BANC OF CALIFORNIA, INC. The following is management's discussion and analysis of the major factors that influenced our results of operations and financial condition as of and for the three months endedMarch 31, 2022 . This analysis should be read in conjunction with our Annual Report on Form 10-K for the year endedDecember 31, 2021 and with the unaudited consolidated financial statements and notes thereto set forth in this Quarterly Report on Form 10-Q for the quarterly period endedMarch 31, 2022 . Executive Overview We are focused on providing core banking products and services, including customized and innovative banking and lending solutions, designed to cater to the unique needs ofCalifornia's diverse businesses, entrepreneurs and communities through our 32 full service branches inOrange ,Los Angeles ,San Diego , andSanta Barbara Counties. Through our over 670 dedicated professionals, we are committed to servicing and building enduring relationships by providing a higher standard of banking. We offer a variety of financial products and services designed around our target clients in order to serve their banking and financial needs. We continue to grow average loans and earning assets, improve our deposit mix, reduce our cost of deposits, and maintain disciplined expense control. Strong loan production helped to offset runoff in certain legacy areas of our portfolio. Our loan pipeline is steadily building which is expected to support continued loan and earning asset growth through the year, assuming improving economic trends continue.
On
Financial Highlights
For the first quarter of 2022, net income was$48.5 million and net income available to common stockholders was$43.3 million , or$0.69 per diluted common share. This compares to net income of$5.8 million and net income available to common stockholders of$4.0 million , or$0.07 per diluted common share, for the fourth quarter of 2021; and net income of$14.4 million and net income available to common stockholders of$7.8 million , or$0.15 per diluted common share for the first quarter of 2021. The first quarter of 2022 net income available to common stockholders included a$31.3 million pre-tax recovery from the settlement of a previously charged-off loan and a$3.7 million after-tax charge related to the redemption of Series E Preferred Stock. The fourth quarter of 2021 included$13.5 million of pre-tax merger costs and$11.3 million of provision for credit losses for the loans acquired in thePacific Mercantile Bancorp (PMB) acquisition. The first quarter of 2021 included$700 thousand of pre-tax merger costs and a$3.3 million after-tax charge related to the redemption of Series D Preferred Stock.
Financial results for the first quarter of 2022 included:
•Return on average assets of 2.09%, up from 0.24% in the fourth quarter of 2021 •Pre-tax pre-provision return on average assets of 1.54%, up from 0.84% in the fourth quarter of 2021 •Adjusted pre-tax pre-provision return on average assets of 1.55%, up from 1.39% in the fourth quarter of 2021 •Net interest margin of 3.51%, an increase of 23 basis points from the fourth quarter of 2021 •Noninterest-bearing deposits represented 40% of total deposits atMarch 31, 2022 , up from 28% a year earlier •Average cost of total deposits of 0.08%, a 3 basis point decrease from the fourth quarter of 2021 •Redemption of all Series E Preferred Stock for total consideration of$98.7 million •Repurchase of$4.3 million of common stock under a$75 million authorization announced onMarch 15, 2022 •Allowance for credit losses at 1.32% of total loans and 181% of non-performing loans •Common Equity Tier 1 capital at 11.40%
COVID-19 Operational Update
The markets in which we operate are impacted by continuing uncertainty about the
pace and strength of reopening and recovering from the COVID-19 pandemic.
Despite the challenges created by the pandemic, we continue to execute on our
strategic initiatives and the transformation of our balance sheet. We continue
to operate 28 of our 32 branches as we temporarily closed some overlapping areas
at the beginning of the pandemic to ensure an adequate balance between employee
and client safety and business continuity to meet our clients' banking needs. We
have adopted a hybrid workplace environment, allowing many of our employees
outside of our branches the flexibility to continue to work remotely. We
encourage our employees to get vaccinated and we continue to monitor all
federal, state, and local laws to ensure we are in compliance with the latest
health orders.
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As ofMarch 31, 2022 , we have helped businesses through the funding of$411 million in PPP loans and continue to support our clients as we work with them through the forgiveness process. Prior to acquisition, PMB originated$390 million in PPP loans. AtMarch 31, 2022 , outstanding PPP loans totaled$58.3 million , net of fees, of which$13.9 million related to round one and$44.4 million related to round two of the SBA program.
Borrower Payment Relief Efforts
We have been committed to supporting our customers during this period of economic uncertainty. We actively engaged with our borrowers seeking payment relief and waived certain fees for impacted clients. One method we deployed was to offer forbearance and deferments to qualified clients. For single-family residential mortgage loans, the forbearance period was initially 90 days in length and was patterned after the HUD guidelines where applicable. With respect to our non-SFR loan portfolio, the forbearance and deferment periods were also initially 90 days in length and were permitted to be extended. For those commercial borrowers that demonstrated a continuing need for a deferral, we generally obtained credit enhancements such as additional collateral, personal guarantees, and/or reserve requirements in order to grant an additional deferral period. At this time, we no longer offer COVID-related deferments or forbearances. For a discussion of the risk factors related to COVID-19, please refer to Part II, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Other Efforts We continue to support and seek to meet the immediate needs of the most vulnerable members of our community. We do this by providing donations, grants and sponsorships that support affordable housing, workforce and economic development and community services. Our employee volunteers have continued to provide financial literacy classes in a virtual environment as well as developing a virtual tour of the Bank's headquarters that introduces students to a variety of different career paths and business unit leaders.
CRITICAL ACCOUNTING ESTIMATES
We follow accounting and reporting policies and procedures that conform, in all material respects, to GAAP and to practices generally applicable to the financial services industry, the most significant of which are described in Note 1 - Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Item 8 of our Annual Report on Form 10-K for the year endedDecember 31, 2021 filed with theSEC . The preparation of Consolidated Financial Statements in conformity with GAAP requires management to make judgments and accounting estimates that affect the amounts reported for assets, liabilities, revenues and expenses on the Consolidated Financial Statements and accompanying notes, and amounts disclosed as contingent assets and liabilities. While we base estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates. Accounting estimates are necessary in the application of certain accounting policies and procedures that are particularly susceptible to significant change. Critical accounting policies are defined as those that require the most complex or subjective judgment and are reflective of significant uncertainties, and could potentially result in materially different results under different assumptions and conditions. Management has identified our most critical accounting policies and accounting estimates as: investment securities, allowance for credit losses, business combinations, valuation of acquired loans, goodwill and deferred income taxes. See Note 1 - Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements (Unuadited) included in Item 1 for a description of these policies.Investment Securities . Held-to-maturity debt securities are carried at amortized cost and available-for-sale debt securities are carried at fair value. These securities are analyzed for credit deterioration under ASC 326, which requires the Company to determine whether impairment exists as of the reporting date and whether that impairment is due to credit deterioration. An allowance for credit losses would be established for losses on held-to-maturity and available-for-sale debt securities due to credit losses and would be reported as a component of provision for credit losses. 43
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The valuation of investment securities considers observable data such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and respective terms and conditions for debt instruments. We employ procedures to monitor the pricing service's assumptions and establish processes to challenge the pricing service's valuations that appear unusual or unexpected. Multiple quotes or prices may be obtained in this process and we determine which fair value is most appropriate based on market information and analysis. Quotes obtained through this process are generally non-binding. We follow established procedures to ensure that assets and liabilities are properly classified in the fair value hierarchy. All securities available-for-sale were classified as Level 2 atMarch 31, 2022 andDecember 31, 2021 . When a market is illiquid or there is a lack of transparency around the inputs to valuation, including at least one unobservable input, the securities are classified as Level 3 and reliance is placed upon internally developed models and management's judgment and evaluation for valuation. We had no securities available-for-sale classified as Level 3 atMarch 31, 2022 andDecember 31, 2021 . The estimates used to determine the fair values of investment securities can be complex and require judgment. These critical estimates are difficult to predict and may result in credit losses in future periods if actual results materially differ from the estimated assumptions utilized in our valuation of these assets. Allowance for Credit Losses ("ACL"). The ACL is estimated on a quarterly basis and represents management's estimate of current expected credit losses ("CECL") in our loan portfolio. The ACL estimate is based on the accounting standard commonly known as CECL. Under the CECL method, pools of loans with similar risk characteristics are collectively evaluated while loans that no longer share risk characteristics with loan pools are evaluated individually. Collective loss estimates are determined by applying loss factors, designed to estimate current expected credit losses, to amortized cost balances over the remaining life of the collectively evaluated portfolio. The allowance for loan losses includes qualitative adjustments to bring the allowance to the level management believes is appropriate based on factors that have not otherwise been fully accounted for, including those described in the federal banking agencies' joint interagency policy statement on ALL. These factors include, among others, inherent imprecision in forecasting economic variables, including determining the depth and duration of economic cycles and their impact to relevant economic variables; qualitative adjustments based on our evaluation of different forecast scenarios and known recent events impacting relevant economic variables; data factors that address the risk that certain model inputs may not reflect all available information including (i) risk factors that have not been fully addressed in internal risk ratings, (ii) changes in lending policies and procedures, (iii) changes in the level and quality of experience held by lending management, (iv) imprecision in the risk rating system and (v) limitations in data available for certain loan portfolios. The ACL process also includes challenging and calibrating the model and model results against observed information, trends and events within the loan portfolio, among others. The ACL and provision for credit losses include amounts and changes from both the allowance for loan losses and the reserve for unfunded commitments. Business Combinations. Business combinations are accounted for using the acquisition method of accounting under ASC Topic 805 - Business Combinations. Under the acquisition method, the Company measures the identifiable assets acquired, including identifiable intangible assets, and liabilities assumed in a business combination at fair value on acquisition date.Goodwill is generally determined as the excess of the fair value of the consideration transferred, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. The estimates used to determine the fair values of assets and liabilities acquired in a business combination can be complex and require judgment. For example, we generally value core deposit intangible assets using a discounted cash flow approach, which require a number of critical estimates that include, but are not limited to, future expected cash flows from depositor relationships, expected "decay" rates, and the determination of discount rates. These critical estimates are difficult to predict and may result in impairment charges in future periods if actual results materially differ from the estimated assumptions utilized in our initial valuation of net assets and liabilities acquired.Goodwill .Goodwill represents the excess purchase price of businesses acquired over the fair value of the identifiable net assets acquired.Goodwill is not subject to amortization and is evaluated for impairment at least annually, normally during the fourth fiscal quarter, or more frequently in the interim if events occur or circumstances change indicating impairment may have occurred. The determination of whether impairment has occurred is based on an assessment of several factors, including, but not limited to, operating results, business plans, economic projections, anticipated future cash flows, and current market data. Any impairment identified as part of this testing is recognized through a charge to noninterest expense. The assessment of impairment discussed above incorporate inherent uncertainties, including projected operating results and future market conditions, which are often difficult to predict and may result in impairment charges in future periods if actual results materially differ from the estimated assumptions utilized in our forecasts. Acquired Loans. At acquisition date, loans are evaluated to determine whether they meet the criteria of a purchased credit-deteriorated ("PCD") loan. PCD loans are loans that in management's judgement have experienced more than insignificant deterioration in credit quality since origination. Factors that indicate a loan may have experienced more than insignificant credit deterioration include delinquency, downgrades in credit rating, non-accrual status, and other negative factors identified by 44
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management at the time of initial assessment. PCD loans are initially recorded
at fair value, with the resulting non-credit discount or premium being amortized
or accreted into interest income using the interest method. In addition to the
fair value adjustment, at the date of acquisition, an ACL is established with a
corresponding increase to the overall acquired loan balance. This initial ACL is
determined using the Company's current expected credit losses methodology.
