BANC OF CALIFORNIA, INC. [BANC] Filings

10-Q 1 banc-20230331.htm 10-Q banc-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-35522

BANC OF CALIFORNIA, INC.

(Exact name of registrant as specified in its charter)

Maryland

(State or other jurisdiction of

incorporation or organization)

04-3639825

(IRS Employer Identification No.)

3 MacArthur Place, Santa Ana, California

(Address of principal executive offices)

92707

(Zip Code)

(855) 361-2262

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☒

Table of C o ntents

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

BANC

New York Stock Exchange

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

As of May 4, 2023, the registrant had outstanding 57,594,900 shares of voting common stock and 477,321 shares of Class B non-voting common stock.

Table of C o ntents

BANC OF CALIFORNIA, INC.

FORM 10-Q QUARTERLY REPORT

March 31, 2023

Table of Contents


		Page

Part I – Financial Information		4

Item 1 –	Financial Statements	4

	Consolidated Statements of Financial Condition	4
	Consolidated Statements of Operations	5
	Consolidated Statements of Comprehensive Income	6
	Consolidated Statements of Stockholders' Equity	7
	Consolidated Statements of Cash Flows	8
	Notes to Consolidated Financial Statements	9

Item 2 –	Management’s Discussion and Analysis of Financial Condition and Results of Operations	44

Item 3 –	Quantitative and Qualitative Disclosures About Market Risk	72

Item 4 –	Controls and Procedures	74

Part II – Other Information		76

Item 1 –	Legal Proceedings	76

Item 1A –	Risk Factors	76

Item 2 –	Unregistered Sales of Equity Securities and Use of Proceeds	76

Item 3 –	Defaults Upon Senior Securities	76

Item 4 –	Mine Safety Disclosures	76

Item 5 –	Other Information	76

Item 6 –	Exhibits	77

Signatures		78

Table of C o ntents

Forward-Looking Statements

When used in this report and in documents filed with or furnished to the Securities and Exchange Commission (the “SEC”), in press releases or other public stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “believe,” “will,” “should,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the “Safe-Harbor” provisions of the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on any forward-looking statements. These statements may relate to future financial performance, strategic plans or objectives, revenue, expense or earnings projections, or other financial items of Banc of California, Inc. and its affiliates (“BANC,” the “Company”, “we”, “us” or “our”). By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the statements.

Factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following:

i.changes in general economic conditions, either nationally or in our market areas, including the impact of supply chain disruptions, and the risk of recession or an economic downturn;

ii.changes in the interest rate environment, including the recent and anticipated increases in the FRB benchmark rate, which could adversely affect our revenue and expenses, the value of assets and obligations, and the availability and cost of capital and liquidity;

iii.the impacts of continuing inflation;

iv.the credit risks of lending activities, which may be affected by deterioration in real estate markets and the financial condition of borrowers, and the operational risk of lending activities, including the effectiveness of our underwriting practices and the risk of fraud, any of which may lead to increased loan delinquencies, losses, and nonperforming assets, and may result in our allowance for credit losses not being adequate;

v.fluctuations in the demand for loans, and fluctuations in commercial and residential real estate values in our market area;

vi.the quality and composition of our securities portfolio;

vii.our ability to develop and maintain a strong core deposit base or other low cost funding sources necessary to fund our activities particularly in a rising or high interest rate environment;

viii.the rapid withdrawal of a significant amount of demand deposits over a short period of time;

ix.the costs and effects of litigation;

x.risks related to the Company’s acquisitions, including disruption to current plans and operations; difficulties in customer and employee retention; fees, expenses and charges related to these transactions being significantly higher than anticipated; and our inability to achieve expected revenues, cost savings, synergies, and other benefits; and in the case of our recent acquisition of Deepstack Technologies, LLC (Deepstack), reputational risk, regulatory risk and potential adverse reactions of the Company's or Deepstack's customers, suppliers, vendors, employees or other business partners;

xi.results of examinations by regulatory authorities of the Company and the possibility that any such regulatory authority may, among other things, limit our business activities, restrict our ability to invest in certain assets, refrain from issuing an approval or non-objection to certain capital or other actions, increase our allowance for credit losses, result in write-downs of asset values, restrict our ability or that of our bank subsidiary to pay dividends, or impose fines, penalties or sanctions;

xii.legislative or regulatory changes that adversely affect our business, including changes in tax laws and policies, accounting policies and practices, privacy laws, and regulatory capital or other rules;

xiii.the risk that our enterprise risk management framework may not be effective in mitigating risk and reducing the potential for losses;

xiv.errors in estimates of the fair values of certain of our assets and liabilities, which may result in significant changes in valuation;

xv.failures or security breaches with respect to the network, applications, vendors and computer systems on which we depend, including due to cybersecurity threats

xvi.our ability to attract and retain key members of our senior management team;

xvii.the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, and other external events on our business;

xviii.the impact of bank failures or other adverse developments at other banks on general investor sentiment regarding the stability and liquidity of banks;

xix.the possibility that our recorded goodwill could become impaired, which may have an adverse impact on our earnings and capital; and

xx.other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and the other risks described in this report and from time to time in other documents that we file with or furnish to the SEC, including, without limitation, the risks described under “Part I. Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022.

