BANC OF CALIFORNIA, INC. Critical Accounting Policies 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. 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 and deferred income taxes. See Note 1 - Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Item 8 for a description of these policies. Adoption of the Current Expected Credit Loss (CECL) Model OnJanuary 1, 2020 , we adopted the new accounting standard, commonly known as CECL, which uses a current expected credit loss model for determining the ACL. Upon adoption, we recognized a Day 1 increase in the ACL of$6.4 million and a related after-tax decrease to retained earnings of$4.5 million . Our Day 1 ACL under the new CECL model totaled$68.1 million , or 1.14% of total loans compared to$61.7 million or 1.04% of total loans under the incurred loss model atDecember 31, 2019 . AtDecember 31, 2020 , the ACL totaled$84.2 million resulting in an ACL to total loans coverage ratio of 1.43%, up from 1.04% atDecember 31, 2019 . Excluding PPP loans, the ACL to total loans coverage ratio was 1.48% atDecember 31, 2020 . The ACL and provision for credit losses include amounts and changes from both the ALL and reserve for unfunded loan commitments. Recent Accounting Pronouncements See Note 1 - Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Item 8 for information on recent accounting pronouncements and their expected impact, if any, on our consolidated financial statements. 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. Return on average tangible common equity, tangible common equity to tangible assets, and tangible common equity per common share constitute supplemental financial information determined by methods other than in accordance with GAAP. These non-GAAP measures are used by management, investors and analysts in the analysis of our performance. Tangible common equity is calculated by subtracting preferred stock, goodwill, and other intangible assets from stockholders' equity. Tangible assets are calculated by subtracting goodwill and other intangible assets from total assets. Other third parties, including banking regulators and investors, also exclude goodwill and other intangible assets from stockholders' equity when assessing the capital adequacy of a financial institution. Management believes the presentation of these financial measures and adjusting for the impact of these items provides useful supplemental information that is essential to a proper understanding of our financial results and operating performance. 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. 36 -------------------------------------------------------------------------------- Table of Contents The following tables provide reconciliations of the non-GAAP measures with financial measures defined by GAAP. Return on Average Tangible Common Equity Year Ended December 31, ($ in thousands) 2020 2019 2018 Average total stockholders' equity$ 882,050 $ 948,446 $ 995,320 Less average preferred stock (186,209) (216,304) (257,428) Less average goodwill (37,144) (37,144) (37,144) Less average other intangible assets (3,392) (5,246) (7,799) Average tangible common equity$ 655,305
Net income$ 12,574
(13,301) (20,652) (21,811)
Add amortization of intangible assets 1,518 2,195 3,007
Less tax effect on amortization and impairment of
intangible assets (1) (319) (461) (631)
Adjusted net income $ 472 $ 4,841 $ 26,037
Return on average equity 1.43 % 2.51 % 4.57 %
Return on average tangible common equity 0.07 % 0.70 % 3.76 %
(1) Utilized a 21% Federal statutory tax rate.
Tangible Common Equity to Tangible Assets and Tangible Common Equity per Common Share
December 31,
($ in thousands, except per share data) 2020 2019 2018
Total stockholders' equity $ 897,207 $ 907,245 $ 945,534
Less goodwill (37,144) (37,144) (37,144)
Less other intangible assets (2,633) (4,151) (6,346)
Less preferred stock (184,878) (189,825) (231,128)
Tangible common equity (TCE) $ 672,552 $ 676,125 $ 670,916
Total assets $ 7,877,334 $ 7,828,410 $ 10,630,067
Less goodwill (37,144) (37,144) (37,144)
Less other intangible assets (2,633) (4,151) (6,346)
Tangible assets $ 7,837,557 Total stockholders' equity to total assets 11.39 % 11.59 % 8.89 % Tangible common equity to tangible assets 8.58 % 8.68 % 6.34 % Common stock outstanding 49,767,489 50,413,681 50,172,018 Class B non-voting non-convertible common stock outstanding 477,321 477,321 477,321 Total common stock outstanding 50,244,810 50,891,002 50,649,339 Book value per common share$ 14.18 $ 14.10 $ 14.10 TCE per common share$ 13.39 $ 13.29 $ 13.25 37
-------------------------------------------------------------------------------- Table of Contents 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 29 full service branches inOrange ,Los Angeles ,San Diego , andSanta Barbara Counties. Through our over 600 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 all of their banking and financial needs. We continue to focus on three main initiatives designed to improve our franchise and profitability on an ongoing basis: attracting noninterest-bearing deposits and reducing our cost of deposits, optimizing the balance sheet to focus on higher-margin products while managing credit risk, and appropriately managing down expenses to the size and complexity of the business. Through these efforts, we continue to transform our franchise into a relationship-focused business bank, maintaining our credit quality and serving businesses, entrepreneurs and individuals within our footprint. Financial Highlights For the years endedDecember 31, 2020 , 2019 and 2018, net (loss) income available to common stockholders was$(1.1) million ,$2.6 million and$22.9 million . Diluted (loss) earnings per common share were$(0.02) ,$0.05 and$0.45 for the years endedDecember 31, 2020 , 2019 and 2018. The decrease in net income available to common stockholders for the year endedDecember 31, 2020 as compared to the year endedDecember 31, 2019 was mainly due to lower net interest income due to the strategic reduction in our balance sheet size during 2019 combined with a lower interest rate environment, higher provision for credit losses due to expected impact of the pandemic on lifetime credit losses, and higher noninterest expense related to the termination of our LAFC agreements. Total assets were$7.88 billion atDecember 31, 2020 , an increase of$48.9 million , or 0.6%, from$7.83 billion atDecember 31, 2019 . Significant financial highlights include: •Securities available-for-sale were$1.23 billion atDecember 31, 2020 , an increase of$318.9 million , or 34.9%, from$912.6 million atDecember 31, 2019 . The increase was primarily the result of purchase activities, offset by call and net sale activities between periods. We lowered the amount of collateralized loan obligations in the investment securities portfolio and repositioned our securities available-for-sale portfolio in the overall lower rate environment. •Loans receivable, net, totaled$5.82 billion atDecember 31, 2020 , a decrease of$76.9 million , or 1.30%, from$5.89 billion atDecember 31, 2019 . The decrease was mainly due to elevated runoff activity in our SFR mortgage and multifamily loan portfolios which decreased$360.5 million and$204.7 million , offset by growth in our commercial and industrial portfolio of$397.0 million and in our SBA portfolio of$202.5 million , the latter consisting primarily of PPP loans. •Total deposits were$6.09 billion atDecember 31, 2020 , an increase of$658.6 million , or 12.14%, from$5.43 billion atDecember 31, 2019 . The increase was mainly due to our continued focus on growing relationship-based deposits, strategically augmented by wholesale funding, as we actively managed down deposit costs in response to the interest rate cuts by theFederal Reserve in March of 2020. •Total stockholders' equity was$897.2 million atDecember 31, 2020 , a decrease of$10.0 million , or 1.11%, from$907.2 million atDecember 31, 2019 . The decrease was primarily the result of cash dividends on common stock of$11.8 million and preferred stock of$13.9 million , repurchases of common stock of$12.0 million , the repurchases of our Series D and Series E Preferred Stock at a price equal to or lower than par value for an aggregate amount of$4.4 million , and a$4.5 million CECL adoption charge to retained earnings, partially offset by$19.6 million of other comprehensive income on securities available-for-sale and net income of$12.6 million during the year endedDecember 31, 2020 . Refer to the 2019 Form 10-K filed onMarch 2, 2020 for discussion related to 2019 activity compared to 2018 activity. 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 24 of our 29 branches as we temporarily consolidated 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. The majority of our employees outside of our branches are working offsite with only essential employees onsite. We are classified as an 'essential' business and we have implemented social and physical safeguards for our customers and employees within all of our locations. 38 -------------------------------------------------------------------------------- Table of Contents CARES Act Response Efforts OnMarch 27, 2020 , theU.S. federal government signed the CARES Act into law. The CARES Act provides emergency assistance and health care response for individuals, families, and businesses affected by the COVID-19 pandemic and includes numerous measures which we are utilizing to support our customers, including deferment/forbearance provisions and the PPP. The CARES Act initially allocated nearly$350 billion for the PPP, with an additional$310 billion added through an amendment bill several weeks later. This program was intended to assist small businesses negatively affected by the pandemic and economic downturn by providing funds for payroll and other qualifying expenses made throughJune 30, 2020 . The program was extended throughAugust 8, 2020 . The loans are 100% guaranteed by the SBA and the full principal amount of the loans may qualify for loan forgiveness if certain conditions are met. Within seven business days of the announcement of PPP, we redeployed resources to this program in support of our clients and others seeking financial relief under the program. As ofDecember 31, 2020 , we estimate we helped businesses that represent an aggregate workforce of more than 25,000 jobs through approvals of$262 million in PPP funds. The PPP provided an opportunity to differentiate ourselves by demonstrating how true service can make a meaningful difference. We assisted several existing clients with our high touch business framework in addition to successfully attracting many new clients who are consistent with the type of commercial customers that we target in our traditional business development efforts. We continue to work through the loan forgiveness process with our clients for round one PPP loans, all of which we expect will be substantially complete by the first half of 2021. Paycheck Protection Program Flexibility Act of 2020 OnOctober 7, 2020 , the Paycheck Protection Program Flexibility Act of 2020 ("Flexibility Act") extended the deferral period for borrower payments of principal, interest, and fees on all PPP loans to the date that the SBA remits the borrower's loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower's loan forgiveness covered period). The extension of the deferral period under the Flexibility Act automatically applied to all PPP loans. Economic Aid Act The Economic Aid Act became lawDecember 27, 2020 extending the SBA authority to make PPP loans throughMarch 31, 2021 . The SBA issued an Interim Final Rule (IFR)January 6, 2021 . The IFR allows for PPP First and Second Draw Loans for eligible applicants. We have elected to continue our participation in the PPP and resumed the origination of PPP loans effectiveJanuary 11, 2021 . Borrower Payment Relief Efforts We are committed to supporting our existing borrowers and 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 SFR 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. Many of our deferred loans reached the expiration of their initial 90-day deferral period and have or are nearing the expiration of their second 90 day deferral period. We are reviewing their current financial condition as we evaluate additional extension requests of deferral periods. For those commercial borrowers that demonstrate a continuing need for a deferral, we generally expect to obtain credit enhancements such as additional collateral, personal guarantees, and/or reserve requirements in order to grant an additional deferral period. We expect the legacy SFR loans to continue with a higher percentage of forbearances due to the applicable consumer regulations, however, the SFR portfolio is well secured with an average portfolio LTV below 70%. For a discussion of the risk factors related to COVID-19, please refer to Part I, Item 1A. - Risk Factors in this Annual Report. 