basic		$	0.24			$	(0.44	)		$	(0.19	)		$	0.21			$	(0.45	)		$	(0.38	)		$	(0.16	)
Diluted		$	0.24			$	(0.44	)		$	(0.19	)		$	0.20			$	(0.45	)		$	(0.38	)		$	(0.16	)
Weighted average number of common shares outstanding
Basic		50,108,655				50,030,919				50,464,777				50,699,915				50,882,227				50,201,112				50,804,429
Diluted		50,190,933				50,030,919				50,464,777				50,927,978				50,882,227				50,201,112				50,804,429
Dividends declared per common share		$	0.06			$	0.06			$	0.06			$	0.06			$	0.06			$	0.18			$	0.25

Banc of California, Inc.
Selected Financial Data
(Unaudited)
		Three Months Ended
		September 30, 2020			June 30, 2020			March 31, 2020			December 31, 2019			September 30, 2019
Profitability and other ratios of consolidated operations
Return on average assets(1)		0.82	%		(0.96	)%		(0.35	)%		0.71	%		(0.64	)%
Return on average equity(1)		7.32	%		(8.69	)%		(2.89	)%		6.20	%		(5.83	)%
Return on average tangible common equity(2)		7.92	%		(13.77	)%		(5.44	)%		6.46	%		(12.49	)%
Dividend payout ratio(3)		25.00	%		(13.64	)%		(31.58	)%		28.57	%		(13.33	)%
Net interest spread		2.84	%		2.77	%		2.56	%		2.65	%		2.47	%
Net interest margin(1)		3.09	%		3.09	%		2.97	%		3.04	%		2.86	%
Noninterest income to total revenue(4)		6.61	%		9.09	%		3.82	%		8.00	%		5.12	%
Noninterest income to average total assets(1)		0.20	%		0.29	%		0.11	%		0.25	%		0.15	%
Noninterest expense to average total assets(1)		2.09	%		3.78	%		2.50	%		2.37	%		1.97	%
Adjusted noninterest expense to average total assets(1)		2.10	%		2.22	%		2.30	%		2.41	%		2.13	%
Efficiency ratio(2)(5)		67.54	%		119.60	%		87.01	%		77.10	%		69.63	%
Adjusted efficiency ratio including the pre-tax effect of investments in alternative energy partnerships(2)(5)		68.30	%		119.55	%		86.54	%		74.51	%		70.00	%
Average loans held-for-investment to average deposits		92.86	%		98.51	%		108.54	%		108.50	%		105.92	%
Average securities available-for-sale to average total assets		15.49	%		13.75	%		12.60	%		10.48	%		12.71	%
Average stockholders’ equity to average total assets		11.26	%		11.04	%		12.11	%		11.47	%		11.06	%

