BANC OF CALIFORNIA, INC.

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BANC OF CALIFORNIA : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

02/26/2021 | 03:26pm EDT
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
On January 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 at
December 31, 2019.
At December 31, 2020, the ACL totaled $84.2 million resulting in an ACL to total
loans coverage ratio of 1.43%, up from 1.04% at December 31, 2019. Excluding PPP
loans, the ACL to total loans coverage ratio was 1.48% at December 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 the SEC that are not calculated in accordance with GAAP
must also disclose, along with each non-GAAP financial measure, certain
additional information, including a presentation of the most directly comparable
GAAP financial measure, a reconciliation of the non-GAAP financial measure to
the most directly comparable GAAP financial measure, as well as a statement of
the reasons why the company's management believes that presentation of the
non-GAAP financial measure provides useful information to investors regarding
the company's financial condition and results of operations and, to the extent
material, a statement of the additional purposes, if any, for which the
company's management uses the non-GAAP financial measure.
Return on average tangible common equity, 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.
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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     

$ 689,752 $ 692,949


Net income                                                    $  12,574     

$ 23,759 $ 45,472 Less preferred stock dividends and impact of preferred stock redemption

                                                (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  

$ 7,787,115 $ 10,586,577


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



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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 of California's diverse businesses, entrepreneurs and
communities through our 29 full service branches in Orange, Los Angeles, San
Diego, and Santa 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 ended December 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 ended December 31, 2020, 2019 and 2018. The decrease in net income
available to common stockholders for the year ended December 31, 2020 as
compared to the year ended December 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 at December 31, 2020, an increase of $48.9
million, or 0.6%, from $7.83 billion at December 31, 2019.
Significant financial highlights include:
•Securities available-for-sale were $1.23 billion at December 31, 2020, an
increase of $318.9 million, or 34.9%, from $912.6 million at December 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 at December 31, 2020, a decrease
of $76.9 million, or 1.30%, from $5.89 billion at December 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 at December 31, 2020, an increase of $658.6
million, or 12.14%, from $5.43 billion at December 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 the Federal Reserve in
March of 2020.
•Total stockholders' equity was $897.2 million at December 31, 2020, a decrease
of $10.0 million, or 1.11%, from $907.2 million at December 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 ended December 31, 2020.
Refer to the 2019 Form 10-K filed on March 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.
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CARES Act Response Efforts
On March 27, 2020, the U.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 through June 30, 2020. The program was extended through
August 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 of December 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
On October 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 law December 27, 2020 extending the SBA authority to
make PPP loans through March 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 effective January 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.
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The following table presents the composition of our loan portfolio for borrowers
that received payment relief as of December 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 of December 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 of
December 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 in Southern California. We also made a
donation to the Los 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 the American Red Cross and Banc of California Stadium.
Termination of LAFC Agreement
On May 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 the Banc 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
from January 1, 2018 through May 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 of December 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 $7.1 million per year, over the
remaining 12 ½ year life of the original LAFC Agreements.
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Results of Operations
The following table presents condensed statements of operations for the periods
indicated:
                                                                        Year Ended December 31,
($ 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 $ (1,103)

   $    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.
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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  %


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(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 ended December 31, 2020, 2019 and 2018. Total loans includes
income from discontinued operations for the year ended December 31, 2018
(2)Includes average balance of FHLB and Federal 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 $105.8
million for the years ended December 31, 2020, 2019 and 2018.
(4)Net interest income divided by average interest-earning assets.
(5)Total deposits is the sum of interest-bearing deposits and
noninterest-bearing deposits. The cost of total deposits is calculated as total
interest expense on interest-bearing deposits divided by average total deposits.
(6)Total funding is the sum of interest-bearing liabilities and
noninterest-bearing deposits. The cost of total funding is calculated as total
interest expense on interest-bearing liabilities divided by average total
funding.
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Rate/Volume Analysis
The following table presents the changes in interest income and interest expense
for major components of interest-earning assets and interest-bearing
liabilities. Information is provided on changes attributable to (i) changes in
volume multiplied by the prior rate and (ii) changes in rate multiplied by the
prior volume. Changes attributable to both rate and volume which cannot be
segregated have been allocated proportionately to the change due to volume and
the change due to rate.
                                               Year Ended December 31, 2020 vs. 2019                          Year Ended December 31, 2019 vs. 2018
                                          Increase (Decrease) Due to             Net Increase            Increase (Decrease) Due to             Net Increase
($ 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 December 31, 2018.


Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Net interest income for the year ended December 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 ended December 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 ended December 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 ended
December 31, 2020 declined to 0.36% from 2.16% for the year ended December 31,
2019. The average yield on interest-earning assets decreased to 4.06% for the
year ended December 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 ended December 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 ended December 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 ended December 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.