39 -------------------------------------------------------------------------------- Table of Contents The following table presents the composition of our loan portfolio for borrowers that received payment relief as ofDecember 31, 2020 : Deferment & Forbearance(1)(2) December 31, 2020 % of ($ in thousands) Number of Loans Amount Loan Category Commercial: Commercial and industrial 8$ 39,240 1.9 % Commercial real estate 12 57,159 7.1 % Multifamily 1 803 0.1 % SBA 10 15,302 5.6 % Total commercial 31 112,504 2.4 % Consumer: Single family residential mortgage 123 138,771 11.3 % Other consumer 2 659 2.0 % Total consumer 125 139,430 11.0 % Total 156$ 251,934 4.3 % (1)Excludes loans in forbearance that are current (2)Excludes loans delinquent prior to COVID-19 Of the commercial loan balances on deferment as ofDecember 31, 2020 ,$40.3 million are on their third deferment,$59.5 million are on their second deferment or under review, and$12.7 million are on their first deferment or under review. The loans on third deferment relate to one lending relationship and are well secured. Our SFR mortgage portfolio has loans in both forbearance and deferral. As ofDecember 31, 2020 , SFR mortgage loans included$56.4 million of loans on forbearance and$82.4 million of loans on deferment. We continue to actively monitor and manage all lending relationships in order to support our clients and protect the Bank. Other Efforts To support our community, we partnered with Food Finders to provide over 300,000 meals to our most vulnerable neighbors inSouthern California . We also made a donation to theLos Angeles Fire Department to help supply critical personal protective equipment to these first-responders. We developed online financial literacy classes for young adults and we sponsored five LAFC blood drives in partnership with theAmerican Red Cross and Banc ofCalifornia Stadium . Termination of LAFC Agreement OnMay 22, 2020 , we entered into an agreement (the "Termination Agreement") with the LAFC to amend and terminate certain agreements that we previously entered into with LAFC in 2017 (the "LAFC Agreements"). Among other things, the LAFC Agreements had granted us the exclusive naming rights to theBanc of California Stadium, a soccer stadium of LAFC, as well as the right to be the official bank of LAFC. Pursuant to the LAFC Agreements, we agreed to pay LAFC$100 million over a period of 15 years, of which$15.9 million had been recognized as expense fromJanuary 1, 2018 throughMay 22, 2020 . In addition to the stated contract amount of$100 million , the LAFC Agreements had obligated us to pay for other annual expenses, which have averaged approximately$500 thousand per year. Under the Termination Agreement, we agreed to restructure our partnership to allow LAFC to expand its roster of sponsors and partners into categories that were previously exclusive to us under the LAFC Agreements and we stepped away from our naming-rights position on LAFC's soccer stadium. We will continue to serve as LAFC's primary banking partner, subject to any new sponsor in the financial services space that offers banking services, and remain as a partner on a number of other collaborations. As part of the Termination Agreement, we agreed to pay LAFC a$20.1 million termination fee. The LAFC Agreements are terminated, effective as ofDecember 31, 2020 (the "Termination Date"). We will not have any continuing payment obligations to LAFC following the Termination Date. The pre-tax impact from the Termination Agreement was a one-time charge to operations of$26.8 million during the second quarter of 2020. The charge to operations included the write-off of a prepaid advertising asset. On the date of the Termination Agreement, the Bank estimated an aggregate pre-tax cost savings of approximately$89.1 million , or approximately$7.1 million per year, over the remaining 12 ½ year life of the original LAFC Agreements. 40 -------------------------------------------------------------------------------- Table of Contents Results of Operations The following table presents condensed statements of operations for the periods indicated: Year Ended December 31, ($ in thousands, except per share data) 2020 2019 2018 Interest and dividend income$ 290,607 $ 391,111 $ 422,796 Interest expense 66,013 142,948 136,720 Net interest income 224,594 248,163 286,076 Provision for credit losses 29,719 35,829 31,121 Noninterest income 18,518 12,116 23,915 Noninterest expense 199,033 196,472 231,879 Income from continuing operations before income taxes 14,360 27,978 46,991 Income tax expense 1,786 4,219 4,844 Income from continuing operations 12,574 23,759 42,147 Income from discontinued operations before income taxes - - 4,596 Income tax expense - - 1,271 Income from discontinued operations - - 3,325 Net income 12,574 23,759 45,472 Preferred stock dividends 13,869 15,559 19,504 Less: participating securities dividends 376 483 811 Impact of preferred stock redemption (568) 5,093 2,307
Net (loss) income available to common stockholders
$ 2,624 $ 22,850 Basic earnings per common share (Loss) income from continuing operations$ (0.02) $ 0.05 $ 0.38 Income from discontinued operations - - 0.07 Net (loss) income$ (0.02) $ 0.05 $ 0.45 Diluted earnings per common share (Loss) income from continuing operations$ (0.02) $ 0.05 $ 0.38 Income from discontinued operations - - 0.07 Net (loss) income$ (0.02) $ 0.05 $ 0.45 Selected financial data: Return on average assets 0.16 % 0.26 % 0.44 % Return on average equity 1.43 % 2.51 % 4.57 % Return on average tangible common equity (1) 0.07 % 0.70 % 3.76 % Dividend payout ratio (2) (1,200.00) % 620.00 % 115.56 % Average equity to average assets 11.47 % 10.38 % 9.73 % December 31, 2020 2019 2018 Book value per common share$ 14.18 $ 14.10 $ 14.10 TCE per common share (1)$ 13.39 $ 13.29 $ 13.25 Total stockholders' equity to total assets 11.39 % 11.59 % 8.89 % Tangible common equity to tangible assets 8.58 % 8.68 % 6.34 % (1)Non-GAAP measure. See non-GAAP measures for reconciliation of the calculation. (2)Ratio of dividends declared per common share to basic earnings per common share. Management's Discussion and Analysis of Financial Condition and Results of Operations generally includes tables with 3 year financial performance, accompanied by narrative for 2020 and 2019 periods. For further discussion of prior period financial results presented herein, refer to prior annual reports filed on Form 10-K. 41 -------------------------------------------------------------------------------- Table of Contents 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, on a consolidated operations basis, for the years indicated: Year Ended December 31, 2020 2019 2018 ($ in thousands) Average Balance Interest Yield/Cost Average Balance Interest Yield/Cost Average Balance Interest
Yield/Cost
Interest-earning assets: Total loans (1)$ 5,691,444 $ 257,300 4.52 %$ 7,015,283 $ 333,934 4.76 %$ 7,108,600 $ 329,937 4.64 % Securities 1,112,306 29,038 2.61 % 1,245,995 48,134 3.86 % 2,248,488 83,567 3.72 % Other interest-earning assets (2) 360,532 4,269 1.18 % 339,661 9,043 2.66 % 362,927 9,957 2.74 % Total interest-earning assets 7,164,282 290,607 4.06 % 8,600,939 391,111 4.55 % 9,720,015 423,461 4.36 % Allowance for loan losses (78,152) (60,633) (54,777) BOLI and noninterest-earning assets (3) 602,886 592,674 559,675 Total assets$ 7,689,016 $ 9,132,980 $ 10,224,913 Interest-bearing liabilities: Savings$ 920,966 10,495 1.14 %$ 1,079,778 19,040 1.76 %$ 1,156,292 17,971 1.55 % Interest-bearing checking 1,810,152 8,705 0.48 % 1,548,067 17,797 1.15 % 1,812,980 18,261 1.01 % Money market 638,992 3,669 0.57 % 809,295 13,717 1.69 % 994,103 13,146 1.32 % Certificates of deposit 1,063,705 14,947 1.41 % 2,145,363 50,545 2.36 % 2,272,093 41,858 1.84 % Total interest-bearing deposits 4,433,815 37,816 0.85 % 5,582,503 101,099 1.81 % 6,235,468 91,236 1.46 % FHLB advances 749,195 18,040 2.41 % 1,264,945 32,285 2.55 % 1,627,608 34,995 2.15 % Securities sold under repurchase agreements 584 4 0.68 % 2,166 62 2.86 % 39,336 1,033 2.63 % Long-term debt and other interest-bearing liabilities 190,140 10,153 5.34 % 174,148 9,502 5.46 % 174,340 9,456 5.42 % Total interest-bearing liabilities 5,373,734 66,013 1.23 % 7,023,762 142,948 2.04 % 8,076,752 136,720 1.69 % Noninterest-bearing deposits 1,322,681 1,053,193 1,034,937 Noninterest-bearing liabilities 110,551 107,579 117,904 Total liabilities 6,806,966 8,184,534 9,229,593 Total stockholders' equity 882,050 948,446 995,320 Total liabilities and stockholders' equity$ 7,689,016 $ 9,132,980 $ 10,224,913 Net interest income/spread$ 224,594 2.83 %$ 248,163 2.51 %$ 286,741 2.67 % Net interest margin (4) 3.13 % 2.89 % 2.95 % Ratio of interest-earning assets to interest-bearing liabilities 133.32 % 122.45 % 120.35 % Total deposits(5)$ 5,756,496 $ 37,816 0.66 %$ 6,635,696 $ 101,099 1.52 %$ 7,270,405 $ 91,236 1.25 % Total funding(6)$ 6,696,415 $ 66,013 0.99 %$ 8,076,955 $ 142,948 1.77 %$ 9,111,689 $ 136,720 1.50 % 42
-------------------------------------------------------------------------------- Table of Contents (1)Total loans are net of deferred fees, related direct costs and discounts, but exclude the allowance for loan losses. Nonaccrual loans are included in the average balance. Interest income includes net accretion of deferred loan (fees) and costs of$3.8 million ,$(916) thousand and$612 thousand and net discount accretion on purchased loans of$500 thousand ,$364 thousand and$637 thousand for the years endedDecember 31, 2020 , 2019 and 2018. Total loans includes income from discontinued operations for the year endedDecember 31, 2018 (2)Includes average balance ofFHLB andFederal Reserve Bank stock at cost and average time deposits with other financial institutions. (3)Includes average balance of BOLI of$110.6 million ,$108.1 million and$105.8 million for the years endedDecember 31, 2020 , 2019 and 2018. (4)Net interest income divided by average interest-earning assets. (5)Total deposits is the sum of interest-bearing deposits and noninterest-bearing deposits. The cost of total deposits is calculated as total interest expense on interest-bearing deposits divided by average total deposits. (6)Total funding is the sum of interest-bearing liabilities and noninterest-bearing deposits. The cost of total funding is calculated as total interest expense on interest-bearing liabilities divided by average total funding. 43 -------------------------------------------------------------------------------- Table of Contents Rate/Volume Analysis The following table presents the changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. Information is provided on changes attributable to (i) changes in volume multiplied by the prior rate and (ii) changes in rate multiplied by the prior volume. Changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate. Year Ended December 31, 2020 vs. 2019 Year Ended December 31, 2019 vs. 2018 Increase (Decrease) Due to Net Increase Increase (Decrease) Due to Net Increase ($ in thousands) Volume Rate (Decrease) Volume Rate (Decrease) Interest-earning assets: Total loans (1)$ (60,476) $ (16,158) $ (76,634) $ (4,398) $ 8,395 $ 3,997 Securities (4,752) (14,344) (19,096) (38,481) 3,048 (35,433) Other interest-earning assets 525 (5,299) (4,774) (628) (286)
(914)
Total interest-earning assets (64,703) (35,801) (100,504) (43,507) 11,157
(32,350)
Interest-bearing liabilities: Savings (2,517) (6,028) (8,545) (1,243) 2,312 1,069 Interest-bearing checking 2,624 (11,716) (9,092) (2,843) 2,379 (464) Money market (2,422) (7,626) (10,048) (2,705) 3,276 571 Certificates of deposit (19,794) (15,804) (35,598) (2,463) 11,150 8,687 FHLB advances (12,554) (1,691) (14,245) (8,573) 5,863 (2,710) Securities sold under repurchase agreements (28) (30) (58) (1,054) 83 (971) Long-term debt and other interest-bearing liabilities 863 (212) 651 (12) 58 46 Total interest-bearing liabilities (33,828) (43,107) (76,935) (18,893) 25,121 6,228 Net interest income$ (30,875) $ 7,306 $ (23,569) $ (24,614) $ (13,964) $ (38,578)
(1)Total loans includes income from discontinued operations for the year ended