(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
		September 30, 2020											June 30, 2020											March 31, 2020
		Average								Yield			Average								Yield			Average								Yield
		Balance					Interest			/ Cost			Balance					Interest			/ Cost			Balance					Interest			/ Cost
Interest-earning assets
Loans held-for-sale		$	19,544				$	139		2.83	%		$	19,967				$	155		3.12	%		$	22,273				$	220		3.97	%
SFR mortgage		1,311,513					13,178			4.00	%		1,416,358					14,187			4.03	%		1,532,967					15,295			4.01	%
Commercial real estate, multifamily, and construction		2,493,408					29,666			4.73	%		2,524,477					29,459			4.69	%		2,564,485					30,223			4.74	%
Commercial and industrial, SBA, and lease financing		1,673,548					18,585			4.42	%		1,706,120					19,392			4.57	%		1,613,324					19,157			4.78	%
Other consumer		35,563					451			5.05	%		40,697					449			4.44	%		47,761					639			5.38	%
Gross loans and leases		5,533,576					62,019			4.46	%		5,707,619					63,642			4.48	%		5,780,810					65,534			4.56	%
Securities		1,190,765					6,766			2.26	%		1,063,941					7,816			2.95	%		952,966					7,820			3.30	%
Other interest-earning assets		457,558					881			0.77	%		424,776					1,239			1.17	%		297,444					1,360			1.84	%
Total interest-earning assets		7,181,899					69,666			3.86	%		7,196,336					72,697			4.06	%		7,031,220					74,714			4.27	%
Allowance for loan losses		(89,679		)									(78,528		)									(60,470		)
BOLI and noninterest-earning assets		594,885											622,398											592,192
Total assets		$	7,687,105										$	7,740,206										$	7,562,942
Interest-bearing liabilities
Savings		$	948,898				$	2,353		0.99	%		$	905,997				$	2,718		1.21	%		$	890,830				$	3,296		1.49	%
Interest-bearing checking		1,919,327					1,660			0.34	%		1,710,038					2,186			0.51	%		1,520,922					3,728			0.99	%
Money market		681,421					645			0.38	%		592,872					850			0.58	%		608,926					1,760			1.16	%
Certificates of deposit		1,030,829					2,906			1.12	%		1,214,939					4,451			1.47	%		1,151,518					5,827			2.04	%
Total interest-bearing deposits		4,580,475					7,564			0.66	%		4,423,846					10,205			0.93	%		4,172,196					14,611			1.41	%
FHLB advances		608,169					3,860			2.52	%		819,166					4,818			2.37	%		1,039,055					5,883			2.28	%
Securities sold under repurchase agreements		1,309					2			0.61	%		1,024					2			0.79	%		—					—			—	%
Long-term debt and other interest-bearing liabilities		173,911					2,385			5.46	%		173,977					2,357			5.45	%		174,056					2,359			5.45	%
Total interest-bearing liabilities		5,363,864					13,811			1.02	%		5,418,013					17,382			1.29	%		5,385,307					22,853			1.71	%
Noninterest-bearing deposits		1,357,411											1,349,735											1,133,306
Noninterest-bearing liabilities		100,424											118,208											128,282
Total liabilities		6,821,699											6,885,956											6,646,895
Total stockholders’ equity		865,406											854,250											916,047
Total liabilities and stockholders’ equity		$	7,687,105										$	7,740,206										$	7,562,942
Net interest income/spread							$	55,855		2.84	%							$	55,315		2.77	%							$	51,861		2.56	%
Net interest margin										3.09	%										3.09	%										2.97	%
Ratio of interest-earning assets to interest-bearing liabilities		133.89			%								132.82			%								130.56			%
Total deposits		$	5,937,886				$	7,564		0.51	%		$	5,773,581				$	10,205		0.71	%		$	5,305,502				$	14,611		1.11	%
Total funding (1)		$	6,721,275				$	13,811		0.82	%		$	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.

		Three Months Ended
		December 31, 2019											September 30, 2019
		Average								Yield			Average								Yield
		Balance					Interest			/ Cost			Balance					Interest			/ Cost
Interest-earning assets
Loans held-for-sale		$	23,527				$	221		3.73	%		$	216,746				$	1,894		3.47	%
SFR mortgage		1,689,228					16,788			3.94	%		1,866,103					19,179			4.08	%
Commercial real estate, multifamily, and construction		2,633,342					32,763			4.94	%		2,717,609					33,343			4.87	%
Commercial and industrial, SBA, and lease financing		1,821,064					23,381			5.09	%		1,840,202					24,970			5.38	%
Other consumer		54,088					777			5.70	%		58,652					901			6.09	%
Gross loans and leases		6,221,249					73,930			4.71	%		6,699,312					80,287			4.75	%
Securities		833,726					7,812			3.72	%		1,105,499					10,024			3.60	%
Other interest-earning assets		330,950					1,960			2.35	%		362,613					2,346			2.57	%
Total interest-earning assets		7,385,925					83,702			4.50	%		8,167,424					92,657			4.50	%
Allowance for loan losses		(61,642		)									(55,976		)
BOLI and noninterest-earning assets		630,308											584,190
Total assets		$	7,954,591										$	8,695,638
Interest-bearing liabilities
Savings		981,346					3,889			1.57	%		1,055,086					4,722			1.78	%
Interest-bearing checking		1,546,322					4,234			1.09	%		1,511,432					4,483			1.18	%
Money market		743,695					2,593			1.38	%		755,114					3,093			1.63	%
Certificates of deposit		1,332,911					7,531			2.24	%		1,750,970					10,513			2.38	%
Total interest-bearing deposits		4,604,274					18,247			1.57	%		5,072,602					22,811			1.78	%
FHLB advances		1,020,478					6,396			2.49	%		1,333,739					8,519			2.53	%
Securities sold under repurchase agreements		2,223					15			2.68	%		1,922					13			2.68	%
Long-term debt and other interest-bearing liabilities		174,092					2,384			5.43	%		174,111					2,399			5.47	%
Total interest-bearing liabilities		5,801,067					27,042			1.85	%		6,582,374					33,742			2.03	%
Noninterest-bearing deposits		1,108,077											1,047,858
Noninterest-bearing liabilities		132,698											103,667
Total liabilities		7,041,842											7,733,899
Total stockholders’ equity		912,749											961,739
Total liabilities and stockholders’ equity		$	7,954,591										$	8,695,638
Net interest income/spread							$	56,660		2.65	%							$	58,915		2.47	%
Net interest margin										3.04	%										2.86	%
Ratio of interest-earning assets to interest-bearing liabilities		127.32			%								124.08			%
Total deposits		$	5,712,351				$	18,247		1.27	%		$	6,120,460				$	22,811		1.48	%
Total funding (1)		$	6,909,144				$	27,042		1.55	%		$	7,630,232				$	33,742		1.75	%