Table of C o ntents

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

BANC OF CALIFORNIA, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Amounts in thousands, except share and per share data)

(Unaudited)


	March 31, 2023		December 31, 2022
ASSETS
Cash and due from banks	$	36,982	$	47,434
Interest-earning deposits in financial institutions	973,969		181,462
Total cash and cash equivalents	1,010,951		228,896

Securities held-to-maturity, at amortized cost (fair value of $272,915 and $262,460 at March 31, 2023 and December 31, 2022)	328,520		328,641
Securities available-for-sale, at fair value	958,427		868,297


Loans receivable	7,054,380		7,115,038
Allowance for loan losses	(84,560)		(85,960)
Loans receivable, net	6,969,820		7,029,078
Federal Home Loan Bank and other bank stock, at cost	70,334		57,092



Premises and equipment, net	108,087		107,345
Bank owned life insurance	128,022		127,122


Deferred income taxes, net	54,450		50,518

Goodwill	114,312		114,312
Other intangibles	7,065		7,526

Other assets	288,913		278,189
Total assets	$	10,038,901	$	9,197,016
LIABILITIES AND STOCKHOLDERS’ EQUITY
Noninterest-bearing deposits	$	2,506,616	$	2,809,328
Interest-bearing deposits	4,445,358		4,311,593
Total deposits	6,951,974		7,120,921
Federal Home Loan Bank (FHLB) advances, net and Federal Reserve Bank (FRB) borrowings	1,732,670		727,348


Long-term debt, net	274,995		274,906






Accrued expenses and other liabilities	120,355		114,223
Total liabilities	9,079,994		8,237,398
Commitments and contingent liabilities

Common stock, $0.01 par value per share, 446,863,844 shares authorized; 65,272,095 shares issued and 58,237,303 shares outstanding at March 31, 2023; 65,168,380 shares issued and 58,544,534 shares outstanding at December 31, 2022	653		651
Class B non-voting non-convertible common stock, $0.01 par value per share, 3,136,156 shares authorized; 477,321 shares issued and outstanding at March 31, 2023 and December 31, 2022	5		5
Additional paid-in capital	866,306		866,478
Retained earnings	263,524		248,988
Treasury stock, at cost (7,034,792 and 6,623,846 shares at March 31, 2023 and December 31, 2022)	(121,092)		(115,907)
Accumulated other comprehensive loss, net	(50,489)		(40,597)
Total stockholders’ equity	958,907		959,618
Total liabilities and stockholders’ equity	$	10,038,901	$	9,197,016

See accompanying notes to consolidated financial statements (unaudited)

Table of C o ntents

BANC OF CALIFORNIA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

(Unaudited)


	Three Months Ended
	March 31, 2023		December 31, 2022		March 31, 2022
Interest and dividend income
Loans, including fees	$	87,418	$	88,717	$	76,234
Securities	14,909		12,905		7,309
Other interest-earning assets	4,592		2,490		726
Total interest and dividend income	106,919		104,112		84,269
Interest expense
Deposits	20,527		14,278		1,388
FHLB advances and FRB borrowings	9,648		5,528		2,953

Other interest-bearing liabilities	3,691		4,089		3,487
Total interest expense	33,866		23,895		7,828
Net interest income	73,053		80,217		76,441
Provision for (reversal of) credit losses	2,000		—		(31,542)
Net interest income after provision for (reversal of) credit losses	71,053		80,217		107,983
Noninterest income
Customer service fees	1,979		2,066		2,434
Loan servicing income	547		561		212

Income from bank owned life insurance	900		923		796

Net (loss) gain on sale of securities available-for-sale	—		(7,708)		16



All other income	4,433		2,731		2,452
Total noninterest income	7,859		(1,427)		5,910
Noninterest expense
Salaries and employee benefits	29,656		27,812		28,987

Occupancy and equipment	5,526		5,740		5,637
Professional fees	4,072		3,193		2,839

Data processing	1,563		1,744		1,828

Regulatory assessments	1,202		905		775
Software and technology	3,274		3,197		2,700
Loss on investments in alternative energy partnerships	1,618		608		158
Reversal of loan repurchase reserves	(11)		(17)		(471)
Amortization of other intangibles	461		555		441



Other expense	3,878		4,466		3,702
Total noninterest expense	51,239		48,203		46,596
Income before income taxes	27,673		30,587		67,297
Income tax expense	7,395		9,068		18,785




Net income	20,278		21,519		48,512
Preferred stock dividends	—		—		1,420


Impact of preferred stock redemption	—		—		3,747
Net income available to common stockholders	$	20,278	$	21,519	$	43,345
Earnings per common share:


Basic	$	0.34	$	0.36	$	0.69



Diluted	$	0.34	$	0.36	$	0.69
Earnings per class B common share:


Basic	$	0.34	$	0.36	$	0.69



Diluted	$	0.34	$	0.36	$	0.69

See accompanying notes to consolidated financial statements (unaudited)