Year EndedDecember 31, 2020 Compared to Year EndedDecember 31, 2019 Net interest income for the year endedDecember 31, 2020 decreased$23.6 million to$224.6 million from$248.2 million for 2019. Net interest income was impacted by lower average interest-earning assets, as a result of targeted sales of securities and loans during 2019, in line with our strategy of remixing the loan portfolio towards relationship-based lending, offset by improved funding costs. For the year endedDecember 31, 2020 , average interest-earning assets declined$1.44 billion to$7.16 billion , and the net interest margin increased 24 basis points to 3.13% for the year endedDecember 31, 2020 compared to 2.89% for 2019. The net interest margin expanded due to a 78 basis point decrease in the average cost of funds, outpacing a 49 basis point decline in the average interest-earning assets yield. The average fed funds rate for the year endedDecember 31, 2020 declined to 0.36% from 2.16% for the year endedDecember 31, 2019 . The average yield on interest-earning assets decreased to 4.06% for the year endedDecember 31, 2020 , from 4.55% for 2019 due mostly to the impact of lower market interest rates on loan and securities yields over this time period. The average yield on loans was 4.52% for the year endedDecember 31, 2020 , compared to 4.76% for 2019 and the average yield on securities decreased 125 basis points due mostly to CLOs repricing into the lower rate environment. The average cost of funds decreased to 0.99% for the year endedDecember 31, 2020 , from 1.77% for 2019. This decrease was driven by the lower average cost of interest-bearing liabilities and the improved funding mix, including higher average noninterest-bearing deposits. The average cost of interest-bearing liabilities decreased 81 basis points to 1.23% for the year endedDecember 31, 2020 from 2.04% for 2019 due to the combination of actively managing deposit pricing down into the lower interest rate environment and the lower average cost of FHLB term advances resulting from maturities and refinancing certain term advances during 2020. Compared to the prior year, the average cost of interest-bearing deposits declined 96 basis points to 0.85% and the average cost of total deposits decreased 86 basis points to 0.66%. Additionally, average noninterest-bearing deposits increased by$269.5 million when compared to 2019. 44 -------------------------------------------------------------------------------- Table of Contents Provision for Credit Losses The provision for credit losses is charged to operations to adjust the allowance for credit losses to the level required to cover current expected credit losses in our loan portfolio and unfunded commitments. The following table presents the components of our provision for credit losses: Year Ended December 31, ($ in thousands) 2020 2019 2018 Provision for credit losses$ 29,374
345 (558) 906
Total provision for credit losses $ 29,719 During the year endedDecember 31, 2020 , the provision for credit losses totaled$29.7 million under the CECL model, compared to$35.8 million under the incurred loss model during 2019. The lower provision for credit losses was primarily the result of lower net charge-offs and lower period end loan balances of$53.5 million , offset by increases from using the new CECL model, the estimated impact of the health crisis, and higher specific reserves. During the year endedDecember 31, 2019 , the Company recorded a$35.8 million provision for credit losses. The provision for credit losses was driven by a$35.1 million charge-off of a line of credit originated inNovember 2017 to a borrower purportedly the subject of a fraudulent scheme. Included in the 2019 loan loss provision was$3.0 million due to this charge-off increasing the loss factor for commercial and industrial loans used in our allowance for loan loss calculation offset by the impact of lower period end loan balances of$1.75 billion . See further discussion in Allowance for Credit Losses included in this Item 7. Noninterest Income The following table presents noninterest income for the periods indicated: Year Ended December 31, ($ in thousands) 2020 2019 2018 Customer service fees$ 5,771 $ 5,982 $ 6,315 Loan servicing income 505 679 3,720 Income from bank owned life insurance 2,489 2,292 2,176 Impairment loss on investment securities - (731) (3,252) Net gain (loss) on sale of securities available-for-sale 2,011 (4,852) 5,532 Fair value adjustment for loans held-for-sale (1,501) 106 - Net gain on sale of loans 245 7,766 1,932 Net loss on sale of mortgage servicing rights - - (2,260) Other income 8,998 874 9,752 Total noninterest income$ 18,518 $ 12,116 $ 23,915 Year EndedDecember 31, 2020 Compared to Year EndedDecember 31, 2019 Noninterest income for the year endedDecember 31, 2020 increased$6.4 million to$18.5 million compared to the prior year. Noninterest income in 2019 included a$4.5 million loss on the multifamily loans securitization, which was comprised of a$9.0 million loss on an interest rate swap, offset by the$4.5 million related gain on sale of loans. The loss on the multifamily loan securitization included in noninterest income was offset by a reduction in the provision for credit losses of$5.1 million . There was no similar securitization activity in 2020. Excluding the impact of the 2019 multifamily loans securitization, noninterest income increased$1.9 million as a result of the items discussed below: Net gain on sale of investment securities increased$6.9 million during the year endedDecember 31, 2020 to$2.0 million . The$2.0 million net gain on sale of investment securities resulting from the sale of$20.7 million in securities, comprised primarily of corporate securities. During the year endedDecember 31, 2019 , in response to a changing interest rate environment we repositioned our securities available-for-sale portfolio by reducing the overall duration through sales of certain longer-duration 45 -------------------------------------------------------------------------------- Table of Contents and fixed-rate mortgage-backed securities. Additionally, we continued to strategically reduce our collateralized loan obligations exposure. During the year endedDecember 31, 2019 , net loss on sale of investment securities was$4.9 million resulting from the sale of non-agency commercial mortgage-backed securities of$132.2 million for a gain of$9 thousand , agency mortgage-backed securities of$423.6 million for a loss of$5.0 million and collateralized loan obligations of$644.0 million for a net gain of$143 thousand . A portion of the funds from sales of investment securities during 2019 and other available cash balances were reinvested into a mix of security classes, resulting in an overall shorter duration for the securities portfolio. Impairment losses on investment securities decreased$731 thousand to zero during the year endedDecember 31, 2020 . During the year endedDecember 31, 2019 , we changed our intent to sell ourU.S. government agency andU.S. government sponsored enterprise residential mortgage-backed securities due to our strategy to reposition the securities profile and shorten the duration of certain securities within the portfolio. As a result, we recognized impairment of$731 thousand for the year endedDecember 31, 2019 . Fair value adjustment for loans held for sale was lower during the year endedDecember 31, 2020 by$1.6 million due to decreases in the fair value of SFR mortgage loans during the year. Excluding the above-noted$4.5 million net gain on sale of loans related to the multifamily loan securitization, net gains on sales of loans decreased$3.0 million during the year endedDecember 31, 2020 to$245 thousand . During the year endedDecember 31, 2020 , we sold approximately$17.4 million in SFR mortgage loans for a net gain of approximately$245 thousand . During the year endedDecember 31, 2019 , other net gains on sales of loans were$3.4 million resulting primarily from sales of jumbo SFR mortgage loans of$382.8 million resulting in a gain of$787 thousand and other multifamily residential loans of$178.2 million resulting in a gain of$2.9 million . Other income was also impacted during 2020 by (i) an increase of$2.5 million related to legacy legal settlements for the benefit of the Company, (ii) lower earn-out income related to the sale of our mortgage banking division of$1.4 million , and (iii) lower other income of$2.0 million due in part to lower rental income. Noninterest Expense The following table presents noninterest expense for the periods indicated: Year Ended December 31, ($ in thousands) 2020 2019 2018 Salaries and employee benefits$ 96,809 $ 105,915 $ 109,974 Naming rights termination 26,769 - - Occupancy and equipment 29,350 31,308 31,847 Professional fees 15,736 12,212 33,652 Data processing 6,574 6,420 6,951 Advertising and promotion 3,303 8,422 12,664 Regulatory assessments 2,741 7,711 7,678 Reversal of provision for loan repurchases (697) (660) (2,488) Amortization of intangible assets 1,518 2,195 3,007 Restructuring expense - 4,263 4,431 All other expense 17,295 16,992 19,119 Noninterest expense before (gain) loss on alternative energy partnership investments, net 199,398 194,778 226,835 (Gain) loss on alternative energy partnership investments (365) 1,694 5,044 Total noninterest expense$ 199,033 $ 196,472 $ 231,879 46
-------------------------------------------------------------------------------- Table of Contents Year EndedDecember 31, 2020 Compared to Year EndedDecember 31, 2019 Noninterest expense was$199.0 million for the year endedDecember 31, 2020 , an increase of$2.6 million , or 1.3%, from$196.5 million for the year endedDecember 31, 2019 . The increase was mainly due to: (i) the$26.8 million LAFC naming rights termination, (ii) a$2.5 million debt extinguishment fee, included in all other expenses, associated with the early repayment of certain FHLB term advances, and (iii) a$3.5 million increase in professional fees.. These increases were partially offset by: (i) a$9.1 million decrease in salaries and employee benefits, (ii) a$2.0 million decrease in occupancy and equipment, (iii) a$5.1 million decrease in advertising expenses, (iv) a$5.0 million decrease in regulatory assessments, (v) a$4.3 million decrease in restructuring expense, and, to a lesser extent, (vi) decreases among several other noninterest expense categories. Salaries and employee benefits expense was$96.8 million for the year endedDecember 31, 2020 , a decrease of$9.1 million , or 8.6%, from$105.9 million for the year endedDecember 31, 2019 . The decrease was mainly due to decreases in commissions and temporary staff expenses, including overall reductions in headcount between periods. Occupancy and equipment was$29.4 million for the year endedDecember 31, 2020 , a decrease of$2.0 million or 6.3% from$31.3 million for the year endedDecember 31, 2019 . The decrease was primarily due to overall reductions in costs, including depreciation, rent and maintenance costs between periods. These decreases were partially a result of exiting the TPMO and brokered single family lending businesses during the first quarter of 2019, as well as reductions in items such as maintenance costs attributable to decreased utilization of premises as a larger portion of employees worked remotely as a result of the pandemic. Professional fees were$15.7 million for the year endedDecember 31, 2020 , an increase of$3.5 million , or 28.9%, from$12.2 million for the year endedDecember 31, 2019 . The increase in fees was the result of$8.3 million in higher legal fees due mostly to the timing of insurance recoveries related to securities litigation, indemnification and investigation between periods, offset by lower other professional service fees of$4.8 million . Advertising costs were$3.3 million for the year endedDecember 31, 2020 , a decrease of$5.1 million , or 60.8%, from$8.4 million for the year endedDecember 31, 2019 . The decrease was mainly due to reductions in overall events and media spending, and lower advertising costs related to the now-terminated LAFC naming rights commitment. Advertising costs for the year endedDecember 31, 2020 included$2.6 million related to the now-terminated LAFC naming rights agreement compared to$6.7 million during the year endedDecember 31, 2019 . Regulatory assessments were$2.7 million for the year endedDecember 31, 2020 , a decrease of$5.0 million , or 64.5%, from$7.7 million for the year endedDecember 31, 2019 . The decrease was mainly due to a reduction in ourFDIC assessment rate given the decrease in our asset size and anFDIC small bank assessment credit. Restructuring expense was zero for the year endedDecember 31, 2020 . For the year endedDecember 31, 2019 , restructuring expense was$4.3 million and consisted of severance and retention costs associated with our exit from the TPMO and brokered single family lending businesses and CEO transition during the first quarter of 2019. All other expenses were$17.3 million for the year endedDecember 31, 2020 , an increase of$303 thousand , or 1.8%, from$17.0 million for the year endedDecember 31, 2019 . The increase was mainly due to (i) the aforementioned$2.5 million debt extinguishment fee associated with the early repayment of$100 million in FHLB term advances, (ii) combined with$1.2 million charge to settle and conclude two legacy legal matters, partially offset by (iii) a$1.0 million decrease in capitalized software impairment charges, (iv) a$0.9 million decrease in business travel due as a result of the global pandemic and (v)$1.5 million in overall expense reductions during the year endedDecember 31, 2020 from our efforts to manage expenses on supplies, directors' fees, and other administrative expenditures. Income Tax Expense For the years endedDecember 31, 2020 , 2019 and 2018, income tax expense from continuing operations was$1.8 million ,$4.2 million and$4.8 million , resulting in an effective tax rate of 12.4%, 15.1% and 10.3%, respectively. Our 12.4% effective tax rate for the year endedDecember 31, 2020 differs from the 21% federal and applicable state statutory rate due to the impact of state taxes as well as various permanent tax differences. Our effective tax rate for the year endedDecember 31, 2020 was lower than the effective tax rate of continuing operations for the year endedDecember 31, 2019 due mainly to (i) lower pre-tax income, (ii) lower state tax deductions, and (iii) the net tax effects of our qualified affordable housing partnerships and investments in alternative energy partnerships. During the year endedDecember 31, 2020 , our qualified affordable housing partnerships resulted in a reduction of our effective tax rate as the tax deductions and credits outpaced the increase in the effective tax rate due to higher proportional amortization. This net decrease in effective tax rate due to qualified affordable housing projects was partially offset by a higher effective tax rate due to a reduction in tax credits from our investments in alternative energy partnerships. For additional information, see Note 14 - Income Taxes of the Notes to Consolidated Financial Statements included in Item 8. 47 -------------------------------------------------------------------------------- Table of Contents Financial ConditionInvestment Securities AtDecember 31, 2020 , 2019 and 2018, all of our investment securities were classified as available-for-sale. 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. The following table presents the amortized cost and fair value of the investment securities portfolio and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) as of the dates indicated: Gross Unrealized Gross Unrealized ($ in thousands) Amortized Cost Gains Losses Fair Value December 31, 2020 Securities available-for-sale: SBA loan pool securities$ 17,436 $ - $ (82)$ 17,354 U.S. government agency andU.S. government sponsored enterprise residential mortgage-backed securities 99,591 6,793 - 106,384U.S. government agency andU.S. government sponsored enterprise collateralized mortgage obligations 209,426 2,571 (166) 211,831 Municipal securities 64,355 4,272 (4) 68,623 Non-agency residential mortgage-backed securities 156 4 - 160 Collateralized loan obligations 687,505 - (9,720) 677,785 Corporate debt securities 141,975 7,319 - 149,294 Total securities available-for-sale$ 1,220,444