(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, 2020											September 30, 2019
		Average								Yield			Average								Yield
		Balance					Interest			/ Cost			Balance					Interest			/ Cost
Interest-earning assets
Loans held-for-sale		$	20,591				$	515		3.34	%		$	99,130				$	2,388		3.22	%
SFR mortgage		1,419,882					42,660			4.01	%		2,077,932					64,631			4.16	%
Commercial real estate, multifamily, and construction		2,527,331					89,348			4.72	%		3,168,206					111,119			4.69	%
Commercial and industrial, SBA, and lease financing		1,664,365					57,134			4.59	%		1,877,277					79,145			5.64	%
Other consumer		41,319					1,538			4.97	%		60,324					2,721			6.03	%
Gross loans and leases		5,673,488					191,195			4.50	%		7,282,869					260,004			4.77	%
Securities		1,069,668					22,402			2.80	%		1,384,928					40,322			3.89	%
Other interest-earning assets		393,495					3,480			1.18	%		342,597					7,083			2.76	%
Total interest-earning assets		7,136,651					217,077			4.06	%		9,010,394					307,409			4.56	%
Allowance for credit losses		(76,275		)									(60,294		)
BOLI and noninterest-earning assets		603,128											579,992
Total assets		$	7,663,504										$	9,530,092
Interest-bearing liabilities
Savings		915,364					8,366			1.22	%		1,112,949					15,152			1.82	%
Interest-bearing checking		1,717,483					7,575			0.59	%		1,548,655					13,562			1.17	%
Money market		627,927					3,255			0.69	%		831,401					11,124			1.79	%
Certificates of deposit		1,132,058					13,184			1.56	%		2,419,158					43,014			2.38	%
Total interest-bearing deposits		4,392,832					32,380			0.98	%		5,912,163					82,852			1.87	%
FHLB advances		821,349					14,561			2.37	%		1,347,330					25,889			2.57	%
Securities sold under repurchase agreements		779					4			0.69	%		2,146					47			2.93	%
Long-term debt and other interest-bearing liabilities		173,981					7,101			5.45	%		174,167					7,118			5.46	%
Total interest-bearing liabilities		5,388,941					54,046			1.34	%		7,435,806					115,906			2.08	%
Noninterest-bearing deposits		1,280,461											1,034,697
Noninterest-bearing liabilities		115,582											99,113
Total liabilities		6,784,984											8,569,616
Total stockholders’ equity		878,520											960,476
Total liabilities and stockholders’ equity		$	7,663,504										$	9,530,092
Net interest income/spread							$	163,031		2.72	%							$	191,503		2.48	%
Net interest margin										3.05	%										2.84	%
Ratio of interest-earning assets to interest-bearing liabilities		132.43			%								121.18			%
Total deposits		$	5,673,293				$	32,380		0.76	%		$	6,946,860				$	82,852		1.59	%
Total funding (1)		$	6,669,402				$	54,046		1.08	%		$	8,470,503				$	115,906		1.83	%

(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.

Return on average tangible common equity and efficiency ratio, as adjusted, tangible common equity, tangible common equity to tangible assets, tangible common equity per common share, and pre-tax pre-provision income and 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 common equity is calculated by subtracting preferred stock, goodwill, and other intangible assets from stockholders' equity. Tangible assets is calculated by subtracting goodwill and other intangible assets from total assets. Banking regulators also exclude goodwill and other intangible assets from stockholders' equity when assessing the capital adequacy of a financial institution.

Adjusted efficiency ratio is calculated by excluding (gain) loss on investments in alternative energy partnerships from noninterest expense and adding total pre-tax return, which includes the (gain) loss on investments in alternative energy partnerships, to the sum of net interest income and noninterest income (total revenue). Pre-tax pre-provision income is calculated by adding total revenue and subtracting noninterest expense. 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.