Acquired loans that are not considered PCD loans ("non-PCD loans") are also
recognized at fair value at the acquisition date, with the resulting credit and
non-credit discount or premium being amortized or accreted into interest income
using the interest method. In addition to the fair value adjustment, at the time
of acquisition, the Company establishes an initial ACL for acquired non-PCD
loans through a charge to the provision for credit losses. This initial ACL is
determined using the Company's current expected credit losses methodology.
Subsequent to acquisition date, the ACL for both PCD and non-PCD loans is determined using the same methodology to determine current expected credit losses that is applied to all other loans.
The estimates used to determine the fair values of non-PCD and PCD acquired loans can be complex and require significant judgment regarding items such as default rates, timing and amount of future cash flows, prepayment rates and other factors. These critical estimates are difficult to predict and may result in provisions for credit losses in future periods if actual losses materially differ from the estimated assumptions utilized in our initial valuation of acquired loans. Deferred Taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Deferred tax assets are also recognized for operating loss and tax credit carryforwards. Accounting guidance requires that companies assess whether a valuation allowance should be established against the deferred tax assets based on the consideration of all available evidence using a "more likely than not" standard. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. In assessing the realization of deferred tax assets, management will continue to evaluate both positive and negative evidence on a quarterly basis, including considering the four possible sources of future taxable income, such as future reversal of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in prior carryback year(s), and future tax planning strategies.
Although we believe our assessments of the realizability of deferred income taxes are reasonable, no assurance can be given that their realizability will not be different from that which is reflected in our net deferred tax asset balance.
Tax positions that are uncertain but meet a more-likely-than-not recognition threshold are initially and subsequently measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position meets the more likely than not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to management's judgment. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. Although we believe our reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in our historical income tax provisions and accruals. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made.
Recent Accounting Pronouncements Not Yet Adopted
Our recent accounting pronouncements not yet adopted are described in Note 1 to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 and in Note 1 Consolidated Financial Statements (unaudited) included in Part I of this Quarterly Report on Form 10-Q. 45
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Non-GAAP Financial Measures
Under Item 10(e) of SEC Regulation S-K, public companies disclosing financial measures in filings with theSEC that are not calculated in accordance with GAAP must also disclose, along with each non-GAAP financial measure, certain additional information, including a presentation of the most directly comparable GAAP financial measure, a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP financial measure, as well as a statement of the reasons why the company's management believes that presentation of the non-GAAP financial measure provides useful information to investors regarding the company's financial condition and results of operations and, to the extent material, a statement of the additional purposes, if any, for which the company's management uses the non-GAAP financial measure. Tangible assets, tangible equity, tangible common equity, tangible equity to tangible assets, tangible common equity to tangible assets, tangible common equity per share, return on average tangible common equity, adjusted noninterest expense, adjusted noninterest expense to average total assets, pre-tax pre-provision (PTPP) income, adjusted PTPP income, PTPP income (loss) 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) and adjusted return on average assets (ROAA) constitute supplemental financial information determined by methods other than in accordance with GAAP. These non-GAAP measures are used by management in its analysis of the Company's performance. Tangible assets and tangible equity are calculated by subtracting goodwill and other intangible assets from total assets and total equity. Tangible common equity is calculated by subtracting preferred stock from tangible equity. Return on average tangible common equity is computed by dividing net income (loss) available to common stockholders, 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 total revenue and subtracting adjusted noninterest expense. PTPP income ROAA is computed by dividing annualized PTPP income by average assets. Adjusted PTPP income ROAA is computed by dividing annualized adjusted PTPP income by average assets. Efficiency ratio is computed by dividing noninterest expense by total revenue. Adjusted efficiency ratio is computed by dividing adjusted noninterest expense by total revenue. Adjusted net income is calculated by adjusting net income for tax-effected noninterest expense adjustments and the tax impact from the exercise of stock appreciation rights for the periods indicated. Adjusted ROAA is computed by dividing annualized adjusted net income by average assets. Adjusted net income available to common stockholders is computed by removing the impact of preferred stock redemptions from adjusted net income. Adjusted diluted earnings per share is computed by dividing adjusted net income available to common stockholders by the weighted average diluted common shares outstanding. Management believes the presentation of these non-GAAP financial measures provide 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.
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(Dollars in thousands, except per share data) March 31, December 31, (Unaudited) 2022 2021 Tangible common equity, and tangible common equity to tangible assets ratio Total assets$ 9,583,540 $ 9,393,743 Less goodwill (95,127) (94,301) Less other intangible assets (4,990) (6,411) Tangible assets(1) $
9,483,423
Total stockholders' equity$ 979,009 $ 1,065,290 Less preferred stock - (94,956) Total common stockholders' equity $
979,009
Total stockholders' equity$ 979,009 $ 1,065,290 Less goodwill (95,127) (94,301) Less other intangible assets (4,990) (6,411) Tangible equity(1) 878,892 964,578 Less preferred stock - (94,956) Tangible common equity(1) $
878,892
Total stockholders' equity to total assets 10.22 % 11.34 % Tangible equity to tangible assets(1) 9.27 % 10.38 % Tangible common equity to tangible assets(1) 9.27 % 9.36 % Common shares outstanding 62,077,312 62,188,206 Class B non-voting non-convertible common shares outstanding 477,321 477,321 Total common shares outstanding 62,554,633 62,665,527 Book value per common share$ 15.65 $ 15.48 Tangible common equity per common share(1)$ 14.05 $ 13.88 (1)Non-GAAP measure. 47
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Three Months Ended
(Dollars in thousands) March 31, December 31, March 31,
(Unaudited) 2022 2021 2021
Return on tangible common equity
Average total stockholders' equity $ 1,049,912 $ 1,035,782 $ 888,174
Less average preferred stock (75,965) (94,956) (164,895)
Average total common stockholders' equity 973,947 940,826 723,279
Less average goodwill (94,307) (86,911) (37,144)
Less average other intangible assets (6,224) (4,994) (2,517)
Average tangible common equity(1) $ 873,416 $ 848,921 $ 683,618
Net income available to common stockholders $ 43,345 $ 4,024 $ 7,825
Add amortization of intangible assets 441 430 282
Less tax effect on amortization of intangible assets(2) (93) (90) (59)
Net income available to common stockholders(1) $ 43,693 $ 4,364 $ 8,048
Return on average equity 18.74 % 2.20 % 6.56 %
Return on average tangible common equity(1) 20.29 % 2.04 % 4.77 %
(1)Non-GAAP measure.
(2)Adjustments shown net of a statutory Federal tax rate of 21%.
Three Months Ended
(Dollars in thousands) March 31, December 31, March 31,
(Unaudited) 2022 2021 2021Adjusted noninterest expense
Total noninterest expense$ 46,596 $ 58,127 $ 46,735
Noninterest expense adjustments:
Professional recoveries (fees) 106 (642) (721) Merger-related costs - (13,469) (700)
Noninterest expense adjustments before (loss) gain in alternative energy partnership investments
106 (14,111) (1,421)
(Loss) gain in alternative energy partnership
investments (158) 1,220 (3,630)
Total noninterest expense adjustments (52) (12,891) (5,051)
Adjusted noninterest expense(1) $ 46,544 $ 45,236 $ 41,684
Average assets $ 9,392,305 $ 9,331,955 $ 7,860,952
Noninterest expense to average total assets 2.01 % 2.47 % 2.41 %
Adjusted noninterest expense to average total assets(1) 2.01 %
1.92 % 2.15 %
(1)Non-GAAP measure.
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Three Months Ended
(Dollars in thousands) March 31, December 31, March 31,
(Unaudited) 2022 2021 2021
Adjusted pre-tax pre-provision income
Net interest income $ 76,441 $ 73,039 $ 57,916
Noninterest income 5,910 4,860 4,381
Total revenue 82,351 77,899 62,297
Noninterest expense 46,596 58,127 46,735
Pre-tax pre-provision income(1) $ 35,755 $ 19,772 $ 15,562
Total revenue $ 82,351 $ 77,899 $ 62,297
Noninterest expense 46,596 58,127 46,735
Total noninterest expense adjustments (52) (12,891) (5,051)
Adjusted noninterest expense(1) 46,544 45,236 41,684
Adjusted pre-tax pre-provision income(1) $ 35,807 $ 32,663 $ 20,613
Average assets $ 9,392,305 $ 9,331,955 $ 7,860,952
Pre-tax pre-provision income ROAA(1) 1.54 % 0.84 % 0.80 %
Adjusted pre-tax pre-provision income ROAA(1) 1.55 % 1.39 % 1.06 %
Efficiency ratio(1) 56.58 % 74.62 % 75.02 %
Adjusted efficiency ratio(1) 56.52 % 58.07 % 66.91 %
(1)Non-GAAP measure.