U.S. government agency andU.S. government sponsored enterprise residential mortgage-backed securities$ 37,613 $ -$ (1,157) $ 36,456 U.S. government agency andU.S. government sponsored enterprise collateralized mortgage obligations 91,543 16 (260) 91,299 Municipal securities 52,997 51 (359) 52,689 Non-agency residential mortgage-backed securities 191 5 - 196 Collateralized loan obligations 733,605 - (15,244) 718,361 Corporate debt securities 13,500 79 - 13,579 Total securities available-for-sale$ 929,449 $ 151 $ (17,020) $ 912,580 December 31, 2018 Securities available-for-sale: SBA loan pool securities $ 1,056 $ 2 $ -$ 1,058 U.S. government agency andU.S. government sponsored enterprise residential mortgage-backed securities 492,255 10 (15,336) 476,929 Non-agency residential mortgage-backed securities 741 16 (1) 756 Non-agency commercial mortgage-backed securities 305,172 5,339 - 310,511 Collateralized loan obligations 1,691,455 11,129 (266) 1,702,318 Corporate debt securities 76,714 7,183 - 83,897 Total securities available-for-sale$ 2,567,393
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Securities available-for-sale were$1.23 billion atDecember 31, 2020 , an increase of$318.9 million , or 34.9%, from$912.6 million atDecember 31, 2019 . The increase was mainly due to purchases of$371.1 million , including$193.2 million inU.S. government agency securities,$17.9 million in SBA loan pool securities,$11.4 million in municipal securities and$148.6 million in corporate debt securities, and higher net unrealized gains of$27.8 million , partially offset by principal reductions of$12.1 million ,$46.1 million in calls and maturities of CLOs and$20.7 million in sales. CLOs totaled$677.8 million and$718.4 million atDecember 31, 2020 andDecember 31, 2019 . CLOs are floating rate debt securities backed by pools of senior secured commercial loans to a diverse group of companies across a broad spectrum of industries. Underlying loans are generally secured by a company's assets such as inventory, equipment, property, and/or real estate. CLOs are structured to diversify exposure to a broad sector of industries. The payments on these commercial loans support interest and principal on the CLOs across classes that range from AAA-rated to equity-grade tranches. AtDecember 31, 2020 , all of our CLO holdings wereAAA and AA rated. We also perform 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 only acquire CLOs that we believe are Volcker Rule compliant. We did not record credit impairment for any investment securities for the year endedDecember 31, 2020 . During the year endedDecember 31, 2019 , we changed our intent to sell ourU.S. government agency andU.S. government sponsored enterprise residential mortgage-backed securities due to our strategy to reposition the securities profile and shorten the duration of certain securities within the portfolio. As a result, we recognized$731 thousand of OTTI for the year endedDecember 31, 2019 . As ofDecember 31, 2018 , we changed our intent to sell our non-agency commercial mortgage-backed securities in an unrealized loss position due to our strategy to reposition our securities profile and recognized$3.3 million of OTTI for the year endedDecember 31, 2018 . We monitor our securities portfolio to ensure it has adequate credit support. As ofDecember 31, 2020 , we believe there was no credit impairment and we did not have the current intent to sell securities with a fair value below amortized cost atDecember 31, 2020 , and it is more likely than not that we will not be required to sell such securities prior to the recovery of their amortized cost basis. We consider the lowest credit rating for identification of potential credit impairment. As ofDecember 31, 2020 , all of our investment securities received an investment grade credit rating. 49 -------------------------------------------------------------------------------- Table of Contents The following table presents maturities, based on the earlier of maturity dates or next repricing dates, and yield information of the investment securities portfolio as ofDecember 31, 2020 : More than Five
Years through Ten
One Year or Less More than One Year through Five Years Years More than Ten Years Total
Fair Weighted Fair Weighted Fair Weighted Fair Weighted Fair Weighted
($ 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 $ 17,354 1.71 % $ - - % $ - - % $ - - % $ 17,354 1.71 %
U.S. government agency and U.S.
government sponsored enterprise
residential mortgage-backed
securities - - % - - % 30,243 2.20 % 76,141 2.35 % 106,384 2.31 %
U.S. government agency and U.S.
government sponsored enterprise
collateralized mortgage
obligations 113,227 0.71 % 11,438 2.01 % 44,451 1.36 % 42,715 0.31 % 211,831 0.83 %
Municipal securities - - % - - % 9,456 2.60 % 59,167 2.62 % 68,623 2.62 %
Non-agency residential
mortgage-backed securities - - % - - % - - % 160 6.35 % 160 6.35 %
Collateralized loan obligations 677,785 1.86 % - - % - - % - - % 677,785 1.86 %
Corporate debt securities - - % 131,829 5.01 % 17,465 5.73 % - - % 149,294 5.08 %
Total securities
available-for-sale $ 808,366 1.70 % $ 143,267 4.77 % $ 101,615 2.40 %$ 178,183 1.93 %$ 1,231,431 2.14 % Loans Held-for-Sale Total loans held-for-sale carried at fair value were$1.4 million and$22.6 million atDecember 31, 2020 andDecember 31, 2019 and consisted mainly of repurchased conforming SFR mortgage loans and repurchased GNMA loans that were previously sold and became delinquent more than 90 days. The$21.2 million , or 93.8%, decrease was mainly due to sales and payoffs of$19.0 million and a decrease in fair value of$1.5 million . AtDecember 31, 2020 , there was$654 thousand in loans held-for-sale on non-accrual status. 50 -------------------------------------------------------------------------------- Table of Contents Loans Receivable, Net The following table presents the composition of our loan portfolio as of the dates indicated: December 31, 2020 2019 2018 2017 2016 ($ in thousands) Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Commercial: Commercial and industrial$ 2,088,308 35.3 %$ 1,691,270 28.4 %$ 1,944,142 25.2 %$ 1,701,951 25.5 %$ 1,522,960 25.2 % Commercial real estate 807,195 13.7 % 818,817 13.7 % 867,013 11.3 % 717,415 10.8 % 729,959 12.1 % Multifamily 1,289,820 21.9 % 1,494,528 25.2 % 2,241,246 29.2 % 1,816,141 27.3 % 1,365,262 22.6 % SBA (1) 273,444 4.6 % 70,981 1.2 % 68,741 0.9 % 78,699 1.2 % 73,840 1.2 % Construction 176,016 3.0 % 231,350 3.9 % 203,976 2.6 % 182,960 2.7 % 125,100 2.1 % Lease financing - - % - - % - - % 13 - % 379 0.1 % Consumer: Single family residential mortgage 1,230,236 20.9 % 1,590,774 26.7 % 2,305,490 29.9 % 2,055,649 30.9 % 2,106,630 34.9 % Other consumer 33,386 0.6 % 54,165 0.9 % 70,265 0.9 % 106,579 1.6 % 110,622 1.8 % Total loans (2) 5,898,405 100.0 % 5,951,885 100.0 % 7,700,873 100.0 % 6,659,407 100.0 % 6,034,752 100.0 % Allowance for loan losses (81,030) (57,649) (62,192) (49,333) (40,444) Total loans receivable, net$ 5,817,375 $ 5,894,236 $ 7,638,681 $ 6,610,074 $ 5,994,308 (1)Includes PPP loans totaling$210.0 million , which included$1.6 million of net unamortized loan fees atDecember 31, 2020 . There were no PPP loans outstanding atDecember 31, 2019 , 2018, 2017, and 2016. (2)Total loans includes deferred loan origination costs/(fees) and premiums/(discounts), net of$6.2 million ,$14.3 million ,$17.7 million ,$6.4 million , and$9.2 million atDecember 31, 2020 , 2019, 2018, 2017 and 2016. Total loans were$5.90 billion atDecember 31, 2020 , a decrease of$53.5 million , or 0.9%, from$5.95 billion atDecember 31, 2019 . The decrease was mainly due to lower SFR mortgage loans of$360.5 million , multifamily loans of$204.7 million , and construction loans of$55.3 million offset by a higher commercial and industrial ("C&I") loans of$397.0 million and SBA loans of$202.5 million . The decline in SFR mortgage loans was attributed to payoffs as the loans were refinanced away in the lower rate environment, offset by loan purchases given we no longer originate this loan type. The decline in multifamily and construction loans is attributed to general fluctuations in volume and payoffs due to the low interest rate environment, offset by both loan originations and purchases. The increase in C&I loans was primarily the result of our focus on attracting new relationships and expanding of existing relationships, as well as increases in warehouse credit facilities driven by the refinancing activity in the lower interest rate environment. The increase in SBA loans was attributable to the funding of loans under the SBA's PPP. AtDecember 31, 2020 , SBA loans included$210.0 million of PPP loans, net of fees. During the year endedDecember 31, 2020 , we originated$902.2 million , excluding our warehouse credit facility volumes, and purchased$285.3 million in loans, including$149.7 million of SFR mortgage loans,$120.9 million of multifamily loans, and$14.8 million in construction loans. The loan purchases were designed to augment originations as we continue to remix our loan portfolio and manage down our SFR and multifamily loan portfolios. We continue to remix our real estate loan portfolio toward relationship-based multifamily, bridge, light infill construction, and commercial real estate loans. SFR mortgage and multifamily loans comprised 42.8% of the total held-for-investment loan portfolio as compared to 51.9% one year ago. Commercial real estate loans comprised 13.7% of the loan portfolio and commercial and industrial loans constituted 35.3%. As ofDecember 31, 2020 , loans secured by residential real estate (single family, multifamily, single family construction, and warehouse credit facilities) represent approximately 68% of our total loans outstanding. 51 -------------------------------------------------------------------------------- Table of Contents The C&I portfolio has limited exposure to certain business sectors undergoing severe stress as a result of the pandemic. The following table summarizes the balances of the C&I portfolio by industry concentration and the percentage of total outstanding C&I loan balances: December 31, 2020 ($ in thousands) Amount % of Portfolio C&I Portfolio by Industry Finance and insurance (includes Warehouse lending)$ 1,397,278 67 % Real Estate & Rental Leasing 245,748 12 % Gas Stations 69,743 3 % Healthcare 69,381 3 % Wholesale Trade 38,700 2 % Television / Motion Pictures 38,416 2 % Manufacturing 34,276 2 % Food Services 30,280 1 % Other Retail Trade 20,759 1 % Professional Services 16,572 1 % Transportation 5,286 - % Accommodations 1,452 - % All other 120,417 6 % Total$ 2,088,308 100 % 52
-------------------------------------------------------------------------------- Table of Contents The following table presents the contractual maturity with the weighted-average contractual yield of the loan portfolio as ofDecember 31, 2020 : One year or less More than One Year through Five Years More than Five Years through Ten Years More than Ten Years Total ($ in thousands) Amount Weighted-Average Yield Amount Weighted-Average Yield Amount Weighted-Average Yield Amount Weighted-Average Yield Amount Weighted-Average Yield Commercial: Commercial and industrial$ 1,477,330 3.52 %$ 395,036 4.17 %$ 186,501 3.94 %$ 29,441 3.25 %$ 2,088,308 3.68 % Commercial real estate 39,182 4.79 % 205,250 4.63 % 522,678 4.50 % 40,085 3.54 % 807,195 4.50 % Multifamily 44,986 5.58 % 43,042 4.32 % 154,589 3.81 % 1,047,203 4.26 % 1,289,820 4.25 % SBA 1,819 4.82 % 223,001 1.21 % 29,549 4.92 % 19,075 4.65 % 273,444 1.87 % Construction 103,755 4.93 % 72,261 4.51 % - - % - - % 176,016 4.76 % Consumer: Single family residential mortgage 12,249 3.30 % 19,404 3.64 % 106 4.35 % 1,198,477 4.47 % 1,230,236 4.45 % Other consumer 5,429 4.87 % 3,355 3.73 % 1,464 4.58 % 23,138 4.29 % 33,386 4.34 % Total$ 1,684,750 3.69 %$ 961,349 3.60 %$ 894,887 4.28 %$ 2,357,419 4.35 %$ 5,898,405 4.03 % 53