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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      

$ 36,387 $ 30,215 Provision for (reversal of) credit losses - unfunded loan commitments

                                                  345              (558)              906

Total provision for credit losses                            $ 29,719       

$ 35,829 $ 31,121




During the year ended December 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 ended December 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 in November 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 Ended December 31, 2020 Compared to Year Ended December 31, 2019
Noninterest income for the year ended December 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
ended December 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 ended December 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
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and fixed-rate mortgage-backed securities. Additionally, we continued to
strategically reduce our collateralized loan obligations exposure. During the
year ended December 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 ended December 31, 2020. During the year ended December 31,
2019, we changed our intent to sell our U.S. government agency and U.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 ended December 31, 2019.
Fair value adjustment for loans held for sale was lower during the year ended
December 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 ended December 31, 2020 to $245 thousand. During the
year ended December 31, 2020, we sold approximately $17.4 million in SFR
mortgage loans for a net gain of approximately $245 thousand. During the year
ended December 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



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Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Noninterest expense was $199.0 million for the year ended December 31, 2020, an
increase of $2.6 million, or 1.3%, from $196.5 million for the year ended
December 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 ended
December 31, 2020, a decrease of $9.1 million, or 8.6%, from $105.9 million for
the year ended December 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 ended December 31, 2020,
a decrease of $2.0 million or 6.3% from $31.3 million for the year ended
December 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 ended December 31, 2020, an
increase of $3.5 million, or 28.9%, from $12.2 million for the year ended
December 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 ended December 31, 2020, a
decrease of $5.1 million, or 60.8%, from $8.4 million for the year ended
December 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 ended December 31,
2020 included $2.6 million related to the now-terminated LAFC naming rights
agreement compared to $6.7 million during the year ended December 31, 2019.
Regulatory assessments were $2.7 million for the year ended December 31, 2020, a
decrease of $5.0 million, or 64.5%, from $7.7 million for the year ended
December 31, 2019. The decrease was mainly due to a reduction in our FDIC
assessment rate given the decrease in our asset size and an FDIC small bank
assessment credit.
Restructuring expense was zero for the year ended December 31, 2020. For the
year ended December 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 ended December 31, 2020, an
increase of $303 thousand, or 1.8%, from $17.0 million for the year
ended December 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 ended December 31, 2020
from our efforts to manage expenses on supplies, directors' fees, and other
administrative expenditures.
Income Tax Expense
For the years ended December 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 ended December 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 ended December 31, 2020 was lower than the
effective tax rate of continuing operations for the year ended December 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 ended
December 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.
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Financial Condition
Investment Securities
At December 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 and U.S. government
sponsored enterprise residential mortgage-backed
securities                                                  99,591                 6,793                      -              106,384
U.S. government agency and U.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          

$ 20,959 $ (9,972) $ 1,231,431 December 31, 2019 Securities available-for-sale:


U.S. government agency and U.S. government
sponsored enterprise residential mortgage-backed
securities                                         $        37,613          $          -          $      (1,157)         $    36,456
U.S. government agency and U.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 and U.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          

$ 23,679 $ (15,603) $ 2,575,469

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Securities available-for-sale were $1.23 billion at December 31, 2020, an
increase of $318.9 million, or 34.9%, from $912.6 million at December 31, 2019.
The increase was mainly due to purchases of $371.1 million, including $193.2
million in U.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 at December 31, 2020 and
December 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. At December 31,
2020, all of our CLO holdings were AAA 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
ended December 31, 2020. During the year ended December 31, 2019, we changed our
intent to sell our U.S. government agency and U.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 ended December 31, 2019. As of December 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 ended December 31, 2018.
We monitor our securities portfolio to ensure it has adequate credit support. As
of December 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 at December 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 of December 31, 2020, all of our investment securities
received an investment grade credit rating.



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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 of December 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 at December 31, 2020 and December 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. At December 31, 2020, there was $654
thousand in loans held-for-sale on non-accrual status.
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Loans Receivable, Net
The following table presents the composition of our loan portfolio as of the
dates indicated:
                                                                                                                                December 31,
                                                2020                                      2019                                      2018                                      2017                                      2016
($ 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 at December 31, 2020. There were no PPP loans
outstanding at December 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 at December 31, 2020, 2019, 2018, 2017 and 2016.
Total loans were $5.90 billion at December 31, 2020, a decrease of $53.5
million, or 0.9%, from $5.95 billion at December 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. At
December 31, 2020, SBA loans included $210.0 million of PPP loans, net of fees.
During the year ended December 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 of December 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.

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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  %



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The following table presents the contractual maturity with the weighted-average
contractual yield of the loan portfolio as of December 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  %



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The following table presents the interest rate profile of the loan portfolio due
after one year at December 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.
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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 of December 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 on January 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 at December 31, 2020, a decrease of $16.2 million, or
64.0%, from $25.4 million at December 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 ended December 31, 2020 as compared
to the year ended December 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 ended December 31, 2020 as
compared to the year ended December 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 at December 31,
2020.