		September 30, 2020					June 30, 2020					March 31, 2020					December 31, 2019					September 30, 2019
Tangible common equity, and tangible common equity to tangible assets ratio
Total assets		$	7,738,106				$	7,770,138				$	7,662,607				$	7,828,410				$	8,625,337
Less goodwill		(37,144		)			(37,144		)			(37,144		)			(37,144		)			(37,144		)
Less other intangible assets		(2,939		)			(3,292		)			(3,722		)			(4,151		)			(4,605		)
Tangible assets(1)		$	7,698,023				$	7,729,702				$	7,621,741				$	7,787,115				$	8,583,588
Total stockholders' equity		$	874,254				$	846,959				$	835,002				$	907,245				$	900,988
Less goodwill		(37,144		)			(37,144		)			(37,144		)			(37,144		)			(37,144		)
Less other intangible assets		(2,939		)			(3,292		)			(3,722		)			(4,151		)			(4,605		)
Tangible equity(1)		834,171					806,523					794,136					865,950					859,239
Less preferred stock		(184,878		)			(185,037		)			(187,687		)			(189,825		)			(189,825		)
Tangible common equity(1)		$	649,293				$	621,486				$	606,449				$	676,125				$	669,414
Total stockholders' equity to total assets		11.30			%		10.90			%		10.90			%		11.59			%		10.45			%
Tangible equity to tangible assets(1)		10.84			%		10.43			%		10.42			%		11.12			%		10.01			%
Tangible common equity to tangible assets(1)		8.43			%		8.04			%		7.96			%		8.68			%		7.80			%
Common shares outstanding		49,760,543					49,750,958					49,593,077					50,413,681					50,406,763
Class B non-voting non-convertible common shares outstanding		477,321					477,321					477,321					477,321					477,321
Total common shares outstanding		50,237,864					50,228,279					50,070,398					50,891,002					50,884,084
Tangible common equity per common share(1)		$	12.92				$	12.37				$	12.11				$	13.29				$	13.16
Book value per common share		$	13.72				$	13.18				$	12.93				$	14.10				$	13.98

(1)		Non-GAAP measure.

Banc of California, Inc.
Consolidated Operations
Non-GAAP Measures, Continued
(Dollars in thousands, except per share data)
(Unaudited)
		Three Months Ended
		September 30, 2020					June 30, 2020					March 31, 2020					December 31, 2019					September 30, 2019
Return on tangible common equity
Average total stockholders' equity		$	865,406				$	854,250				$	916,047				$	912,749				$	961,739
Less average preferred stock		(184,910		)			(185,471		)			(189,607		)			(189,824		)			(213,619		)
Less average goodwill		(37,144		)			(37,144		)			(37,144		)			(37,144		)			(37,144		)
Less average other intangible assets		(3,172		)			(3,574		)			(4,003		)			(4,441		)			(4,935		)
Average tangible common equity(1)		$	640,180				$	628,061				$	685,293				$	681,340				$	706,041
Net income (loss)		$	15,913				$	(18,449	)			$	(6,593	)			$	14,272				$	(14,132	)
Less preferred stock dividends and impact of preferred stock redemption		(3,454		)			(3,393		)			(3,007		)			(3,540		)			(8,496		)
Add amortization of intangible assets		353					430					429					454					500
Less tax effect on amortization and impairment of intangible assets		(74		)			(90		)			(90		)			(95		)			(105		)
Net income (loss) available to common stockholders(1)		$	12,738				$	(21,502	)			$	(9,261	)			$	11,091				$	(22,233	)
Return on average equity		7.32			%		(8.69		)	%		(2.89		)	%		6.20			%		(5.83		)	%
Return on average tangible common equity(1)		7.92			%		(13.77		)	%		(5.44		)	%		6.46			%		(12.49		)	%
Statutory tax rate utilized for calculating tax effect on amortization of intangible assets		21.00			%		21.00			%		21.00			%		21.00			%		21.00			%

		Three Months Ended
		September 30, 2020				June 30, 2020				March 31, 2020					December 31, 2019					September 30, 2019
Adjusted efficiency ratio including the pre-tax effect of investments in alternative energy partnerships
Noninterest expense		$	40,394			$	72,770			$	46,919				$	47,483				$	43,240
Gain (loss) on investments in alternative energy partnerships		1,430				167				(1,905		)			(1,039		)			940
Total noninterest expense excluding (gain) loss on investments in alternative energy partnerships(1)		$	41,824			$	72,937			$	45,014				$	46,444				$	44,180
Net interest income		$	55,855			$	55,315			$	51,861				$	56,660				$	58,915
Noninterest income		3,954				5,528				2,061					4,930					3,181
Total revenue		59,809				60,843				53,922					61,590					62,096
Tax credit from investments in alternative energy partnerships		—				—				—					1,689					77
Deferred tax expense on investments in alternative energy partnerships		—				—				—					(177		)			(8		)
Tax effect on tax credit and deferred tax expense		—				—				—					267					7
(Loss) gain on investments in alternative energy partnerships		1,430				167				(1,905		)			(1,039		)			940
Total pre-tax adjustments for investments in alternative energy partnerships		1,430				167				(1,905		)			740					1,016
Adjusted total revenue(1)		$	61,239			$	61,010			$	52,017				$	62,330				$	63,112
Efficiency ratio(1)		67.54		%		119.60		%		87.01			%		77.10			%		69.63			%
Adjusted efficiency ratio including the pre-tax effect of investments in alternative energy partnerships(1)		68.30		%		119.55		%		86.54			%		74.51			%		70.00			%
Effective tax rate utilized for calculating tax effect on tax credit and deferred tax expense		N/A				N/A				N/A					15.00			%		9.36			%