-------------------------------------------------------------------------------- Table of Contents The following table presents the interest rate profile of the loan portfolio due after one year atDecember 31, 2020 : Due After One Year ($ in thousands) Fixed Rate Variable Rate Total Commercial: Commercial and industrial$ 222,745 $ 388,233 $ 610,978 Commercial real estate 433,049 334,964 768,013 Multifamily 26,102 1,218,732 1,244,834 SBA 233,758 37,867 271,625 Construction 31,484 40,777 72,261 Consumer: Single family residential mortgage 103,247 1,114,740 1,217,987 Other consumer 433 27,524 27,957 Total$ 1,050,818 $ 3,162,837 $ 4,213,655
Loan Originations, Purchases, Sales and Repayments The following table presents loan originations, purchases, sales, and repayment activities, excluding loans originated for sale, for the periods indicated:
Year Ended December 31,
($ in thousands) 2020 2019 2018
Origination by rate type:
Variable rate:
Commercial and industrial $ 272,616 $ 356,052 $ 257,735
Commercial real estate 44,806 141,377 93,530
Multifamily 132,836 442,525 738,291
SBA 6,393 15,313 1,964
Construction 8,139 12,792 22,281
Single family residential mortgage 5,404 315,920 1,013,087
Other consumer 37 1,350 7,204
Total variable rate 470,231 1,285,329 2,134,092
Fixed rate:
Commercial and industrial 71,388 93,583 178,663
Commercial real estate 59,565 17,455 159,726
Multifamily 22,773 5,900 -
SBA 265,609 11,148 350
Construction 12,594 - 90,675
Total fixed rate 431,929 128,086 429,414
Total loans originated 902,160 1,413,415 2,563,506
Purchases:
Multifamily 120,900 - -
Construction 14,750 - -
Single family residential mortgage 149,687 - 59,481
Total loans purchased 285,337 - 59,481
Transferred to loans held-for-sale - (1,139,597) (376,561)
Other items:
Net repayment activity (1) (1,640,193) (2,011,889) (1,503,819)
Warehouse credit facilities activity, net (2) 399,216 (10,917) 298,859 Total other items (1,240,977) (2,022,806) (1,204,960) Net (decrease) increase$ (53,480) $ (1,748,988) $ 1,041,466 (1)Amounts represent disbursements on credit lines, principal paydowns and payoffs and other net activity for loans subsequent to origination (excluding our warehouse credit facilities). (2)Amounts represent net disbursement and repayment activity subsequent to origination for our warehouse credit facilities which are included in commercial and industrial loans. 54 -------------------------------------------------------------------------------- Table of Contents Non-Traditional Mortgage Portfolio Our NTM portfolio is comprised of three interest only products: Green Loans, fixed or adjustable rate hybrid interest only rate mortgage (Interest Only) loans and a small number of additional loans with the potential for negative amortization. As ofDecember 31, 2020 and 2019, the NTM loans totaled$437.1 million , or 7.4% of total loans, and$600.7 million , or 10.1% of total loans, respectively. Total NTM portfolio decreased by$163.5 million , or 27.2%, during the period. The following table presents the composition of the NTM portfolio as of the dates indicated: December 31, 2020 2019 2018 2017 2016 ($ in thousands) Count Amount Percent Count Amount Percent Count Amount Percent Count Amount Percent Count Amount Percent Green Loans (HELOC) - first liens 48$ 31,587 7.2 % 69$ 49,959 8.3 % 88$ 67,729 8.2 % 101$ 82,197 10.2 % 107$ 87,469 9.9 % Interest only - first liens 283 401,640 91.9 % 376 545,371 90.8 % 519 753,061 91.1 % 468 717,484 88.9 % 522 784,364 88.6 % Negative amortization 8 2,288 0.5 % 9 3,027 0.5 % 11 3,528 0.4 % 11 3,674 0.5 % 22 9,756 1.1 % Total NTM - first liens 339 435,515 99.6 % 454 598,357 99.6 % 618 824,318 99.7 % 580 803,355 99.6 % 651 881,589 99.6 % Green Loans (HELOC) - second liens 5 1,598 0.4 % 7 2,299 0.4 % 10 2,413 0.3 % 12 3,578 0.4 % 12 3,559 0.4 % Total NTM loans 344$ 437,113 100.0 % 461$ 600,656 100.0 % 628$ 826,731 100.0 % 592$ 806,933 100.0 % 663$ 885,148 100.0 %
Percentage to total
loans 7.4% 10.1% 10.7% 12.1% 14.7%
The initial credit guidelines for the NTM portfolio were established based on
borrower FICO score, LTV ratio, property type, occupancy type, loan amount, and
geography. Additionally, from an ongoing credit risk management perspective, we
have determined the most significant performance indicators for NTMs to be LTV
ratios and FICO scores. On a quarterly basis, we perform loan reviews of the NTM
loan portfolio, which includes refreshing FICO scores on the Green Loans and
HELOCs and ordering third party AVM to confirm collateral values.
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The following table presents the contractual maturity with number of loans of
the NTM portfolio as of December 31, 2020 :
More than One Year through More than Five Years
One year or less Five Years through Ten Years More than Ten Years Total
Count Amount Count Amount Count Amount Count Amount Count Amount
($ in thousands)
Green Loans (HELOC) -
first liens (1) 21 $ 12,240 27 $ 19,347 - $ - - $ - 48 $ 31,587
Interest only - first
liens (2) - - - - - - 283 401,640 283 401,640
Negative amortization
(3) - - - - - - 8 2,288 8 2,288
Total NTM - first liens 21 12,240 27 19,347 - - 291 403,928 339 435,515
Green Loans (HELOC) -
second liens (1) 1 - 4 1,598 - - - - 5 1,598
Total NTM loans 22 $ 12,240 31 $ 20,945 - $ - 291 $ 403,928 344 $ 437,113
(1)Green Loans typically have a 15 year balloon maturity.
(2)Interest Only loans typically switch to an amortizing basis after 5, 7, or 10
years.
(3)At December 31, 2020 , all negative amortization loans had outstanding
balances less than their original principal balances.
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Green Loans
We discontinued the origination of Green Loan products in 2011. 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. The loans are
generally interest only with a 15-year balloon payment due at maturity. We
initiated the Green Loan products in 2005 and proactively refined underwriting
and credit management practices and credit guidelines in response to changing
economic environments, competitive conditions and portfolio performance. We
continue to manage credit risk, to the extent possible, throughout the
borrower's credit cycle.
At December 31, 2020 , Green Loans totaled $33.2 million , a decrease of $19.1
million , or 36.5% from $52.3 million at December 31, 2019 , primarily due to
reductions in principal balance and payoffs. As of December 31, 2020 and 2019,
$4.0 million and $1.5 million of our Green Loans were nonperforming. As a result
of their unique payment feature, Green Loans possess higher credit risk due to
the potential of negative amortization; however, management believes the risk is
mitigated through our loan terms and underwriting standards, including our
policies on loan-to-value ratios and our contractual ability to curtail loans
when the value of underlying collateral declines.
Green Loans are similar to HELOCs in that they are collateralized primarily by
the equity in the borrower's home. However, some Green Loans differ from HELOCs
relating to certain characteristics including one-action laws. Similar to Green
Loans, HELOCs allow the borrower to draw down on the credit line based on an
established loan amount for a period of time, typically 10 years, requiring an
interest only payment with an option to pay principal at any time. A typical
HELOC provides that at the end of the term the borrower can continue to make
monthly principal and interest payments based on the loan balance until the
maturity date. The Green Loan is an interest only loan with a maturity of 15
years, at which time the loan becomes due and payable with a balloon payment at
maturity. The unique payment structure also differs from a traditional HELOC in
that payments are made through the direct linkage of a personal checking account
to the loan through a nightly sweep of funds into the Green Loan Account. This
reduces any outstanding balance on the loan by the total amount deposited into
the checking account. As a result, every time a deposit is made, effectively a
payment to the Green Loan is made. HELOCs typically do not cause the loan to be
paid down by a borrower's depositing of funds into their checking account at the
same bank.
Property types include single family residences and second trust deeds where we
held the first liens, owner occupied as well as non-owner occupied properties.
We utilized our underwriting guidelines for first liens to underwrite the Green
Loan secured by second trust deeds as if the combined loans were a single Green
Loan. For all Green Loans, the loan income was underwritten using either full
income documentation or alternative income documentation.
Interest Only Loans
Interest only loans are primarily SFR mortgage loans with payment features that
allow interest only payment in initial periods before converting to a fully
amortizing loan. Interest only loans totaled $401.6 million at December 31,
2020 , a decrease of $143.7 million , or 26.4%, from $545.4 million at
December 31, 2019 . The decrease between periods was primarily due to paydowns
and amortization. As of December 31, 2020 and 2019, $4.7 million and $11.5
million of the interest only loans were nonperforming.
Loans with the Potential for Negative Amortization
Negative amortization loans totaled $2.3 million at December 31, 2020 , a
decrease of $739 thousand , or 24.4%, from $3.0 million as of December 31, 2019 .
We discontinued origination of negative amortization loans in 2007. At
December 31, 2020 and 2019, none of the loans with the potential for negative
amortization were nonperforming. These loans pose a potentially higher credit
risk because of the lack of principal amortization and potential for negative
amortization. However, management believes the risk is mitigated through the
loan terms and underwriting standards, including our policies on LTV ratios.
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Non-Traditional Mortgage Loan Credit Risk Management
We perform detailed reviews of collateral values on loans collateralized by
residential real property included in our NTM portfolio based on appraisals or
estimates from third party AVMs to analyze property value trends periodically.
AVMs are used to identify loans that may have experienced potential collateral
deterioration. Once a loan has been identified that may have experienced
collateral deterioration, we will obtain updated drive by or full appraisals in
order to confirm the valuation. This information is used to update key
monitoring metrics such as LTV ratios. Additionally, FICO scores are obtained in
conjunction with the collateral analysis. In addition to LTV ratios and FICO
scores, we evaluate the portfolio on a specific loan basis through delinquency
and portfolio charge-offs to determine whether any risk mitigation or portfolio
management actions are warranted. The borrowers may be contacted as necessary to
discuss material changes in loan performance or credit metrics.
Our risk management policy and credit monitoring include reviewing delinquency,
FICO scores, and LTV ratios on the NTM loan portfolio. We also continuously
monitor market conditions for our geographic lending areas. We have determined
that the most significant performance indicators for NTM are LTV ratios and FICO
scores. The loan review provides an effective method of identifying borrowers
who may be experiencing financial difficulty before they fail to make a loan
payment. Upon receipt of the updated FICO scores, an exception report is run to
identify loans with a decrease in FICO score of 10% or more and a resulting FICO
score of 620 or less. The loans are then further analyzed to determine if the
risk rating should be downgraded, which may require an increase in the ALL we
need to establish for potential losses. A report is prepared and regularly
monitored.
We proactively manage the portfolio by performing a detailed analysis with
emphasis on the non-traditional mortgage portfolio. We conduct regular meetings
to review the loans classified as special mention, substandard, or doubtful and
determine whether suspension or reduction in credit limit is warranted. If the
line has been suspended and the borrower would like to have their credit
privileges reinstated, they would need to provide updated financials showing
their ability to meet their payment obligations. During the year ended
December 31, 2020 , we made no curtailment in available commitments on Green
Loans.
On the interest only loans, we project future payment changes to determine if
there will be an increase in payment of 3.50% or greater and then monitor the
loans for possible delinquencies. The individual loans are monitored for
possible downgrading of risk rating, and trends within the portfolio are
identified that could affect other interest only loans scheduled for payment
changes in the near future.