Three Months Ended
March 31, December 31, March 31,
2022 2021 2021
Adjusted net income
Net income(1)(2) $ 48,512 $ 5,751 $ 14,375
Adjustments:
Noninterest expense adjustments 52 12,891 5,051
Tax impact of adjustments above(3) (15) (3,811) (1,493)
Tax impact from exercise of stock appreciation rights - - (2,093)
Adjustments to net income 37 9,080 1,465
Adjusted net income(4) $ 48,549 $ 14,831 $ 15,840
Average assets $ 9,392,305 $ 9,331,955 $ 7,860,952
ROAA 2.09 % 0.24 % 0.74 %
Adjusted ROAA(4) 2.10 % 0.63 % 0.82 %
Adjusted net income available to common stockholders Net income available to common stockholders
$ 43,345 $ 4,024 $ 7,825 Adjustments to net income 37 9,080 1,465 Adjustments for impact of preferred stock redemption 3,747 - 3,347
Adjusted net income available to common stockholders(4)
$ 13,104 $ 12,637 Average diluted common shares 62,906,003 60,690,046 50,750,522 Diluted EPS$ 0.69 $ 0.07 $ 0.15 Adjusted diluted EPS(4)(5)$ 0.75 $ 0.22 $ 0.25 (1)Net income for the three months endedMarch 31, 2022 includes 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. (2)Net income for the three months endedDecember 31, 2021 includes an$11.3 million pre-tax charge for the expected lifetime credit losses for non-purchased credit deteriorated loans acquired in the PMB Acquisition; there is no similar charge in any of the other periods presented. 49 -------------------------------------------------------------------------------- Table of Contents (3)Tax impact of adjustments shown at an effective tax rate of 29.6%. (4)Non-GAAP measure. (5)Represents adjusted net income available to common stockholders divided by average diluted common shares. 50
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Table of Contents RESULTS OF OPERATIONS Net Interest Income The following table presents interest income, average interest-earning assets, interest expense, average interest-bearing liabilities, and their corresponding yields and costs expressed both in dollars and rates for the three months endedMarch 31, 2022 ,December 31, 2021 andMarch 31, 2021 : Three Months EndedMarch 31, 2022 December 31, 2021 March 31, 2021 Interest and Interest and Yield/ Interest and ($ in thousands) Average Balance Dividends Yield/Cost Average Balance Dividends Cost Average Balance Dividends Yield/Cost Interest-earning assets: Total loans(1)(2)$ 7,262,774 $ 76,234 4.26 %$ 6,947,336 $ 73,605 4.20 %$ 5,784,041 $ 61,345 4.30 % Securities 1,292,079 7,309 2.29 % 1,290,664 6,934 2.13 % 1,236,138 6,501 2.13 % Other interest-earning assets (3) 265,339 726 1.11 % 593,739 1,034 0.69 % 336,443 772 0.93 % Total interest-earning assets 8,820,192 84,269 3.87 % 8,831,739 81,573 3.66 % 7,356,622 68,618 3.78 % Allowance for loan losses (92,618) (92,367) (81,111) BOLI and noninterest-earning assets (4) 664,731 592,583 585,441 Total assets$ 9,392,305 $ 9,331,955 $ 7,860,952 Interest-bearing liabilities: Interest-bearing checking$ 2,409,262 641 0.11 %$ 2,461,397 693 0.11 %$ 2,140,314 901 0.17 % Savings and money market 1,673,244 510 0.12 % 1,780,483 1,078 0.24 % 1,654,525 2,390 0.59 % Certificates of deposit 508,244 237 0.19 % 610,766 301 0.20 % 720,180 995 0.56 % Total interest-bearing deposits 4,590,750 1,388 0.12 % 4,852,646 2,072 0.17 % 4,515,019 4,286 0.38 % FHLB advances 459,749 2,953 2.60 % 407,122 2,977 2.90 % 446,618 3,112 2.83 % Other borrowings 116,495 55 0.19 % 27,300 7 0.10 % 4,127 2 0.20 % Long-term debt 274,417 3,432 5.07 % 270,879 3,478 5.09 % 256,361 3,302 5.22 % Total interest-bearing liabilities 5,441,411 7,828 0.58 % 5,557,947 8,534 0.61 % 5,222,125 10,702 0.83 % Noninterest-bearing deposits 2,795,633 2,614,712 1,653,517 Noninterest-bearing liabilities 105,349 123,514 97,136 Total liabilities 8,342,393 8,296,173 6,972,778 Total stockholders' equity 1,049,912 1,035,782 888,174 Total liabilities and stockholders' equity$ 9,392,305 $ 9,331,955 $ 7,860,952 Net interest income/spread$ 76,441 3.29 %$ 73,039 3.05 %$ 57,916 2.95 % Net interest margin (5) 3.51 % 3.28 % 3.19 % Ratio of interest-earning assets to interest-bearing liabilities 162 % 159 % 141 % Total deposits(6) 7,386,383 1,388 0.08 % 7,467,358 2,072 0.11 % 6,168,536 4,286 0.28 % Total funding (7) 8,237,044 7,828 0.39 % 8,172,659 8,534 0.41 % 6,875,642 10,702 0.63 %
(1)Includes average loans held for sale of
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(2)Total loans are net of deferred fees, related direct costs, premiums and
discounts. Nonaccrual loans are included in the average balance. Interest income
includes net accretion of deferred loan fees of $1.1 million , $1.6 million and
$1.4 million and net amortization of premium on purchased loans of $(954)
thousand , $(2.0) million and $(411) thousand for the three months ended
March 31, 2022 , December 31, 2021 and March 31, 2021 , respectively.
(3)Includes average balance of FHLB, FRB and other bank stock at cost and average time deposits with other financial institutions.
(4)Includes average balance of bank-owned life insurance of
(5)Annualized net interest income divided by average interest-earning assets.
(6)Total deposits is the sum of interest-bearing deposits and noninterest-bearing deposits. The cost of total deposits is calculated as annualized total interest expense on deposits divided by average total deposits.
(7)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
Net interest income increased
The net interest margin increased 23 basis points to 3.51% for the first quarter as the average interest-earning assets yield increased 21 basis points and the average cost of total funding decreased 2 basis points. The yield on average interest-earning assets increased to 3.87% for the first quarter from 3.66% for the fourth quarter due to the mix of interest-earning assets and higher yields on loan and securities. Average loans increased by$315.4 million from ongoing loan growth, including purchases during the quarter, and including the loans acquired in the PMB acquisition for a full quarter while other interest-earning assets decreased$328.4 million . The average yield on loans increased 6 basis points to 4.26% during the first quarter as a result of the portfolio mix. The loan yield includes the impact of prepayment penalty fees, the net reversal or recapture of nonaccrual loan interest, accelerated discount accretion on the early payoff of purchased loans, and accelerated fees from PPP loan forgiveness; these items increased the loan yield by 12 basis points in both the first quarter and prior quarter. The average cost of funds decreased 2 basis points to 0.39% for the first quarter from 0.41% for the fourth quarter. This decrease was driven by the lower average cost of interest-bearing liabilities due to an improved funding mix, including higher average noninterest-bearing deposits as a result of the PMB acquisition and growth from business development efforts. Average noninterest-bearing deposits represented 38% of total average deposits for the first quarter compared to 35% of total average deposits for the fourth quarter. Average noninterest-bearing deposits were$180.9 million higher in the first quarter compared to the fourth quarter while average deposits were$81.0 million lower for the linked quarters.Average Federal Home Loan Bank (FHLB) advances and other borrowings increased$141.8 million due mostly to higher overnight borrowings. The average cost of interest-bearing liabilities decreased 3 basis points to 0.58% for the first quarter from 0.61% for the fourth quarter due to the funding mix including the impact of including PMB's deposits for a full quarter. The average cost of interest-bearing deposits declined 5 basis points to 0.12% for the first quarter from 0.17% for the fourth quarter. The average cost of total deposits decreased 3 basis points to 0.08% for the first quarter. The spot rate of total deposits was 0.07% at the end of the first quarter.
Three Months Ended
Net interest income for the first quarter of 2022 increased$18.5 million to$76.4 million from$57.9 million for the same 2021 period. Net interest income was positively impacted by a higher average interest-earning assets, a higher yield on such assets, and improved funding costs, offset by higher average interest-bearing liabilities. The net interest margin increased 32 basis points to 3.51% for the first quarter of 2022 as the average interest-earning assets yield increased 9 basis points and the average cost of total funding decreased 24 basis points. The average yield on interest-earning assets increased to 3.87% for the first quarter of 2022 from 3.78% for the same 2021 period due to the mix of interest-earning assets, due in part to the acquisition of PMB, and higher yields on securities and other interest-earning assets. Average loans increased by$1.48 billion from ongoing loan growth and the loans acquired in the PMB acquisition. The average yield on loans decreased 4 basis points to 4.26% for the 52
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first quarter of 2022, compared to 4.30% for the same 2021 period. The loan yield includes the impact of prepayment penalty fees, the net reversal or recapture of nonaccrual loan interest, accelerated discount accretion on the early payoff of purchased loans, and accelerated fees from PPP loan forgiveness; these items increased the loan yield by 12 basis points in the first quarter of 2022 compared to 13 basis points for same 2021 period. The average cost of funds decreased 24 basis points to 0.39% for the first quarter of 2022, from 0.63% for the same 2021 period. This decrease was driven by the lower average cost of interest-bearing liabilities due to an improved funding mix, including higher average noninterest-bearing deposits as a result of the PMB acquisition and growth from business development efforts. Average noninterest-bearing deposits represented 38% of total average deposits for the first quarter of 2022, compared to 27% for the same 2021 period. Average noninterest-bearing deposits were$1.14 billion higher in the first quarter of 2022, compared to same 2021 period, while average deposits were$1.22 billion higher.Average Federal Home Loan Bank (FHLB) advances and other borrowings increased$125.5 million due mostly to higher overnight borrowings, offset by lower term advances. The average cost of interest-bearing liabilities decreased 25 basis points to 0.58% for the first quarter of 2022 from 0.83% for the same 2021 period due to the funding mix including the impact of including deposits from the PMB acquisition. The average cost of interest-bearing deposits declined 26 basis points to 0.12% for the first quarter of 2022, from 0.38% for the same 2021 period while the average cost of total deposits decreased 20 basis points to 0.08% for the first quarter of 2022, compared to 0.28% for the same 2021 period. 53
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Rate/Volume Analysis
The following table presents the changes in interest income and interest expense
for the major components of interest-earning assets and interest-bearing
liabilities. The information provided presents the changes attributable to: (i)
changes in volume multiplied by the prior rate; and (ii) changes in rate
multiplied by the prior volume. Changes attributable to both rate and volume
which cannot be segregated have been allocated proportionately to the change due
to volume and the change due to rate.