Non-performing Assets
The following table presents a summary of nonperforming assets, excluding loans
held-for-sale, as of the dates indicated:
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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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The following table presents the risk categories for total loans as of
December 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 on January 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 during December 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 from Federal Reserve and other government actions. Accordingly,
the ACL level and resulting provision reflect these uncertainties. The ACL also
incorporated qualitative factors to account for certain loan portfolio
characteristics that are not taken into consideration by the third-party model
including underlying strengths and weaknesses in the loan portfolio. As is the
case with all estimates, the ACL is expected to be impacted in future periods by
economic volatility, changing economic forecasts, underlying model assumptions,
and asset quality metrics, all of which may be better than or worse than current
estimates.
The ACL, which includes the reserve for unfunded loan commitments, totaled $84.2
million, or 1.43% of total loans at December 31, 2020 compared to $61.7 million
or 1.04% at December 31, 2019. The $22.5 million increase in the ACL during the
year ended December 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% at December 31, 2020 compared to 142% at December 31, 2019.
We recorded a provision for credit losses of $29.7 million, $35.8 million and
$31.1 million, for the years ended December 31, 2020, 2019 and 2018. The 2020
provision for credit losses of $29.7 million was comprised of $18.6 million in
general reserves,
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$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 in
November 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 ended
December 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 at December 31, 2018
to $102.0 million at December 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, on October 22, 2019, the Bank
filed a complaint in U.S. District Court for the Southern District of California
(Case CV '19 02031 GPC KSC) seeking to recover its losses and other monetary
damages against Chicago Title Insurance Company and Chicago 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. On October 2, 2020, the case was re-filed in the Superior Court
of the State of California, County of San 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. On February 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


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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) $ 84,213 $ 61,713

$ 66,814 $ 53,049 $ 42,829


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  %




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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 ended December 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 at December 31,
2020 and December 31, 2019.
During the year ended December 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 ended December 31, 2019, we
did not receive any return of capital and funded $806 thousand into these
partnerships. During the year ended December 31, 2018, we received a return of
capital of $1.0 million and did not fund into these partnerships.
During the years ended December 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 ended December 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 $1.0 million for the years ended December 31, 2020, 2019 and 2018.
For additional information, see Note 1 - Summary of Significant Accounting
Policies and Note 21 - Variable Interest Entities of the Notes to the
Consolidated Financial Statements included in Item 8.
Deposits
The following table shows the composition of deposits by type as of the dates
indicated:
                                                            December 31, 2020                            December 31, 2019
                                                                             % of Total                                   % of Total
($ 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



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Total deposits were $6.09 billion at December 31, 2020, an increase of $658.6
million, or 12.1%, from $5.43 billion at December 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 the Federal Reserve in March of 2020. Noninterest-bearing deposits
totaled $1.56 billion and represented 25.6% of total deposits at December 31,
2020 compared to $1.09 billion and 20.1% at December 31, 2019.
During the year ended December 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 at December 31, 2020, an increase of $16.2
million from $10.0 million at December 31, 2019.
The following table presents the scheduled maturities of certificates of deposit
as of December 31, 2020:
                                                               Over Three          Over Six Months
                                         Three Months        Months Through         Through Twelve
($ in thousands)                           or Less             Six Months               Months              Over One Year            Total
Certificates of deposit of
$250,000 or less                        $   124,316          $     66,609   

$ 78,934 $ 46,726 $ 316,585 Certificates of deposit of more than $250,000

                               359,680                24,112                 29,338                  42,235            455,365
Total certificates of deposit           $   483,996          $     90,721   

$ 108,272 $ 88,961 $ 771,950




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 of December 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 ended December 31, 2020, we
refinanced $111.0 million of our term advances into the lower market interest
rates.
At December 31, 2020, FHLB advances included $85.0 million overnight borrowings,
$50.0 million maturing within six months, and $411.0 million maturing beyond six
months with a weighted average life of 5.0 years and weighted average interest
rate of 2.53%.
We did not utilize repurchase agreements at December 31, 2020 or 2019.
For additional information, see Note 12 - Federal Home Loan Bank Advances and
Short-term Borrowings of the Notes to Consolidated Financial Statements included
in Item 8.
Long-Term Debt
The following table presents our long-term debt as of the dates indicated:
                                                                                  December 31,
                                                                2020                                         2019
                                                                   Unamortized Debt                             Unamortized Debt
                                                                   Issuance Cost and                            Issuance Cost and
($ 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 December 31, 2020, we were in compliance with all covenants under our long-term debt agreements.

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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 

$ 92,864 $ 473,923 $ 210,687




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 at December 31, 2020.
Stockholders' Equity
Stockholders' equity totaled $897.2 million at December 31, 2020, a decrease of
$10.0 million, or 1.1%, from $907.2 million at December 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 ended December 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.
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Regulatory Capital
The Company and the Bank are subject to the regulatory capital adequacy
guidelines that are established by the Federal banking regulators. In July 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 on
January 1, 2015 and certain provisions of the new rule were phased in through
January 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  %






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