NTM loans may entail greater risk than do traditional SFR mortgage loans. For
additional information regarding NTMs, see Note 5 - Loans and Allowance for
Credit Losses of the Notes to Consolidated Financial Statements included in Item
8.
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Asset Quality
Past Due Loans
The following table presents a summary of total loans that were past due at
least 30 days but less than 90 days as of the dates indicated:
December 31,
($ in thousands) 2020 2019 2018 2017 2016
Traditional loans:
Commercial:
Commercial and industrial $ 67 $ 6,450 $ 1,946 $ 3,731 $ 875
Commercial real estate - - 582 - -
Multifamily - - 356 - -
SBA 980 1,428 628 3,578 17
Construction - - 939 - 1,529
Consumer:
Single family residential mortgage 7,816 17,248 10,481 10,232 12,570
Other consumer 277 239 3,705 3,607 10,956
Total traditional loans 9,140 25,365 18,637 21,148 25,947
NTM loans:
Single family residential mortgage:
Green Loans (HELOC) - first liens 2,512 4,438 4,099 5,999 -
Interest only - first liens 2,329 3,070 3,948 4,940 4,193
Total NTM loans 4,841 7,508 8,047 10,939 4,193 Purchased credit impaired loans(1): SBA - - - - 532 Single family residential mortgage - - - - 14,546 Total purchased credit impaired loans - - - - 15,078 Total Loans$ 13,981 $ 32,873 $ 26,684 $ 32,087 $ 45,218 (1)Purchased credit impaired loans relates to methodology under the previous incurred loss model of GAAP. Subsequent to the adoption of CECL onJanuary 1, 2020 , purchased credit impaired was replaced with methodology related to purchased credit deteriorated. Traditional loans that were past due at least 30 days but less than 90 days totaled$9.1 million atDecember 31, 2020 , a decrease of$16.2 million , or 64.0%, from$25.4 million atDecember 31, 2019 . The decrease was mainly due to decreases in commercial and industrial, SBA and SFR loans. The decrease in commercial and industrial loans for the year endedDecember 31, 2020 as compared to the year endedDecember 31, 2019 was primarily the result of the migration to non-accrual status of one loan with a real estate developer totaling$5.0 million . The decrease in SFR mortgage for the year endedDecember 31, 2020 as compared to the year endedDecember 31, 2019 was primarily the result of one$9.0 million loan returning to accrual status. The decrease in NTM loans that were past due at least 30 days but less than 90 days was due to decreases in total NTM loans between periods. There were 4 Green Loans that were past due at least 30 days but less than 90 days atDecember 31, 2020 . Non-performing Assets The following table presents a summary of nonperforming assets, excluding loans held-for-sale, as of the dates indicated: 59
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December 31,
($ in thousands) 2020 2019 2018 2017 2016
Commercial:
Commercial and industrial $ 13,821 $ 19,114 $ 5,455 $ 3,723 $ 3,544
Commercial real estate 4,654 - - - -
SBA 3,749 5,230 2,574 1,781 619
Lease financing - - - - 109
Consumer:
Single family residential mortgage 13,519 18,625 12,929 9,347 10,287
Other consumer 157 385 627 4,531 383
Total nonaccrual loans 35,900 43,354 21,585 19,382 14,942
Loans past due over 90 days or more
and still on accrual 728 - 470 - -
Other real estate owned - - 672 1,796 2,502
Total nonperforming assets $ 36,628 $ 43,354 $ 22,727 $ 21,178 $ 17,444
Performing troubled debt
restructured loans $ 4,733 $ 6,621 $ 5,745 $ 5,646 $ 4,827
The $7.5 million decrease in nonaccrual loans during the year was primarily due
to $49.4 million in loans returned to accrual status and other pay offs or pay
downs, offset by $41.9 million of loans placed on nonaccrual status. As of
December 31, 2020 , $17.7 million , or 48% of nonperforming loans relates to loans
in a current payment status.
At December 31, 2020 , non-performing loans included (i) a legacy relationship
totaling $7.5 million , or 20% of total non-performing loans, that is
well-secured by a combination of commercial real estate and single-family
residential properties with an average loan-to-value ratio of 51%, (ii) other
single-family residential loans totaling $13.5 million , or 37% of total
non-performing loans, and (iii) other commercial loans of $15.6 million , or 43%
of total non-performing loans.
With respect to loans that were on nonaccrual status as of December 31, 2020 ,
the gross interest income that would have been recorded during the year ended
December 31, 2020 had such loans been current in accordance with their original
terms and been outstanding throughout the year ended December 31, 2020 (or since
origination, if held for part of the year ended December 31, 2020 ), was $2.4
million . The amount of interest income on such loans that was included in net
income for the year ended December 31, 2020 was $375 thousand .
The following table presents a summary of nonperforming NTM loans that are
included in the above table as of the dates indicated:
December 31,
($ in thousands) 2020 2019 2018 2017 2016
Green Loans (HELOC) - first liens $ 3,967 $ 1,539 $ - $ - $ -
Interest only - first liens 4,730 11,480 - 1,171 467
Negative amortization - - - - -
Total NTM - first liens 8,697 13,019 - 1,171 467
Green Loans (HELOC) - second liens - - - - -
Total NTM - second liens - - - - -
Total NTM loans $ 8,697 $ 13,019 $ - $ 1,171 $ 467
Troubled Debt Restructured Loans
Loans that we modify or restructure where the debtor is experiencing financial
difficulties and make a concession to the borrower in the form of changes in the
amortization terms, reductions in the interest rates, the acceptance of interest
only payments and, in limited cases, reductions in the outstanding loan balances
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.
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At December 31, 2020 and 2019, we had 13 and 25 loans with an aggregate balance
of $9.0 million and $21.8 million classified as TDRs. 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.
At December 31, 2020 , of the 13 loans classified as TDRs, 10 loans totaling $4.7
million were making payments according to their modified terms and were less
than 90-days delinquent under the modified terms and were in accruing status. At
December 31, 2019 , of the 25 loans classified as TDRs, 14 loans totaling $6.6
million were making payments according to their modified terms and were less
than 90-days delinquent under the modified terms and were in accruing status.
As of December 31, 2020 , we had $170.4 million of loans that would have been
considered a TDR under GAAP but were provided relief from TDR accounting under
the CARES Act.
Risk Ratings
Federal regulations provide for the classification of loans and other assets,
such as debt and equity securities considered to be of lesser quality, as
substandard, doubtful or loss. An asset is considered substandard if it is
inadequately protected by the current net worth and paying capacity of the
obligor or of the collateral pledged, if any. Substandard assets include those
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Assets classified as
doubtful have all of the weaknesses inherent in those classified substandard,
with the added characteristic that the weaknesses present make collection or
liquidation in full, on the basis of currently existing facts, conditions, and
values, highly questionable and improbable. Assets classified as loss are those
considered uncollectible and of such little value that their continuance as
assets without the establishment of a specific loss reserve or charge-off is not
warranted.
When an insured institution classifies problem assets as either substandard or
doubtful, it may establish general allocation allowances for loan losses in an
amount deemed prudent by management and approved by the Board of Directors.
General allocation allowances represent loss allowances which have been
established to recognize the inherent risk associated with lending activities,
but, unlike specific allowances, have not been allocated to particular problem
assets. When an insured institution classifies problem assets as loss, it is
required either to establish a specific allocation allowance for losses equal to
100% of that portion of the asset so classified or to charge-off such amount. An
institution's determination as to the classification of its assets and the
amount of its specific allocation allowances are subject to review by their
regulators, which may order the establishment of additional general or specific
loss allocation allowances.
In connection with the filing of the Bank's periodic reports with the OCC and in
accordance with policies for the Bank's classification of assets, the Bank
regularly reviews the problem assets in our portfolio to determine whether any
assets require classification in accordance with applicable regulations. On the
basis of management's review of assets, at December 31, 2020 and 2019, we had
classified assets (including OREO) totaling $90.7 million and $102.0 million .
The total amount classified represented 1.15% and 1.30% of our total assets at
December 31, 2020 and 2019.
The following table presents the risk categories for total loans as of
December 31, 2020 :
December 31, 2020
Special
($ in thousands) Pass Mention Substandard Doubtful Total
Commercial:
Commercial and industrial $ 2,019,701 $ 17,232 $ 51,375 $ - $ 2,088,308
Commercial real estate 760,612 30,485 16,098 - 807,195
Multifamily 1,284,995 2,853 1,972 - 1,289,820
SBA 264,851 3,275 4,837 481 273,444
Construction 167,485 8,531 - - 176,016
Consumer:
Single family residential
mortgage 1,202,758 11,853 15,625 - 1,230,236
Other consumer 31,823 1,215 348 - 33,386
Total loans $ 5,732,225 $ 75,444 $ 90,255 $ 481 $ 5,898,405
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Table of Contents The following table presents the risk categories for total loans as ofDecember 31, 2019 : December 31, 2019 Special ($ in thousands) Pass Mention Substandard Doubtful Total Commercial: Commercial and industrial 1,580,269 45,323 65,678 - 1,691,270 Commercial real estate 813,846 2,532 2,439 - 818,817 Multifamily 1,484,931 4,256 5,341 - 1,494,528 SBA 60,982 2,760 5,621 1,618 70,981 Construction 229,771 1,579 - - 231,350 Consumer: Single family residential mortgage 1,559,253 10,735 20,269 517 1,590,774 Other consumer 53,331 346 488 - 54,165 Total loans$ 5,782,383 $ 67,531 $ 99,836 $ 2,135 $ 5,951,885 Allowance for Credit Losses (ACL) The following table provides a summary of components of the allowance for credit losses and related ratios as of the dates indicated: December 31, ($ in thousands) 2020 2019 2018 2017 2016 Allowance for credit losses: Allowance for loan losses (ALL)$ 81,030 $ 57,649 $ 62,192 $ 49,333 $ 40,444 Reserve for unfunded loan commitments 3,183 4,064 4,622 3,716 2,385 Total allowance for credit losses (ACL)$ 84,213 $ 61,713 $ 66,814 $ 53,049 $ 42,829 ALL to total loans 1.37 % 0.97 % 0.81 % 0.74 % 0.67 % ACL to total loans 1.43 % 1.04 % 0.87 % 0.80 % 0.71 % ACL to total loans, excluding PPP loans 1.48 % 1.04 % 0.87 % 0.80 % 0.71 % Our ACL methodology and resulting provision continues to be impacted by the current economic uncertainty and volatility caused by the COVID-19 pandemic. We adopted CECL onJanuary 1, 2020 and in calculating our ACL under this methodology we use a nationally recognized, third-party model that includes many assumptions based on historical and peer loss data, current loan portfolio risk profile including risk ratings, and economic forecasts including macroeconomic variables (MEVs) released by our model provider duringDecember 2020 (i.e.GDP growth rates, unemployment rates, etc.). Our Company-specific economic view recognizes that the foreseeable future continues to be uncertain with respect to the rollout of the approved vaccines for COVID-19; the lack of clarity regarding the impact of the most recent government stimulus; the continued unknown impact of the COVID-19 pandemic on the economy and certain industry segments; and the unknown benefit fromFederal Reserve and other government actions. Accordingly, the ACL level and resulting provision reflect these uncertainties. The ACL also incorporated qualitative factors to account for certain loan portfolio characteristics that are not taken into consideration by the third-party model including underlying strengths and weaknesses in the loan portfolio. As is the case with all estimates, the ACL is expected to be impacted in future periods by economic volatility, changing economic forecasts, underlying model assumptions, and asset quality metrics, all of which may be better than or worse than current estimates. The ACL, which includes the reserve for unfunded loan commitments, totaled$84.2 million , or 1.43% of total loans atDecember 31, 2020 compared to$61.7 million or 1.04% atDecember 31, 2019 . The$22.5 million increase in the ACL during the year endedDecember 31, 2020 was due to (i) a$6.4 million charge to retained earnings as a result of the adoption of ASU No. 2016-13, and (ii) provisions of$29.7 million due to the impact of changes in loan balances, updated forecasts due to the deterioration in the economic forecast with the onset of the pandemic during 2020, and changes in credit quality metrics and specific reserves, offset by (iii) net charge-offs of$13.6 million . The ACL coverage of nonperforming loans was 230% atDecember 31, 2020 compared to 