Three Months Ended
March 31, 2022 vs. 2021
Increase (Decrease) Due
to Net Increase
($ In thousands) Volume Rate (Decrease)
Interest and dividend income:
Total loans $ 15,467 $ (578) $ 14,889
Securities 304 504 808
Other interest-earning assets (180) 134 (46)
Total interest and dividend income $ 15,591 $ 60 $ 15,651
Interest expense:
Interest-bearing checking $ 98 $ (358) $ (260)
Savings and money market (382) (1,498) (1,880)
Certificates of deposit (234) (524) (758)
FHLB advances 93 (252) (159)
Other borrowings 53 - 53
Long-term debt 227 (97) 130
Total interest expense (145) (2,729) (2,874)
Net interest income $ 15,736 $ 2,789 $ 18,525
Provision for Credit Losses
The provision for credit losses is charged to operations to adjust the allowance
for credit losses to the level required to cover current expected credit losses
in our loan portfolio and unfunded commitments. The following table presents the
components of our provision for credit losses:
Three Months Ended
March 31, December 31, March 31,
($ in thousands) 2022 2021 2021
(Reversal of) provision for loan losses $ (31,342) $ 10,890 $ (1,284)
(Reversal of) provision for credit losses -
unfunded loan commitments (200) 372 177
Total (reversal of) provision for credit losses
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Three Months Ended
The provision for credit losses was a reversal of$31.5 million for the first quarter, compared to a charge of$11.3 million for the fourth quarter. The first quarter reversal of credit losses included$31.3 million related to a recovery from the settlement of a loan previously charged-off in 2019. The fourth quarter of 2021 provision charge was due primarily to the initial charge for the non-purchased credit deteriorated loans acquired in the PMB acquisition.
Three Months Ended
The provision for credit losses was a reversal of$31.5 million for the first quarter of 2022, compared to$1.1 million for the same 2021 period. The first quarter reversal of credit losses included$31.3 million related to a recovery from the settlement of a loan previously charged-off in 2019. The reversal of credit losses in the first quarter of 2021 was due primarily to improvements in key macro-economic forecast variables, such as unemployment and gross domestic product, consideration of credit quality metrics, and lower period end loan balances compared toDecember 31, 2020 .
See further discussion in "Allowance for Credit Losses."
Noninterest Income
The following table presents the components of noninterest income for the
periods indicated:
Three Months Ended
March 31, December 31, March 31,
($ in thousands) 2022 2021 2021
Customer service fees $ 2,434 $ 2,037 $ 1,758
Loan servicing income 212 119 268
Income from bank owned life insurance 796 794 672
Net gain on sale of securities available-for-sale 16 - -
Net gain on sale of loans - 275 -
Other income 2,452 1,635 1,683
Total noninterest income $ 5,910 $ 4,860 $ 4,381 Three Months Ended
Noninterest income increased$1.1 million to$5.9 million for the first quarter due mostly to higher customer service fees and all other income, offset by lower net gains on the sale of loans. The$397 thousand increase in customer service fees was due mostly to including PMB's operations for a full quarter. The$817 thousand increase in all other income was due mostly to a$771 thousand gain related to a sale-leaseback transaction.
Three Months Ended
Noninterest income for the first quarter of 2022 increased$1.5 million to$5.9 million compared to the same 2021 period due mostly to an increase in customer services fees and other income. The$676 thousand increase in customer services fees was due mostly to higher average deposit balances from the PMB acquisition. The$769 thousand increase in other income was due mostly to the aforementioned gain related to the sale-leaseback transaction. 55
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Noninterest Expense
The following table presents the breakdown of noninterest expense for the
periods indicated:
Three Months Ended
March 31, December 31, March 31,
($ in thousands) 2022 2021 2021
Salaries and employee benefits $ 28,987 $ 27,811 $ 25,719
Occupancy and equipment 7,855 7,855 7,196
Professional fees 2,907 3,921 4,022
Data processing 1,828 1,939 1,655
Regulatory assessments 775 1,040 774
Reversal of provision for loan repurchases (471) (675) (132)
Amortization of intangible assets 441 430 282
Merger-related costs - 13,469 700
All other expense 4,116 3,557 2,889
Noninterest expense before loss (gain) on
investments in alternative energy partnerships 46,438 59,347 43,105
Loss (gain) on investments in alternative energy
partnerships 158 (1,220) 3,630
Total noninterest expense $ 46,596
Three Months Ended
Noninterest expense decreased$11.5 million to$46.6 million for the first quarter compared to the prior quarter. The decrease was due mostly to lower merger-related costs of$13.5 million , offset by higher net loss in alternative energy partnership investments of$1.4 million and an increase in salaries and employee benefits of$1.2 million . The increase in salaries and employee benefits is attributed to including PMB operations for a full quarter and higher taxes and benefits typical of the first quarter. Professional fees included net recoveries of indemnified legal expenses of$106 thousand in the first quarter compared to net expenses of$642 thousand during the fourth quarter. Total operating costs, defined as noninterest expense adjusted for certain expense items (refer to section Non-GAAP Measures), increased$1.3 million to$46.5 million for the first quarter compared to$45.2 million for the prior quarter. This increase is due mostly to higher salaries and benefits of$1.2 million and all other expense of$559 thousand as a result of higher payroll-related items typical of the first quarter and including PMB's operations for a full quarter.
Three Months Ended
Noninterest expense was$46.6 million for the first quarter of 2022, a decrease of$139 thousand from$46.7 million for the comparable 2021 period. The decrease was mainly due to (i) lower professional fees of$1.1 million , due to overall reductions in indemnified legal fees, net of recoveries, for resolved legal proceedings and various other litigations, (ii) lower loss on alternative energy partnerships of$3.5 million from decreased loss sharing allocations and (iii) lower merger-related costs of$700 thousand resulting from completion of the PMB acquisition, offset by (iv) higher salaries and employee benefits of$3.3 million , occupancy and equipment of$659 thousand , and all other expense of$1.2 million due mainly to the PMB acquisition.
Income Tax Expense
For the three months endedMarch 31, 2022 ,December 31, 2021 andMarch 31, 2021 , income tax expense was$18.8 million ,$2.8 million , and$2.3 million , resulting in an effective tax rate of 27.9%, 32.4% and 13.8%, respectively. The decrease in the effective tax rate during the first quarter of 2022 was due mostly to the fourth quarter of 2021 including the impact of the PMB acquisition on our annual effective tax rate. The effective tax rate for 2022 is expected to be similar to the effective income tax rate for the first quarter.
The 13.8% effective tax rate for the first quarter of 2021 included a
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For additional information, see Note 8 to Consolidated Financial Statements included in Part I of this Quarterly Report on Form 10-Q.
FINANCIAL CONDITIONInvestment Securities The primary goal of our investment securities portfolio is to provide a relatively stable source of interest income while satisfactorily managing risk, including credit risk, reinvestment risk, liquidity risk, and interest rate risk. Certain investment securities provide a source of liquidity as collateral for FHLB advances, Federal Reserve Discount Window capacity, repurchase agreements, and certain public deposits.
Investment Securities Held-to-Maturity
Securities held-to-maturity totaled$329.4 million atMarch 31, 2022 and included$215.2 million in agency securities and$114.2 million in municipal securities. During the first quarter of 2022, we transferred certain longer-duration fixed-rate mortgage-backed securities and municipal securities from the available-for-sale portfolio to the held-to-maturity portfolio to lower the adverse impact rising interest rates may have on the fair value of such securities. At the time of the transfer, the securities had an unrealized gross loss of$16.6 million , which along with the related unrealized loss in accumulated other comprehensive income, will be amortized into interest income as a yield adjustment over the remaining term of the securities.
The following table presents the amortized cost and fair value of investment securities held-to-maturity as of the dates
March 31, 2022 December 31, 2021
Unrealized Amortized Unrealized Gain
($ in thousands) Amortized Cost Fair Value Gain (Loss) Cost Fair Value (Loss)
Securities held-to-maturity:
U.S. government agency and U.S.