(1)		Non-GAAP measure.

Banc of California, Inc.
Consolidated Operations
Non-GAAP Measures, Continued
(Dollars in thousands, except per share data)
(Unaudited)
		Three Months Ended
		September 30, 2020				June 30, 2020				March 31, 2020				December 31, 2019				September 30, 2019
Adjusted noninterest income and expense
Total noninterest income		$	3,954			$	5,528			$	2,061			$	4,930			$	3,181
Adjustments for non-core items:
Net (gain) loss on securities available for sale		—				(2,011		)		—				(3		)		5,794
Net (gain) loss on sale of legacy SFR loans held for sale		(272		)		—				—				—				—
Fair value adjustment on legacy SFR loans held for sale		(24		)		(25		)		1,586				(30		)		(16		)
Total non-core adjustments - noninterest income		(296		)		(2,036		)		1,586				(33		)		5,778
Adjusted noninterest income(1)		$	3,658			$	3,492			$	3,647			$	4,897			$	8,959
Total noninterest expense		$	40,394			$	72,770			$	46,919			$	47,483			$	43,240
Adjustments for non-core items:
Naming rights termination		—				(26,769		)		—				—				—
Extinguishment of debt		—				(2,515		)		—				—				—
Professional (fees) recoveries		(1,172		)		(875		)		(1,678		)		3,557				2,615
Restructuring expense		—				—				—				(1,626		)		—
Other expenses		—				—				—				—				(131		)
Total non-core adjustments - noninterest expense		(1,172		)		(30,159		)		(1,678		)		1,931				2,484
Gain (loss) on investments in alternative energy partnerships		1,430				167				(1,905		)		(1,039		)		940
Total adjustments - noninterest expense		258				(29,992		)		(3,583		)		892				3,424
Adjusted noninterest expense(1)		$	40,652			$	42,778			$	43,336			$	48,375			$	46,664

		Three Months Ended
		September 30, 2020					June 30, 2020					March 31, 2020					December 31, 2019					September 30, 2019
Adjusted pre-tax pre-provision income
Net interest income		$	55,855				$	55,315				$	51,861				$	56,660				$	58,915
Noninterest income		3,954					5,528					2,061					4,930					3,181
Total revenue		59,809					60,843					53,922					61,590					62,096
Noninterest expense		40,394					72,770					46,919					47,483					43,240
Pre-tax pre-provision income (loss)(1)		$	19,415				$	(11,927	)			$	7,003				$	14,107				$	18,856
Net interest income		$	55,855				$	55,315				$	51,861				$	56,660				$	58,915
Noninterest income		3,954					5,528					2,061					4,930					3,181
Total non-core adjustments - noninterest income		(296		)			(2,036		)			1,586					(33		)			5,778
Adjusted noninterest income(1)		3,658					3,492					3,647					4,897					8,959
Total revenue		59,513					58,807					55,508					61,557					67,874
Noninterest expense		40,394					72,770					46,919					47,483					43,240
Total adjustments - noninterest expense		258					(29,992		)			(3,583		)			892					3,424
Adjusted noninterest expense(1)		40,652					42,778					43,336					48,375					46,664
Adjusted pre-tax pre-provision income(1)		$	18,861				$	16,029				$	12,172				$	13,182				$	21,210
Average assets		$	7,687,105				$	7,740,206				$	7,562,942				$	7,954,591				$	8,695,638
Pre-tax pre-provision income (loss) ROAA		1.00			%		(0.62		)	%		0.37			%		0.70			%		0.86		%
Adjusted pre-tax pre-provision income ROAA(1)		0.98			%		0.83			%		0.65			%		0.66			%		0.97		%

(1)		Non-GAAP measure.