142% atDecember 31, 2019 . We recorded a provision for credit losses of$29.7 million ,$35.8 million and$31.1 million , for the years endedDecember 31, 2020 , 2019 and 2018. The 2020 provision for credit losses of$29.7 million was comprised of$18.6 million in general reserves, 62 -------------------------------------------------------------------------------- Table of Contents$10.8 million in specific reserves, and$345 thousand related to unfunded commitments. The general provision is due mostly to updated forecasts due to the deterioration in the economic forecast with the onset of the pandemic during 2020.In comparison, the 2019 provision for credit losses of$35.8 million was due mostly to a$35.1 million charge-off of a line of credit originated inNovember 2017 to a borrower purportedly the subject of a fraudulent scheme. In addition, this charge-off increased the loss factor used in our allowance for loan loss for commercial and industrial loans, resulting in an additional loan loss provision of$3.0 million . Excluding this charge-off, during the year endedDecember 31, 2019 , the provision for credit losses and ACL were positively impacted by the$1.75 billion reduction in loan balances, partially offset by higher classified loans which increased from$80.8 million atDecember 31, 2018 to$102.0 million atDecember 31, 2019 . In particular, a$24.9 million commercial and industrial loan was downgraded during the fourth quarter of 2019 and was subsequently resolved by the end of 2020. In connection with the$35.1 million charge-off, onOctober 22, 2019 , the Bank filed a complaint inU.S. District Court for the Southern District of California (Case CV '19 02031 GPC KSC) seeking to recover its losses and other monetary damages againstChicago Title Insurance Company andChicago Title Company , asserting claims under RICO, 18 U.S.C § 1962 and for RICO Conspiracy, Fraud, Aiding and Abetting Fraud, Negligent Misrepresentation, Breach of Fiduciary Duty and Negligence. OnOctober 2, 2020 , the case was re-filed in theSuperior Court of the State of California, County ofSan Diego (Case 37-2020-00034947) asserting claims for Fraud, Aiding and Abetting Fraud, Conspiracy to Defraud, Negligent Misrepresentation, Breach of Fiduciary Duty, Negligence, Money Had And Received, and Conversion. OnFebruary 9, 2021 , an Amended Complaint was filed asserting claims for Fraud, Aiding and Abetting Fraud, Conspiracy to Defraud, Negligent Misrepresentation, Breach of Fiduciary Duty, Negligence, Money Had And Received, Conversion, Violation of Penal Code Section 496, Violation of Corporations Code Section 25504.1, and Violation of Business & Professions Code Section 17200.We are actively considering and pursuing available sources of recovery and other potential means of mitigating the loss; however, no assurance can be given that we will be successful in that regard. During the third quarter of 2019, we undertook an extensive collateral review of all commercial lending relationships$5 million and above not secured by real estate, consisting of 53 loans representing$536 million in commitments. The collateral review focused on security and collateral documentation and confirmation of the Bank's collateral interest. The review was performed within the Bank's Internal Audit department and the work was validated by an independent third party. Our review and outside validation have not identified any other instances of apparent fraud for the credits reviewed or concerns over the existence of collateral held by the Bank or on our behalf at third parties; however, there are no assurances that our internal review and third party validation will be sufficient to identify all such issues. The following table presents information regarding nonperforming assets as of the periods indicated: December 31, ($ in thousands) 2020 2019 2018 2017 2016 Loans past due over 90 days or more still on accrual$ 728 $ -$ 470 $ - $ - Nonaccrual loans 35,900 43,354 21,585 19,382 14,942 Total nonperforming loans 36,628 43,354 22,055 19,382 14,942 Other real estate owned - - 672 1,796 2,502 Total nonperforming assets$ 36,628 $ 43,354 $ 22,727 $ 21,178 $ 17,444 63
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The following table presents information regarding activity in the ACL for the
periods indicated:
Year Ended December 31,
($ in thousands) 2020 2019 2018 2017 2016
Allowance for loan losses (ALL)
Balance at beginning of year $ 57,649 $ 62,192 $ 49,333 $ 40,444 $ 35,533
Impact of adopting ASU 2016-13 7,609 - - - -
Charge-offs (15,417) (41,766) (18,499) (5,581) (2,618)
Recoveries 1,815 836 1,143 771 2,258
Net charge-offs (13,602) (40,930) (17,356) (4,810) (360)
Provision for credit losses 29,374 36,387 30,215 13,699 5,271
Balance at end of year $ 81,030 $ 57,649 $ 62,192 $ 49,333 $ 40,444
Reserve for unfunded loan
commitments
Balance at beginning of year $ 4,064 $ 4,622 $ 3,716 $ 2,385 $ 2,067
Impact of adopting ASU 2016-13 (1,226) - - - -
Provision for (reversal of) credit
losses 345 (558) 906 1,331 318
Balance at end of year $ 3,183 $ 4,064 $ 4,622 $ 3,716 $ 2,385 Allowance for credit losses (ACL)
Ratio of net charge-offs to
average loans 0.24 % 0.59 % 0.25 % 0.07 % 0.01 %
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The following table presents the ALL allocation among loans portfolio as of the
dates indicated:
December 31,
2020 2019 2018 2017 2016
Percentage of Percentage of Percentage of Percentage of Percentage of
Loans to Total Loans to Total Loans to Total Loans to Total Loans to Total
($ in thousands) ALL Amount Loans ALL Amount Loans ALL Amount Loans ALL Amount Loans ALL Amount Loans
Commercial:
Commercial and industrial $ 20,608 35.3 % $ 22,353 28.4 % $ 18,191 25.2 % $ 14,280 25.5 % $ 7,584 25.2 %
Commercial real estate 19,074 13.7 % 5,941 13.8 % 6,674 11.3 % 4,971 10.8 % 5,467 12.1 %
Multifamily 22,512 21.9 % 11,405 25.1 % 17,970 29.2 % 13,265 27.3 % 11,376 22.6 %
SBA 3,145 4.6 % 3,120 1.2 % 1,827 0.9 % 1,701 1.2 % 939 1.2 %
Construction 5,849 3.0 % 3,906 3.9 % 3,461 2.6 % 3,318 2.7 % 2,015 2.1 %
Lease financing - - % - - % - - % - - % 6 0.1 %
Consumer:
Single family residential
mortgage 9,191 20.9 % 10,486 26.7 % 13,128 29.9 % 10,996 30.9 % 12,075 34.9 %
Other consumer 651 0.6 % 438 0.9 % 941 0.9 % 802 1.6 % 982 1.8 %
Total $ 81,030 100.0 % $ 57,649 100.0 % $ 62,192 100.0 % $ 49,333 100.0 % $ 40,444 100.0 %
65-------------------------------------------------------------------------------- Table of Contents 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. These investments help promote the development of renewable energy sources and lower the cost of housing for residents by lowering homeowners' monthly utility costs. The following table presents the activity related to our investment in alternative energy partnerships for the years endedDecember 31, 2020 , 2019 and 2018: Year Ended December 31, ($ in thousands) 2020 2019 2018 Balance at beginning of period$ 29,300 $ 28,988 $ 48,826 New funding 3,631 806 - Return of unused capital - - (1,027) Change in unfunded equity commitments (3,225) 3,225
-
Cash distribution from investments (2,094) (2,025)
(13,767)
Gain (loss) on investments using HLBV method 365 (1,694) (5,044) Balance at end of period$ 27,977 $ 29,300 $ 28,988 Unfunded equity commitments $ -$ 3,225 $ - Our returns on investments in alternative energy partnerships are primarily obtained through the realization of energy tax credits and other tax benefits rather than through distributions or through the sale of the investment. The balance of these investments was$28.0 million and$29.3 million atDecember 31, 2020 andDecember 31, 2019 . During the year endedDecember 31, 2020 , we funded$3.6 million for our alternative energy partnerships and did not receive any return of capital from our alternative energy partnerships. During the year endedDecember 31, 2019 , we did not receive any return of capital and funded$806 thousand into these partnerships. During the year endedDecember 31, 2018 , we received a return of capital of$1.0 million and did not fund into these partnerships. During the years endedDecember 31, 2020 , 2019 and 2018, we recognized a gain on investment of$365 thousand and losses on investment of$1.7 million and$5.0 million through our application of the HLBV method of accounting. The HLBV gains for the year endedDecember 31, 2020 were largely driven by lower tax depreciation on equipment and fewer energy tax credits utilized which reduces the amount distributable to the investee in a hypothetical liquidation under the contractual liquidation provisions. Included in income tax expense are investment tax credits of zero,$3.4 million and$9.6 million and tax expense (benefit) related to the gains (losses) on investments of$45 thousand ,$(362) thousand , and$1.0 million for the years endedDecember 31, 2020 , 2019 and 2018. For additional information, see Note 1 - Summary of Significant Accounting Policies and Note 21 - Variable Interest Entities of the Notes to the Consolidated Financial Statements included in Item 8. Deposits The following table shows the composition of deposits by type as of the dates indicated: December 31, 2020 December 31, 2019 % of Total % of Total ($ in thousands) Amount Deposits Amount Deposits Amount Change Noninterest-bearing deposits$ 1,559,248 25.6 %$ 1,088,516 20.1 % $
470,732
Interest-bearing demand deposits 2,107,942 34.6 % 1,533,882 28.2 % 574,060 Money market accounts 714,297 11.7 % 715,479 13.2 % (1,182) Savings accounts 932,363 15.3 % 885,246 16.3 % 47,117 Certificates of deposit of$250,000 or less 316,585 5.2 % 582,772 10.7 %
(266,187)
Certificates of deposit of more than$250,000 455,365 7.6 % 621,272 11.5 % (165,907) Total deposits$ 6,085,800 100.0 %$ 5,427,167 100.0 %$ 658,633 66
-------------------------------------------------------------------------------- Table of Contents Total deposits were$6.09 billion atDecember 31, 2020 , an increase of$658.6 million , or 12.1%, from$5.43 billion atDecember 31, 2019 . We continue to focus on growing relationship-based deposits, strategically augmented by wholesale funding, as we actively managed down deposit costs in response to the interest rate cuts by theFederal Reserve in March of 2020. Noninterest-bearing deposits totaled$1.56 billion and represented 25.6% of total deposits atDecember 31, 2020 compared to$1.09 billion and 20.1% atDecember 31, 2019 . During the year endedDecember 31, 2020 , demand deposits increased by$1.04 billion , consisting of increases of$470.7 million in noninterest-bearing deposits and$574.1 million in interest-bearing demand deposits. In addition, savings accounts increased$47.1 million , offset by a decrease of$1.2 million in money market accounts and$432.1 million in time deposits. Brokered deposits were$26.2 million atDecember 31, 2020 , an increase of$16.2 million from$10.0 million atDecember 31, 2019 . The following table presents the scheduled maturities of certificates of deposit as ofDecember 31, 2020 : Over Three Over Six Months Three Months Months Through Through Twelve ($ in thousands) or Less Six Months Months Over One Year Total Certificates of deposit of$250,000 or less$ 124,316 $ 66,609
359,680 24,112 29,338 42,235 455,365
Total certificates of deposit $ 483,996 $ 90,721 For additional information, see Note 11 - Deposits of the Notes to Consolidated Financial Statements included in Item 8. 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 the Federal Reserve Discount Window and unsecured federal funds lines of credit. Advances from the FHLB decreased$655.2 million , or 54.8%, to$539.8 million , net of unamortized debt issuance costs of$6.2 million , as ofDecember 31, 2020 , primarily due to maturities of short-term and overnight advances of$425.0 million and net repayment of long-term advances of$224.0 million , including the early repayment of$100.0 million in FHLB long-term advances with a weighted average interest rate of 2.07% for which we incurred a$2.5 million extinguishment fee. In addition, during the year endedDecember 31, 2020 , we refinanced$111.0 million of our term advances into the lower market interest rates. AtDecember 31, 2020 , FHLB advances included$85.0 million overnight borrowings,$50.0 million maturing within six months, and$411.0 million maturing beyond six months with a weighted average life of 5.0 years and weighted average interest rate of 2.53%. We did not utilize repurchase agreements atDecember 31, 2020 or 2019. For additional information, see Note 12 - Federal Home Loan Bank Advances and Short-term Borrowings of the Notes to Consolidated Financial Statements included in Item 8. Long-Term Debt The following table presents our long-term debt as of the dates indicated: December 31, 2020 2019 Unamortized Debt Unamortized Debt Issuance Cost and Issuance Cost and ($ in thousands) Par Value Discount Par Value Discount 5.25% senior notes due April 15, 2025$ 175,000 $ (1,291)$ 175,000 $ (1,579) 4.375% subordinated notes due October 30, 2030 85,000 (2,394) - - Total$ 260,000 $ (3,685)$ 175,000 $ (1,579)
At
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On October 30, 2020 , we completed the issuance and sale of $85.0 million
aggregate principal amount of our 4.375% fixed-to-floating rate subordinated
notes due October 30, 2030 (the "Subordinated Notes"). Net proceeds after debt
issuance costs were approximately $82.6 million .