government sponsored enterprise
residential mortgage-backed
securities $ 153,713 $
145,881
$ -U.S. government agency andU.S. government sponsored enterprise collateralized mortgage obligations 61,464 57,818 (3,646) - - - Municipal securities 114,204 107,253 (6,951) - - -
Total securities held-to-maturity
$ -
Investment Securities Available-for-Sale
The following table presents the amortized cost and fair value of the investment
securities available for sale portfolio and the corresponding amounts of gross
unrealized gains and losses recognized in accumulated other comprehensive income
as of the dates indicated:
March 31, 2022 December 31, 2021
Unrealized Unrealized Gain
($ in thousands) Amortized Cost Fair Value Gain (Loss) Amortized Cost Fair Value (Loss)
Securities available-for-sale:
SBA loan pool securities $ 13,918 $
13,810
$ (88) U.S. government agency andU.S. government sponsored enterprise residential mortgage-backed securities 12,084 11,733 (351) 190,382 191,969 1,587U.S. government agency andU.S. government sponsored enterprise collateralized mortgage obligations 170,827 166,215 (4,612) 242,458 241,541 (917) Municipal securities - - - 117,913 119,015 1,102 Non-agency residential mortgage-backed securities 54,417 50,462 (3,955) 56,014 56,025 11 Collateralized loan obligations 492,775 487,973 (4,802) 521,275 518,964 (2,311) Corporate debt securities 165,259 168,582 3,323 162,002 173,598 11,596
Total securities available-for-sale
$ 10,980 Securities available-for-sale were$898.8 million atMarch 31, 2022 , a decrease of$416.9 million , or 31.7%, from$1.32 billion atDecember 31, 2021 . The decrease was mainly due to the aforementioned transfer of certain securities to the held-to-maturity 57
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portfolio, collateralized loan obligation (CLO) payoffs of$28.5 million , principal payments of$8.0 million , sales of$17.6 million and higher unrealized net losses of$21.5 million , offset by purchases of$5.0 million . The higher net unrealized losses were due mostly to the impact of increases in longer-term market interest rates on the value of each class of securities. During the first quarter of 2022, increases in market interest rates resulted in higher net unrealized losses in our securities portfolio and stockholders' equity. As market interest rates increase, bond prices tend to fall and, consequently, the fair value of our securities may also decrease. To this end, we may have further net unrealized losses on our securities classified as available-for-sale, which would negatively affect our total and tangible stockholders' equity. CLOs totaled$488.0 million and$519.0 million and were allAAA and AA rated atMarch 31, 2022 andDecember 31, 2021 . We perform due diligence and ongoing credit quality review of our CLO holdings, which includes monitoring performance factors such as external credit ratings, collateralization levels, collateral concentration levels, and other performance factors. We did not record credit impairment for any investment securities for the three months endedMarch 31, 2022 or 2021. We monitor our securities portfolio to ensure it has adequate credit support and we consider the lowest credit rating for identification of potential credit impairment. As ofMarch 31, 2022 , we believe there was no credit impairment and we did not have the current intent to sell securities with a fair value below amortized cost atMarch 31, 2022 , and it is more likely than not that we will not be required to sell such securities prior to the recovery of their amortized cost basis. As ofMarch 31, 2022 , all of our investment securities in an unrealized loss position received an investment grade credit rating. The overall net decreases in fair value during the period were attributable to a combination of changes in interest rates and credit market conditions. 58
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The following table presents the fair values and weighted average yields using amortized cost, of the securities held-to-maturity portfolio as ofMarch 31, 2022 , based on the earlier of maturity dates or next repricing dates: More than One Year through More than Five Years through Ten One Year or Less Five Years Years More than Ten Years Total Fair Weighted Fair Weighted Fair Weighted Fair Weighted Fair Weighted ($ in thousands) Value Average Yield Value Average Yield Value Average Yield Value Average Yield Value Average Yield Securities held-to-maturity:U.S. government agency andU.S. government sponsored enterprise residential mortgage-backed securities $ - - % $ - - % $ - - %$ 145,881 2.69 %$ 145,881 2.69 %U.S. government agency andU.S. government sponsored enterprise collateralized mortgage obligations - - % - - % - - % 57,818 2.64 % 57,818 2.64 % Municipal securities - - % - - % 14,143 2.20 % 93,110 2.68 % 107,253 2.62 % Total securities held-to-maturity $ - - % $ - - %$ 14,143 2.20 %$ 296,809 2.68 %$ 310,952 2.66 % The following table presents the fair values and weighted average yields using amortized cost, of the securities available-for-sale portfolio as ofMarch 31, 2022 , based on the earlier of maturity dates or next repricing dates: More than Five
Years through Ten
One Year or Less More than One Year through Five Years Years More than Ten Years Total
Fair Weighted Fair Weighted Fair Weighted Fair Weighted Fair Weighted
($ in thousands) Value Average Yield Value Average Yield Value Average Yield Value Average Yield Value Average Yield
Securities available-for-sale:
SBA loan pools securities $ 13,810 0.98 % $ - - % $ - - % $ - - % $ 13,810 0.98 %
U.S. government agency and U.S.
government sponsored enterprise
residential mortgage-backed
securities - - % - - % 11,733 2.23 % - - % 11,733 2.23 %
U.S. government agency and U.S.
government sponsored enterprise
collateralized mortgage
obligations 94,644 0.80 % 9,923 1.98 % 37,688 1.36 % 23,960 1.74 % 166,215 1.14 %
Non-agency residential
mortgage-backed securities - - % - - % - - % 50,462 2.51 % 50,462 2.51 %
Collateralized loan obligations 487,973 1.87 % - - % - - % - - % 487,973 1.87 %
Corporate debt securities - - % 153,601 4.71 % 14,981 5.73 % - - % 168,582 4.80 %
Total securities
available-for-sale $ 596,427 1.68 % $ 163,524 4.54 % $ 64,402 2.39 % $ 74,422 2.27 % $
898,775 2.29 %
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Loans Receivable, Net
The following table presents the composition of our loan and lease portfolio as
of the dates indicated:
March 31, December 31,
($ in thousands) 2022 2021 Amount Change Percentage Change
Commercial:
Commercial and industrial(1) $ 2,799,457 $ 2,668,984 $ 130,473 4.9 %
Commercial real estate 1,163,381 1,311,105 (147,724) (11.3) %
Multifamily 1,397,761 1,361,054 36,707 2.7 %
SBA(2) 133,116 205,548 (72,432) (35.2) %
Construction 225,153 181,841 43,312 23.8 %
Total commercial loans 5,718,868 5,728,532 (9,664) (0.2) %
Consumer:
Single family residential mortgage 1,637,307 1,420,023 217,284 15.3 %
Other consumer 95,398 102,925 (7,527) (7.3) %
Total consumer loans 1,732,705 1,522,948 209,757 13.8 %
Total loans(3) 7,451,573 7,251,480 200,093 2.8 %
Allowance for loan losses (93,226) (92,584) (642) 0.7 %
Total loans receivable, net $ 7,358,347 $ 7,158,896 $ 199,451 2.8 %
(1)Includes warehouse lending balances of $1.57 billion and $1.60 billion at
March 31, 2022 and December 31, 2021 .
(2)Includes 226 PPP loans totaling $58.3 million , net of unamortized loan fees
totaling $203 thousand at March 31, 2022 and 397 PPP loans totaling $123.1
million , net of unamortized loan fees totaling $772 thousand at December 31,
2021 .
(3)Total loans include net deferred loan origination costs (fees), purchased
premiums (discounts), and fair value allocations of premiums (discounts)
totaling $14.7 million and $5.5 million at March 31, 2022 and December 31, 2021 .
Gross loans increased $200.1 million to $7.45 billion from December 31, 2021 due
to loan fundings of $968.0 million , including single-family residential
purchases of $364.4 million . During the first quarter, $150.1 million of
owner-occupied commercial real estate loans acquired in the PMB acquisition were
moved to the other commercial and industrial category from the commercial real
estate category. SBA loans decreased by $72.4 million due mostly from the SBA
processing forgiveness requests. At March 31, 2022 , SBA loans included $58.3
million of PPP loans, net of fees of $203 thousand , compared to $123.1 million ,
net of fees of $772 thousand at December 31, 2021 .
Total commercial loans, excluding PPP loans and warehouse lending, increased
We continue to focus the real estate loan portfolio toward relationship-based multifamily, bridge, light infill construction, and commercial real estate loans. As ofMarch 31, 2022 , loans secured by residential real estate (single-family, multifamily, single-family construction, and warehouse lending credit facilities) represent approximately 65% of our total loans outstanding. Credit Quality Indicators We categorize loans into risk categories based on relevant information about the ability of borrowers to repay their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. We perform a historical loss analysis that is combined with a comprehensive loan to value analysis to analyze the associated risks in the current loan portfolio. We analyze loans individually and grade each loan for credit risk. This analysis includes all loans delinquent over 60 days and non-homogeneous loans such as commercial and commercial real estate loans. 60
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The following table presents the risk categories for total loans by class of
loans as of
Special
($ in thousands) Pass Mention Substandard Doubtful TotalMarch 31, 2022 Commercial: Commercial and industrial$ 2,667,525 $ 76,632 $ 55,300 $ -$ 2,799,457 Commercial real estate 1,143,641 9,314 10,426 - 1,163,381 Multifamily 1,348,920 46,159 2,682 - 1,397,761 SBA 111,479 5,026 16,611 - 133,116 Construction 214,999 10,154 - - 225,153 Consumer: Single family residential mortgage 1,620,555 4,516 12,236 - 1,637,307 Other consumer 94,730 90 578 - 95,398 Total$ 7,201,849 $ 151,891 $ 97,833 $ -$ 7,451,573 Special ($ in thousands) Pass Mention Substandard Doubtful Total December 31, 2021 Commercial: Commercial and industrial$ 2,550,540 $ 65,659 $ 52,785 $ -$ 2,668,984 Commercial real estate 1,292,837 4,845 13,423 - 1,311,105 Multifamily 1,312,038 46,314 2,702 - 1,361,054 SBA 181,129 6,040 18,379 - 205,548 Construction 171,731 10,110 - - 181,841 Consumer: Single family residential mortgage 1,395,785 10,423 13,815 - 1,420,023 Other consumer 102,538 92 295 - 102,925 Total$ 7,006,598 $ 143,483 $ 101,399 $ -$ 7,251,480 Loans risk rated special mention increased$8.4 million to$151.9 million atMarch 31, 2022 compared to$143.5 million atDecember 31, 2021 due mostly to downgrades of certain commercial and industrial and commercial real estate loans, primarily offset by loan upgrades or loan payoffs within the single family residential, and SBA portfolios. Loans risk rated substandard decreased$3.6 million to$97.8 million atMarch 31, 2022 compared to$101.4 million atDecember 31, 2021 due mostly to the pay off or upgrade of certain loans in all loan categories except commercial and industrial and other consumer loans. There were no loans risk rated doubtful atMarch 31, 2022 andDecember 31, 2021 . 61 -------------------------------------------------------------------------------- Table of Contents The commercial and industrial ("C&I") portfolio has limited exposure to certain business sectors undergoing severe stress as a result of the pandemic. The C&I industry concentrations in dollars and as a percentage of total outstanding C&I loan balances are summarized below: March 31,
2022
($ in thousands) Amount %of Portfolio
C&I Portfolio by Industry
Finance and Insurance - Warehouse Lending $ 1,574,549 56 %
Real Estate and Rental Leasing 270,333 10 %
Finance and Insurance - Other 128,758 5 %
Manufacturing 118,912 4 %
Healthcare 92,615 3 %
Wholesale Trade 75,066 3 %
Gas Stations 70,038 3 %
Other Retail Trade 59,758 2 %
Professional Services 56,073 2 %
Construction 46,431 2 %
Television / Motion Pictures 39,184 1 %
Food Services 37,409 1 %
Transportation 21,233 1 %
Accommodations 9,031 - %
All Other 200,067 7 %
Total $ 2,799,457 100 %
Non-Traditional Mortgage Portfolio ("NTM")
We no longer originate SFR loans, however we have and may continue to purchase pools of loans that include NTM loans such as interest only loans with maturities of up to 40 years and flexible initial repricing dates, ranging from 1 to 10 years, and periodic repricing dates through the life of the loan. As ofMarch 31, 2022 andDecember 31, 2021 , the NTM loans totaled$717.6 million , or 9.6% of total loans, and$635.3 million , or 8.8% of total loans, respectively. These SFR loans are comprised of interest only loans and Green Loans. Interest only loans are primarily SFR first mortgage loans that generally have a 30 to 40-year term at the time of origination and include payment features that allow interest only payments in initial periods before converting to a fully amortizing loan. AtMarch 31, 2022 andDecember 31, 2021 , interest only loans totaled$706.9 million and$613.3 million . Green Loans are SFR first and second mortgage lines of credit with a linked checking account that allows all types of deposits and withdrawals to be performed. Green Loans are generally interest only for a 15-year term with a balloon payment due at maturity. AtMarch 31, 2022 andDecember 31, 2021 , Green Loans totaled$10.2 million and$21.5 million . The total NTM portfolio increased by$82.3 million , or 13.0% during the three months endedMarch 31, 2022 . The increase was primarily due to loan purchases, offset by principal paydowns and payoffs.