For additional information, see Note 13 - Long-Term Debt of the Notes to
Consolidated Financial Statements included in Item 8.
Loan Repurchase Reserve
We maintain a reserve for potential losses on loans that are off of our balance
sheet, but are subject to certain repurchase provisions, which we refer to as
the "Loan Repurchase Reserve." This reserve totaled $5.5 million at December 31,
2020 , a decrease of $686 thousand , or 11.1%, from $6.2 million at December 31,
2019 . The decrease was due to pay downs and run-off of the underlying off
balance sheet portfolio. During the year ended December 31, 2019 , we established
new loan repurchase reserves of $4.6 million , which included $4.4 million
associated with our multifamily securitization.
Provisions added to the loan repurchase reserve are initially recorded against
noninterest income at the time of sale, and any subsequent increase or decrease
in the provision is then recorded under noninterest expense on the consolidated
statements of operations as an increase or decrease to provision for loan
repurchases. Initial provisions for loan repurchases were $11 thousand , $4.6
million and $126 thousand , respectively, and subsequent reversals in the
provision were $697 thousand , $660 thousand and $2.5 million , respectively, for
the years ended December 31, 2020 , 2019 and 2018.
We believe that all repurchase demands received were adequately reserved for at
December 31, 2020 . For additional information, see Note 15 - Loan Repurchase
Reserve of the Notes to Consolidated Financial Statements included in Item 8.
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 not
observed a change in the level of clients' credit line usage and as the Bank's
first and second draw PPP loans are expected to be forgiven over a range of
approximately 3 to 15 months, we expect additional liquidity that will likely be
used to lower wholesale funding as it matures.
Banc of California, N.A.
During the second quarter of 2020, we expanded our existing secured borrowing
capacity with the Federal Reserve Bank through its BIC program. As a result, our
borrowing capacity with the Federal Reserve Bank increased from $16.7 million at
December 31, 2019 to $422.4 million at December 31, 2020 . Prior to participating
in the BIC program, the Bank had pledged certain securities as collateral for
access to the discount window. At December 31, 2020 , the Bank has pledged
certain qualifying loans with an unpaid principal balance of $856.2 million and
securities with a carrying value of $23.7 million as collateral for this line of
credit. Borrowings under the BIC program are overnight advances with interest
chargeable at the discount window ("primary credit") borrowing rate. There were
no borrowings under this arrangement for the years December 31, 2020 and 2019.
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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 and
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. In addition, the Bank invests excess funds in
short-term interest-earning assets, which provide liquidity to meet lending
requirements. The Bank also generates cash through borrowings. The Bank mainly
utilizes FHLB advances from pre-established secured lines of credit as a
secondary source of liquidity to provide funds for its lending activities and to
enhance its interest rate risk management. The Bank also has additional sources
of secondary liquidity through its ability to obtain brokered deposits, use
securities sold under repurchase agreements to leverage its capital base, and a
pre-established secured line of credit through the Federal Reserve BIC program.
Liquidity management is both a daily and long-term function of business
management. Any excess liquidity is typically invested in federal funds or
investment securities. On a longer-term basis, the Bank maintains a strategy of
investing in various lending products. The Bank uses its sources of funds
primarily to meet its ongoing loan and other commitments, and to pay maturing
certificates of deposit and savings withdrawals.
Banc of California, Inc.
The primary sources of funds for Banc 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 year ended December 31, 2020 , the Bank paid $37.0
million of dividends to Banc of California, Inc. At December 31, 2020 , Banc of
California, Inc. had $138.0 million in cash, all of which was on deposit at the
Bank.
On February 10, 2020 , we announced that our Board of Directors authorized the
repurchase of up to $45 million of our common stock. The repurchase
authorization expired in February 2021 . During the year ended December 31, 2020 ,
we repurchased 827,584 shares of common stock at a weighted average price of
$14.50 per share and an aggregate amount of $12.0 million .
During the year ended December 31, 2020 , we repurchased depositary shares
representing shares of our Series D and Series E preferred stock. The aggregate
total consideration for the Series D and Series E depositary shares purchased
was $2.7 million and $1.7 million . The $568 thousand difference between the
consideration paid and the $4.9 million aggregate carrying value of the Series D
Preferred Stock and Series E Preferred Stock was reclassified to retained
earnings and resulted in an increase to net income allocated to common
stockholders. On February 11, 2021 , we issued a redemption notice to redeem all
of our outstanding Series D Preferred Stock, and the corresponding Series D
Depositary Shares, on March 15, 2021 . The redemption price for the Series D
Preferred Stock will be $1,000 per share (equivalent to $25 per Series D
Depositary Share). Upon redemption, the Series D Preferred Stock and the Series
D Depositary Shares will no longer be outstanding and all rights with respect to
such stock and depositary shares will cease and terminate, except the right to
payment of the redemption price. Also upon redemption, the Series D Depositary
Shares will be delisted from trading on the New York Stock Exchange .
On October 30, 2020 , we completed the issuance and sale of $85.0 million
aggregate principal amount of our 4.375% fixed-to-floating rate subordinated
notes due October 30, 2030 (the "Subordinated Notes"). Net proceeds after debt
issuance costs were approximately $82.6 million . The Subordinated Notes are
unsecured debt obligations and subordinated to our present and future Senior
Debt and subordinated to all of our subsidiaries' present and future
indebtedness and other obligations. The Subordinated Notes bear interest at an
initial fixed rate of 4.375% per annum, payable semi-annually in arrears.
Beginning in October 2025 the Subordinated Notes bear interest at a floating
rate per annum equal to a benchmark rate, which is expected to be Three-Month
Term SOFR, plus a spread of 419.5 basis points, payable quarterly in arrears. We
may, at our option, redeem the Subordinated Notes in whole or in part on October
30, 2025 and on any interest payment date thereafter. We may also, at our
option, redeem the Subordinated Notes at any time, including prior to October
30, 2025 , in whole but not in part, upon the occurrence of certain events (each
as defined in the Supplemental Indenture). Any early redemption of the
Subordinated Notes will be subject to obtaining the prior approval of the FRB to
the extent then required under the rules of the FRB, and will be at a redemption
price equal to 100% of the principal amount of the Subordinated Notes plus any
accrued and unpaid interest to, but excluding, the redemption date.
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On a consolidated basis, we maintained $220.8 million of cash and cash
equivalents, which was 2.8% of total assets at December 31, 2020 . Our cash and
cash equivalents decreased by $152.7 million from $373.5 million , or 4.8% of
total assets, at December 31, 2019 . The decrease in cash and cash equivalents
was due mainly to deploying liquidity to repay FHLB advances, buy investments
and fund loan originations and purchases, offset by net deposit growth and loan
portfolio paydowns. Additionally, we added liquidity through the issuance of
subordinated debt and this was offset in part by repurchases of common and
preferred stock in the open market.
At December 31, 2020 , we had available secured borrowing capacities from the
FHLB and Federal Reserve of $821.7 million and $422.4 million , and
pre-established unsecured federal funds lines of credit with other correspondent
banks of $185.0 million . We also maintained repurchase agreements with respect
to which no amounts were outstanding at December 31, 2020 . Availabilities and
terms on repurchase agreements are subject to the counterparties' discretion and
our pledging additional investment securities. We also had unpledged securities
available-for-sale of $1.19 billion at December 31, 2020 . During 2020, the Bank
established the ability to perform unsecured overnight borrowing from various
financial institutions through the American Financial Exchange platform. The
availability of such unsecured borrowings fluctuates regularly and are subject
to the counterparties discretion and totaled $196.0 million at December 31,
2020 .
We believe that our liquidity sources are stable and are adequate to meet our
day-to-day cash flow requirements as of December 31, 2020 . However, we cannot
predict at this time the extent to which the ongoing COVID-19 pandemic will
negatively affect our business, financial condition, liquidity, capital and
results of operations. For a discussion of the related risk factors, please
refer to Part I, Item 1A. - Risk Factors.
Commitments
The following table presents information as of December 31, 2020 regarding our
commitments and contractual obligations:
Commitments and Contractual Obligations
Over Three
Total Amount Less Than One One to Three Years to Five More than Five
($ in thousands) Committed Year Years Years Years
Commitments to extend credit $ 55,696 $ 21,160 $ 25,277 $ 8,182 $ 1,077
Unused lines of credit 1,349,921 1,161,800 86,047 63,631 38,443
Standby letters of credit 8,508 5,331 3,157 20 -
Total commitments $ 1,414,125 $ 1,188,291 $ 114,481 $ 71,833 $ 39,520
FHLB advances $ 546,000 $ 135,000 $ - $ 291,000 $ 120,000
Long-term debt 260,000 - - 175,000 85,000
Operating and capital lease
obligations 23,097 5,584 7,290 4,536 5,687
Certificates of deposit 771,950 682,989 85,574 3,387 -
Total contractual obligations $ 1,601,047 $ 823,573 We had unfunded commitments of$18.3 million ,$5.6 million , and$2.5 million for qualified affordable housing partnerships, SBIC investments, and other investments atDecember 31, 2020 . Stockholders' Equity Stockholders' equity totaled$897.2 million atDecember 31, 2020 , a decrease of$10.0 million , or 1.1%, from$907.2 million atDecember 31, 2019 . The decrease was primarily the result of the partial redemption of our Series D Preferred Stock and Series E Preferred Stock for an aggregate amount of$4.4 million , repurchases of common stock of$12.0 million , a reduction in retained earnings of$4.5 million due to the adoption of ASU 2016-13, cash dividends for common stock of$11.8 million and cash dividends for preferred stock of$13.9 million , partially offset by net income of$12.6 million , share-based compensation of$5.8 million and other comprehensive income of$19.6 million on securities available-for-sale due primarily to decreases in market interest rates during the year endedDecember 31, 2020 . For additional information, see Note 19 - Stockholders' Equity of the Notes to Consolidated Financial Statements included in Item 8. 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. 70 -------------------------------------------------------------------------------- Table of Contents Regulatory Capital 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, increased risk-based capital requirements, made selected changes to the calculation of risk-weighted assets, and adjusted 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. For additional information on Basel III capital rules, see Note 20 - Regulatory Capital Matters of the Notes to Consolidated Financial Statements included in Item 8. The following table presents the regulatory capital ratios for the Company and the Bank as of dates indicated: Banc of California, Minimum Regulatory Well-Capitalized Inc. Banc of California, NA Requirements Requirements (Bank) December 31, 2020 Total risk-based capital ratio 17.01 % 17.27 % 8.00 % 10.00 % Tier 1 risk-based capital ratio 14.35 % 16.02 % 6.00 % 8.00 % Common equity tier 1 capital ratio 11.19 % 16.02 % 4.50 % 6.50 % Tier 1 leverage ratio 10.90 % 12.19 % 4.00 % 5.00 % December 31, 2019 Total risk-based capital ratio 15.90 % 17.46 % 8.00 % 10.00 % Tier 1 risk-based capital ratio 14.83 % 16.39 % 6.00 % 8.00 % Common equity tier 1 capital ratio 11.56 % 16.39 % 4.50 % 6.50 % Tier 1 leverage ratio 10.89 % 12.02 % 4.00 % 5.00 % 71
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