At
Non-Traditional Mortgage Performance Indicators
Our risk management policy and credit monitoring include reviewing delinquency, FICO scores, and LTV ratios on the NTM loan portfolio. We also regularly monitor market conditions for our geographic lending areas. We have determined that the most significant performance indicators for NTM loans are LTV ratios and FICO scores. AtMarch 31, 2022 , all of our$717.6 million NTM first lien portfolio had LTVs of 80% or less. AtMarch 31, 2022 ,$6.4 million or 63% of our$10.2 million Green Loans first lien portfolio had FICO scores of 700 or greater. 62
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Nonperforming Assets
The following table presents a summary of total nonperforming assets, excluding loans held-for-sale, as of the dates indicated:
March 31, December 31,
($ in thousands) 2022 2021 Amount Change Percentage Change
Loans past due 90 days or more still on
accrual $ - $ - $ - - %
Nonaccrual loans 54,529 52,558 1,971 3.8 %
Total nonperforming loans 54,529 52,558 1,971 3.8 %
Other real estate owned - - - - %
Total nonperforming assets $ 54,529 $ 52,558 $ 1,971 3.8 %
Performing restructured loans (1) $ 14,850 $ 12,538 $ 2,312 18.4 %
Nonaccrual loans to total loans 0.73 % 0.72 %
Nonperforming loans to total loans 0.73 % 0.72 %
Total nonperforming assets to total assets 0.57 % 0.56 %
ALL to nonperforming loans 170.97 % 176.16 %
ACL to nonperforming loans 180.88 % 186.82 %
(1) Excluded from nonperforming loans
Loans are generally placed on nonaccrual status when they become 90 days past due, unless management believes the loan is well secured and in the process of collection. Past due loans may or may not be adequately collateralized, but collection efforts are continuously pursued. Loans may be restructured by management when a borrower experiences changes to their financial condition, causing an inability to meet the original repayment terms, and where we believe the borrower will eventually overcome those circumstances and repay the loan in full.
Additional interest income of approximately
Non-performing loans increased$2.0 million to$54.5 million as ofMarch 31, 2022 , of which$19.5 million , or 36%, relates to loans in a current payment status. The increase was due mostly to additions of$9.4 million , offset by$1.0 million in loans returning to accrual status and$6.4 million in payoffs, paydowns, and charge-offs. Of the$9.4 million of loans placed on non-accrual status,$7.2 million , related to SFR loans. AtMarch 31, 2022 , non-performing loans included (i) a$12.6 million commercial and industrial loan acquired in the PMB acquisition, (ii) SBA PPP loans of$4.4 million and other SBA loans totaling$11.0 million , of which$13.1 million is guaranteed, (iii) SFR loans totaling$10.3 million , and (iv) other commercial loans of$15.7 million . Troubled Debt Restructurings Loans that we modify or restructure where the debtor is experiencing financial difficulties and makes a concession to the borrower in a below-market change in the stated interest rate, a reduction in the loan balance or accrued interest, an extension of the maturity date, or a note split with principal forgiveness are classified as troubled debt restructurings ("TDRs"). TDRs are loans modified for the purpose of alleviating temporary impairments to the borrower's financial condition. A workout plan between a borrower and us is designed to provide a bridge for the cash flow shortfalls in the near term. If the borrower works through the near term issues, in most cases, the original contractual terms of the loan will be reinstated. AtMarch 31, 2022 andDecember 31, 2021 , we had 19 and 18 loans classified as TDRs, with an aggregate balance of$29.9 million and$16.7 million . When a loan becomes a TDR, we cease accruing interest, and classify it as nonaccrual until the borrower demonstrates that the loan is again performing. The increase in TDRs during the three months endedMarch 31, 2022 was due mostly to modifying the$12.6 million non-performing commercial and industrial loan acquired in the PMB acquisition. AtMarch 31, 2022 , of the 19 loans classified as TDRs, 13 loans totaling$14.9 million were making payments according to their modified terms and were less than 90 days delinquent under the modified terms and, as such, were on accruing status. AtDecember 31, 2021 , of the 18 loans classified as TDRs, 11 loans totaling$12.5 million were making payments according to their modified terms and were less than 90 days delinquent under the modified terms and, as such, were on accruing status. 63
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Troubled Debt Restructuring (TDR) Relief: In order to encourage banks to work with impacted borrowers, the CARES Act andU.S. banking regulatory agencies have provided relief from TDR accounting. The main benefits of TDR relief include i) a capital benefit in the form of reduced risk-weighted assets, as TDRs are more heavily risk-weighted for capital purposes; ii) a delinquency status benefit, as the aging of loans are frozen, i.e., they will continue to be reported in the same delinquency bucket they were in at the time of modification; and iii) a nonaccrual status benefit as the loans are generally not reported as nonaccrual during the modification period. Refer to "Borrower Payment Relief Efforts" above for additional information regarding CARES Act deferrals.
Allowance for Credit Losses (ACL)
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 MEVs released by the model provider duringMarch 2022 . The published forecasts consider rising inflation, higher oil prices, ongoing supply chain issues and the military conflict betweenRussia andUkraine , among other factors, and while they reflect a less optimistic view of the economy as compared to theDecember 2021 forecasts, certain MEVs used in the model during the current quarter, such asCalifornia employment and the CRE price index, reflect improvements. Nonetheless, the ultimate pace of economic recovery remains uncertain and accordingly, the economic assumptions used in the model and the resulting ACL level and provision consider both the positive assumptions and potential uncertainties. The ACL process involves subjective and complex judgments as well as adjustments for numerous factors including those described in the federal banking agencies' joint interagency policy statement on ALL, which include underwriting experience and collateral value changes, among others. The ACL, which includes the reserve for unfunded loan commitments, totaled$98.6 million , or 1.32% of total loans, atMarch 31, 2022 , compared to$98.2 million , or 1.35% of total loans, atDecember 31, 2021 . The$442 thousand increase in the ACL was due primarily to: (i) higher specific reserves of$744 thousand and (ii) other net recoveries of$642 thousand (excluding the$31.3 million recovery) offset by (iii) a$944 thousand reduction in general reserves from changes in portfolio mix, improved MEVs used for model purposes, the general credit quality of the portfolio, and lower unfunded commitments, offset by overall loan growth. The$31.3 million recovery from the settlement of a loan previously charged-off in 2019 also resulted in a reversal of provision for credit losses and therefore had no net impact on the ACL. The ACL coverage of non-performing loans was 181% atMarch 31, 2022 compared to 187% atDecember 31, 2021 . The reserve for unfunded loan commitments was established to cover the current expected credit losses for the estimated level of funding of these loan commitments, except for unconditionally cancellable commitments for which no reserve is required.
The following table provides a summary of components of the allowance for credit losses and related ratios as of the dates indicated:
March 31 , ($ in thousands) 2022
Allowance for credit losses:
Allowance for loan losses (ALL) $ 93,226 $ 92,584
Reserve for unfunded loan commitments 5,405 5,605
Total allowance for credit losses (ACL)
98,189
ALL to total loans 1.25 % 1.28 %
ACL to total loans 1.32 % 1.35 %
ACL to total loans, excluding PPP loans 1.33 % 1.39 %
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The following tables provide summaries of activity in the allowance for credit losses for the periods indicated:
Three Months Ended March 31,
($ in thousands) 2022 2021
Allowance Reserve for Allowance Allowance Reserve for Allowance
for Unfunded Loan for for Unfunded Loan for
Loan Losses Commitments Credit Losses Loan Losses Commitments Credit Losses
Balance at beginning of
period $ 92,584 $ 5,605 $ 98,189 $ 81,030 $ 3,183 $ 84,213
Loans charged off (231) - (231) (565) - (565)
Recoveries of loans
previously charged off 32,215 - 32,215 172 - 172
Net recoveries
(charge-offs) 31,984 - 31,984 (393) - (393)
(Reversal of) provision for
credit losses (31,342) (200) (31,542) (1,284) 177 (1,107)
Balance at end of period $ 93,226 $ 5,405 $ 98,631 $ 79,353 $ 3,360 $ 82,713 The following table presents a summary of net (charge-offs) recoveries and the annualized ratio of net charge-offs to average loans by loan class for the periods indicated:
Three Months Ended March 31,
($ in thousands) 2022 2021
Net Annualized Net Annualized
(Charge-offs) (Charge-off) (Charge-offs) (Charge-off)
Recoveries Average Loans Recovery Ratio Recoveries Average Loans Recovery Ratio
Commercial:
Commercial and industrial $ 31,235 $ 2,632,387 4.75 % $ (520) $ 1,949,138 (0.11) %
Commercial real estate - 1,322,949 - % - 868,874 - %
Multifamily - 1,339,067 - % - 1,282,838 - %
SBA 745 116,154 2.57 % 126 272,356 0.19 %
Construction - 188,795 - % - 170,797 - %
Consumer:
Single family residential
mortgage 28 1,562,478 0.01 % - 1,210,105 - %
Other consumer (24) 97,516 (0.10) % 1 28,520 0.01 %
Total loans $ 31,984 $ 7,259,346 1.76 % $ (393) $ 5,782,628 (0.03) %
Net recoveries were $32.0 million during the first quarter of 2022, compared to
net charge-offs of $393 thousand during the comparable 2021 period. The increase
in net recoveries between periods was mainly due to a $31.3 million recovery
from the settlement of a loan previously charged-off in 2019.
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The following table provides a summary of the allocation of the allowance for
loan losses by loan category as well as loans receivable for each category as of
the dates indicated:
March 31, 2022 December 31, 2021
% of % of
Loans in Loans in
Allowance for Category to Allowance for Category to
($ in thousands) Loan Losses Loans Receivable Total Loans Loan Losses Loans Receivable Total Loans
Commercial:
Commercial and industrial$ 39,967 $ 2,799,457 37.5 %$ 33,557 $ 2,668,984 36.8 % Commercial real estate 16,490 1,163,381 15.6 % 21,727 1,311,105 18.1 % Multifamily 15,337 1,397,761 18.8 % 17,893 1,361,054 18.8 % SBA 3,041 133,116 1.8 % 3,017 205,548 2.8 % Construction 6,268 225,153 3.0 % 5,622 181,841 2.5 % Consumer: Single family residential mortgage 11,029 1,637,307 22.0 % 9,608 1,420,023 19.6 % Other consumer 1,094 95,398 1.3 % 1,160 102,925 1.4 % Total$ 93,226 $ 7,451,573 100.0 %$ 92,584 $ 7,251,480 100.0 %
Alternative Energy Partnerships
We invest in certain alternative energy partnerships (limited liability
companies) formed to provide sustainable energy projects that are designed to
generate a return primarily through the realization of federal tax credits
(energy tax credits) and other tax benefits. The investment helps promote the
development of renewable energy sources and help lower the cost of housing for
residents by lowering homeowners' monthly utility costs.
As our respective investments in these entities are more than minor, we have
significant influence, but not control, over the investee's activities that most
significantly impact its economic performance. As a result, we are required to
apply the equity method of accounting, which generally prescribes applying the
percentage ownership interest to the investee's GAAP net income in order to
determine the investor's earnings or losses in a given period. However, because
the liquidation rights, tax credit allocations and other benefits to investors
can change upon the occurrence of specified events, application of the equity
method based on the underlying ownership percentages would not accurately
represent our investment. As a result, we apply the Hypothetical Liquidation at
Book Value ("HLBV") method of the equity method of accounting.
The HLBV method is a balance sheet approach whereby a calculation is prepared at
each balance sheet date to estimate the amount that we would receive if the
equity investment entity were to liquidate all of its assets (as valued in
accordance with GAAP) and distribute that cash to the investors based on the
contractually defined liquidation priorities. The difference between the
calculated liquidation distribution amounts at the beginning and the end of the
reporting period, after adjusting for capital contributions and distributions,
is our share of the earnings or losses from the equity investment for the
period.
The following table presents the activity related to our investment in
alternative energy partnerships for the three months ended March 31, 2022 and
2021:
Three Months Ended
March 31,
($ in thousands) 2022 2021
Balance at beginning of period $ 25,888 $ 27,977
Cash distribution from investments (574) (538)
Gain (loss) on investments using HLBV method (158)
(3,630)
Balance at end of period$ 25,156 $ 23,809
Unfunded equity commitments at end of period $ - $ -
Our most recent investment in alternative energy partnerships totaling
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During the three months ended
For additional information, see Note 12 to Consolidated Financial Statements (unaudited) included in Part I of this Quarterly Report on Form 10-Q.
Deposits
The following table shows the composition of deposits by type as of the dates
indicated:
March 31, 2022 December 31, 2021
% of Total % of Total
($ in thousands) Amount Deposits Amount Deposits Amount Change
Noninterest-bearing deposits $ 2,958,632 39.6 % $ 2,788,196 37.5 % $ 170,436
Interest-bearing demand deposits 2,395,329 32.0 % 2,393,386 32.2 %
1,943
Savings and money market accounts 1,605,088 21.4 % 1,751,135 23.5 %
(146,047)
Certificates of deposit of$250,000 or less 261,229 3.5 % 285,768 3.8 %
(24,539)
Certificates of deposit of more than$250,000 259,423 3.5 % 220,950 3.0 % 38,473 Total deposits$ 7,479,701 100.0 %$ 7,439,435 100.0 %$ 40,266 Total deposits were$7.5 billion atMarch 31, 2022 , an increase of$40.3 million , or 0.5%, from$7.4 billion atDecember 31, 2021 due mostly to higher noninterest-bearing checking balances of$170.4 million , offset by lower savings and money market balances of$146.0 million . Noninterest-bearing deposits totaled$2.96 billion and represented 39.6% of total deposits atMarch 31, 2022 compared to$2.79 billion and 37.5% atDecember 31, 2021 .
Brokered deposits were
The following table presents the scheduled maturities of certificates of deposit as ofMarch 31, 2022 : Over Three Over Six Months Three Months Months Through Through Twelve ($ in thousands) or Less Six Months Months Over One Year Total Certificates of deposit of$250,000 or less$ 85,582 $ 72,892
185,919 34,133 31,393 7,978 259,423
Total certificates of deposit $ 271,501 $ 107,025 $ 99,182 $ 42,944 $ 520,652
Borrowings
We utilize FHLB advances to leverage our capital base, to provide funds for lending and investing activities, as a source of liquidity, and to enhance interest rate risk management. We also maintain additional borrowing availabilities from Federal Reserve Discount Window and unsecured federal funds lines of credit.
During the three months endedMarch 31, 2022 , FHLB advances increased$80.3 million , or 16.9%, to$556.4 million , net of unamortized debt issuance costs of$4.6 million , as ofMarch 31, 2022 , due to an increase in overnight borrowings of$80.0 million . AtMarch 31, 2022 , FHLB advances included$150.0 million in overnight borrowings and$411.0 million in term advances with a weighted average life of 3.7 years and weighted average interest rate of 2.53%.
We did not utilize repurchase agreements at
The Bank maintains available unsecured federal funds lines with five
correspondent banks totaling
The Bank also has the ability to perform unsecured overnight borrowing from
various financial institutions through the American Financial Exchange platform
("AFX"). The availability of such unsecured borrowings fluctuates regularly, is
subject
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to the counterparties discretion and totaled$441.0 million atMarch 31, 2022 andDecember 31, 2021 . Borrowings under the AFX totaled$170.0 million and$25.0 million atMarch 31, 2022 andDecember 31, 2021 . The holding company maintains a$50.0 million revolving line of credit, which matures onDecember 19, 2022 . Borrowings under the line of credit totaled$20.0 million and zero atMarch 31, 2022 andDecember 31, 2021 . The line of credit is subject to certain operational and financial covenants and we were in compliance with these covenants atMarch 31, 2022 .
For additional information, see Note 6 to Consolidated Financial Statements (unaudited) included in Part I of this Quarterly Report on Form 10-Q.
Long-term Debt
The following table presents our long-term debt as of the dates indicated:
March 31, 2022 December 31, 2021
Unamortized Debt Unamortized Debt
Interest Maturity Par Issuance Cost and Par Issuance Cost and
($ in thousands) Rate Date Value Discount Value Discount
Senior notes 5.25% 4/15/2025 $ 175,000 $ (975) $ 175,000 $ (1,014)
Subordinated notes 4.375% 10/30/2030 85,000 (2,084) 85,000 (2,127)
PMB Statutory Trust III,
junior subordinated
debentures Libor + 3.40% 9/26/2032 7,217 - 7,217 -
PMB Capital Trust III, junior subordinated debentures Libor + 2.00% 10/8/2034 10,310 - 10,310 - Total$ 277,527 $ (3,059)$ 277,527 $ (3,141)
At
Liquidity Management We are required to maintain sufficient liquidity to ensure a safe and sound operation. Liquidity may increase or decrease depending upon availability of funds and comparative yields on investments in relation to the return on loans. Historically, we have maintained liquid assets above levels believed to be adequate to meet the requirements of normal operations, including both expected and unexpected cash flow needs such as funding loan commitments, potential deposit outflows and dividend payments. Cash flow projections are regularly reviewed and updated to ensure that adequate liquidity is maintained. As a result of current economic conditions, including government stimulus in response to the pandemic, we have participated in the elevated levels of liquidity in the marketplace. A portion of the additional liquidity is viewed as short-term as it is expected to be used by clients in the near term and, accordingly, we have maintained higher levels of liquid assets. We have observed reductions in average line usage due to the levels of liquidity in the marketplace. We expect to see higher line utilization as liquidity moderates to historical levels.Banc of California, N.A. The Bank's liquidity, represented by cash and cash equivalents and securities available-for-sale, is a product of its operating, investing, and financing activities. The Bank's primary sources of funds are deposits, payments and maturities of outstanding loans and investment securities; sales of loans, investment securities, and other short-term investments; and funds provided from operations. While scheduled payments from the amortization of loans and investment securities and maturing investment securities and short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. 68
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The Bank also generates cash through secured and unsecured secondary sources of funds. The Bank maintains pre-established secured lines of credit with the FHLB and the FRB as secondary sources of liquidity to provide funds for its lending and investment activities and to enhance its interest rate risk and liquidity risk management. AtMarch 31, 2022 , we had available unused secured borrowing capacities of$1.08 billion from the FHLB and$752.8 million through theFederal Reserve Bank's Discount Window and Borrower-in-Custody ("BIC") programs. AtMarch 31, 2022 andDecember 31, 2021 , FHLB advances totaled$556.4 million and$476.1 million , net of unamortized debt issuance costs of$4.6 million and$4.9 million . Borrowings under the BIC program are overnight advances with interest chargeable at the discount window ("primary credit") borrowing rate. There were no borrowings under the FRB's Discount Window and BIC programs atMarch 31, 2022 andDecember 31, 2021 . AtMarch 31, 2022 , the Bank had pledged certain qualifying loans with an unpaid principal balance of$1.09 billion and securities with a carrying value of$8.9 million as collateral for these FRB programs. The Bank may also utilize securities sold under repurchase agreements to leverage its capital base and while it maintains repurchase agreements, there were none outstanding atMarch 31, 2022 andDecember 31, 2021 . Availabilities and terms on repurchase agreements are subject to the counterparties' discretion and our pledging additional investment securities. The Bank had unpledged securities held-to-maturity and available-for-sale aggregating$1.20 billion atMarch 31, 2022 . In addition, the Bank has additional sources of secondary liquidity through pre-established unsecured fed funds lines with correspondent banks, pre-approved unsecured overnight borrowing lines with various financial institutions through the AFX platform, and our ability to obtain brokered deposits. The availability of unsecured borrowings through the AFX platform fluctuates regularly and is subject to the counterparties' discretion and totaled$441.0 million atMarch 31, 2022 . Borrowings under the AFX platform totaled$170.0 million and$25.0 million atMarch 31, 2022 andDecember 31, 2021 . AtMarch 31, 2022 , the Bank had$210.0 million in pre-established unsecured federal funds lines of credit with correspondent banks. There were no borrowings with these correspondent banks atMarch 31, 2022 andDecember 31, 2021 .
The primary sources of funds forBanc of California, Inc. , on a stand-alone holding company basis, are dividends and intercompany tax payments from the Bank, outside borrowing, and its ability to raise capital and issue debt securities. Dividends from the Bank are largely dependent upon the Bank's earnings and are subject to restrictions under certain regulations that limit its ability to transfer funds to the holding company. OCC regulations impose various restrictions on the ability of a bank to make capital distributions, which include dividends, stock redemptions or repurchases, and certain other items. Generally, a well-capitalized bank may make capital distributions during any calendar year equal to up to 100 percent of year-to-date net income plus retained net income for the two preceding years without prior OCC approval. However, any dividend paid by the Bank would be limited by the need to maintain its well-capitalized status plus the capital buffer in order to avoid additional dividend restrictions (Refer to Capital - Dividend Restrictions below for additional information). Currently, the Bank does not have sufficient dividend-paying capacity to declare and pay such dividends to the holding company without obtaining prior approval from the OCC under the applicable regulations. During the three months endedMarch 31, 2022 , there were$16.0 million of dividends paid by the Bank toBanc of California, Inc. AtMarch 31, 2022 ,Banc of California, Inc. had$26.6 million in cash, all of which was on deposit at the Bank. OnMarch 15, 2022 , we announced that our Board of Directors authorized the repurchase of up to$75 million of our common stock. The repurchase authorization expires inMarch 2023 . During the first quarter of 2022, common stock repurchased under the program totaled 215,550 shares at a weighted average price of$19.92 . As ofMarch 31, 2022 , the Company had$70.7 million remaining under the current stock repurchase authorization. OnMarch 15, 2022 we redeemed all outstanding Series E Preferred Stock, and the corresponding depositary shares, each representing a 1/40th interest in a share of the Series E Preferred Stock. The redemption price for the Series E Preferred Stock was$1,000 per share (equivalent to$25 per Series E Depositary Share). Upon redemption, the Series E Preferred Stock and the Series E Depositary Shares were no longer outstanding and all rights with respect to such stock and depositary shares ceased and terminated, except the right to payment of the redemption price. Also upon redemption, the Series E Depositary Shares were delisted from trading on theNew York Stock Exchange . The$3.7 million difference between the consideration paid and the$95.0 million aggregate carrying value of the Series E Preferred Stock was reclassified to retained earnings and resulted in a decrease to net income allocated to common stockholders On a consolidated basis, cash and cash equivalents totaled$254.2 million , or 2.7% of total assets atMarch 31, 2022 . This compared to$228.1 million , or 2.4% of total assets, atDecember 31, 2021 . The$26.1 million increase was due mainly to (i) net income of$48.5 million generated during the year, (ii) a$245.0 million increase in FHLB advances and other borrowings, (iii) a$40.3 million increase in deposits, and (iv) net investment securities inflows of$20.7 million from repayments, net of securities purchases, offset by (iv) net loan outflows of$168.5 million from originations net of repayments and loan purchases, (v) a$98.7 million decrease due to the redemption of Series E Preferred Stock, (vi) a$5.5 million decrease from payments of common and preferred dividends, and (vii) a$4.3 million decrease from repurchases of common stock. 69
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InDecember 2021 , the holding company entered into a$50.0 million revolving line of credit. The line of credit matures onDecember 19, 2022 . We have the option to pay interest using either (i) Prime Rate or (ii) LIBOR + 1.75%. The line of credit is also subject to an unused commitment fee of 0.40% per annum. AtMarch 31, 2022 , there were$20.0 million in borrowings under this line of credit. We believe that our liquidity sources are stable and are adequate to meet our day-to-day cash flow requirements as ofMarch 31, 2022 . However, in light of the ongoing COVID-19 pandemic, we cannot predict at this time the extent to which the pandemic may negatively affect our business, financial condition, liquidity, capital and results of operations.
Commitments and Contractual Obligations
The following table presents our commitments and contractual obligations as of
Commitments and Contractual Obligations
More Than One More Than Three
Total Amount Within Year Through Year Through Over
($ in thousands) Committed One Year Three Years Five Years Five Years
Commitments to extend credit $ 188,436 $ 23,878 $ 140,451 $ 6,380 $ 17,727
Unused lines of credit 1,694,857 1,401,159 164,497 90,623 38,578
Standby letters of credit 8,108 7,457 150 501 -
Total commitments $ 1,891,401 $ 1,432,494 $ 305,098 $ 97,504 $ 56,305
FHLB advances $ 561,000 $ 150,000 $ - $ 411,000 $ -
Other borrowings 190,000 190,000 - - -
Long-term debt 277,527 - - 175,000 102,527
Operating and capital lease
obligations 40,314 8,957 16,357 10,246 4,754
Certificates of deposit 520,652 477,708 40,096 2,848 -
Total contractual obligations $ 1,589,493 $ 826,665 $ 56,453 $ 599,094 $ 107,281
At March 31, 2022 , we had unfunded commitments of $11.2 million , $7.3 million ,
and $8.1 million for LIHTC investments, SBIC investments, and other investments,
respectively.
Capital
In order to maintain adequate levels of capital, we continuously assess
projected sources and uses of capital to support projected asset growth,
operating needs and credit risk. We consider, among other things, earnings
generated from operations and access to capital from financial markets. In
addition, we perform capital stress tests on an annual basis to assess the
impact of adverse changes in the economy on our capital base. During the first
quarter of 2022, increases in market interest rates resulted in higher net
unrealized losses in our securities portfolio and stockholders' equity. As
market interest rates increase, bond prices tend to fall and, consequently, the
fair value of our securities may also decrease. To this end, we may have further
net unrealized losses on our securities classified as available-for-sale, which
would negatively affect our total and tangible stockholders' equity.
The Company and the Bank are subject to the regulatory capital adequacy guidelines that are established by the Federal banking regulators. InJuly 2013 , the Federal banking regulators approved a final rule to implement the revised capital adequacy standards of the Basel III and to address relevant provisions of the Dodd-Frank Act. The final rule strengthens the definition of regulatory capital, increases risk-based capital requirements, makes selected changes to the calculation of risk-weighted assets, and adjusts the prompt corrective action thresholds. The Company and the Bank became subject to the new rule onJanuary 1, 2015 and certain provisions of the new rule were phased in throughJanuary 1, 2019 . Inclusive of the fully phased-in capital conservation buffer, the common equity Tier 1 capital, Tier 1 risk-based capital and total risk-based capital ratio minimums are 7.0%, 8.5% and 10.5%, respectively. 70
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The following table presents the regulatory capital amounts and ratios for the Company and the Bank as of dates indicated:
Minimum Required to Be Well-Capitalized
Under Prompt Corrective Action
Minimum Capital Requirements Provisions
($ in thousands) Amount Ratio Amount Ratio Amount Ratio
March 31, 2022
Banc of California, Inc.
Total risk-based capital $ 1,090,964 13.79 % $ 632,953 8.00 % N/A N/A
Tier 1 risk-based capital 902,320 11.40 % 474,715 6.00 % N/A N/A
Common equity tier 1 capital 902,320 11.40 % 356,036 4.50 % N/A N/A
Tier 1 leverage 902,320 9.72 % 371,488 4.00 % N/A N/A
Banc of California, NA
Total risk-based capital $ 1,238,026 15.66 % $ 632,590 8.00 % $ 790,738 10.00 %
Tier 1 risk-based capital 1,149,825 14.54 % 474,443 6.00 % 632,590 8.00 %
Common equity tier 1 capital 1,149,825 14.54 % 355,832 4.50 % 513,979 6.50 %
Tier 1 leverage 1,149,825 12.38 % 371,468 4.00 % 464,335 5.00 %
December 31, 2021
Banc of California, Inc.
Total risk-based capital $ 1,140,480 14.98 % $ 609,062 8.00 % N/A N/A
Tier 1 risk-based capital 955,747 12.55 % 456,796 6.00 % N/A N/A
Common equity tier 1 capital 860,841 11.31 % 342,597 4.50 % N/A N/A
Tier 1 leverage 955,747 10.37 % 368,610 4.00 % N/A N/A
Banc of California, NA
Total risk-based capital $ 1,195,050 15.71 % $ 608,740 8.00 % $ 760,925 10.00 %
Tier 1 risk-based capital 1,110,767 14.60 % 456,555 6.00 % 608,740 8.00 %
Common equity tier 1 capital 1,110,767 14.60 % 342,416 4.50 % 494,601 6.50 %
Tier 1 leverage 1,110,767 12.06 % 368,306 4.00 % 460,382 5.00 %
Dividend Restrictions
Payment of dividends by the Company are subject to guidance provided by the
Federal Reserve . That guidance provides that bank holding companies that plan to
pay dividends that exceed net earnings for a given period should first consult
with the Federal Reserve . To the extent future quarterly dividends exceed
quarterly net earnings, payment of dividends in respect of the Company's common
and preferred stock will be subject to prior consultation and non-objection from
the Federal Reserve .
Our principal source of funds for dividend payments is dividends received from
the Bank. Federal banking laws and regulations limit the amount of dividends
that may be paid without prior approval of regulatory agencies. Under these
regulations, in the case of the Bank, the amount of dividends that may be paid
in any calendar year is limited to the current year's net profits, combined with
the retained net profits of the preceding two years, subject to the capital
requirements described above. Accordingly, any dividend granted by the Bank
would be limited by the need to maintain its well capitalized status plus the
capital buffer in order to avoid additional dividend restrictions. As described
above, any near term dividend by the Bank will require OCC approval. During the
three months ended March 31, 2022 , the Bank paid $16.0 million dividends to Banc
of California, Inc. During the three months ended
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