Table of C o ntents

BANC OF CALIFORNIA, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)


	Three Months Ended
	March 31, 2023		December 31, 2022		March 31, 2022
Net income	$	20,278	$	21,519	$	48,512
Other comprehensive (loss) income, net of tax:
Unrealized (loss) gain on available-for-sale securities:
Unrealized (loss) gain arising during the period	(3,926)		1,484		(26,913)


Reclassification adjustment for loss (gain) included in net income	—		5,315		(11)
Total change in unrealized (loss) gain on available-for-sale securities	(3,926)		6,799		(26,924)
Unrealized loss on cash flow hedge:
Unrealized loss arising during the period	(6,146)		—		—



Amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity	180		183		9
Total other comprehensive (loss) income	(9,892)		6,982		(26,915)
Comprehensive income	$	10,386	$	28,501	$	21,597

See accompanying notes to consolidated financial statements (unaudited)

Table of C o ntents

BANC OF CALIFORNIA, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Amounts in thousands, except share and per share data)

(Unaudited)


	Preferred Stock		Common Stock				Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
			Voting		Class B Non-Voting
Three Months Ended March 31, 2023
Balance at December 31, 2022	$	—	$	651	$	5	$	866,478	$	248,988	$	(115,907)	$	(40,597)	$	959,618

Comprehensive income:
Net income	—		—		—		—		20,278		—		—		20,278
Other comprehensive loss, net	—		—		—		—		—		—		(9,892)		(9,892)
Issuance of common stock	—		3		—		(3)		—		—		—		—



Purchase of 410,946 shares of treasury stock	—		—		—		—		—		(5,185)		—		(5,185)



Share-based compensation expense	—		—		—		1,455		—		—		—		1,455

Restricted stock surrendered due to employee tax liability	—		(1)		—		(1,624)		—		—		—		(1,625)

Shares purchased under the Dividend Reinvestment Plan	—		—		—		—		(96)		—		—		(96)

Dividends declared ($0.10 per common share)	—		—		—		—		(5,646)		—		—		(5,646)

Balance at March 31, 2023	$	—	$	653	$	5	$	866,306	$	263,524	$	(121,092)	$	(50,489)	$	958,907

Three Months Ended March 31, 2022
Balance at December 31, 2021	$	94,956	$	646	$	5	$	854,873	$	147,894	$	(40,827)	$	7,743	$	1,065,290

Comprehensive income:
Net income	—		—		—		—		48,512		—		—		48,512
Other comprehensive loss, net	—		—		—		—		—		—		(26,915)		(26,915)



Redemption of preferred stock	(94,956)		—		—		—		(3,747)		—		—		(98,703)

Repurchase of 215,550 shares of common stock			—		—		—		—		(4,298)		—		(4,298)





Share-based compensation expense	—		—		—		1,285		—		—		—		1,285
Restricted stock surrendered due to employee tax liability	—		—		—		(960)		—		—		—		(960)

Shares purchased under the Dividend Reinvestment Plan	—		—		—		—		(30)		—		—		(30)

Dividends declared ($0.06 per common share)	—		—		—		—		(3,752)		—		—		(3,752)
Preferred stock dividends	—		—		—		—		(1,420)		—		—		(1,420)
Balance at March 31, 2022	$	—	$	646	$	5	$	855,198	$	187,457	$	(45,125)	$	(19,172)	$	979,009

See accompanying notes to consolidated financial statements (unaudited)

Table of C o ntents

BANC OF CALIFORNIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)


	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities:
Net income	$	20,278	$	48,512
Adjustments to reconcile net income to net cash provided by operating activities
Provision for (reversal of) credit losses	2,000		(31,542)

Reversal of loan repurchase reserves	(11)		(471)
Depreciation on premises and equipment	3,611		3,982
Amortization of other intangibles	461		441
Amortization of debt issuance costs	411		397
Net amortization of premium on securities	46		328



Net (accretion) amortization of deferred loan costs (fees) and purchased premiums (discounts)	(324)		416


Deferred income tax (benefit) expense	(727)		3,198
Bank owned life insurance income	(900)		(796)
Share-based compensation expense	1,455		1,285
Income from interest rate swaps	23		(102)
Loss on investments in alternative energy partnerships and affordable housing investments	3,129		1,704






Net gain on sale of securities available-for-sale	—		(16)

Gain on sale-leaseback of branch	—		(771)




Repurchase of mortgage loans	(416)		—


Proceeds from sales of and principal collected on loans held-for-sale	323		—



Change in accrued interest receivable and other assets	(14,988)		(13,566)

Change in accrued interest payable and other liabilities	(3,298)		(7,734)
Net cash provided by operating activities	11,073		5,265

Cash flows from investing activities:
Proceeds from sales of securities available-for-sale	—		17,646

Purchases of securities available-for-sale	(101,740)		(5,000)
Proceeds from principal repayments of securities held-to-maturity and available-for-sale	6,415		8,074








Loan originations and principal collections, net	118,502		195,846
Purchases of loans	(61,420)		(364,371)
Redemption of FHLB stock	6,137		—
Purchases of FHLB and other bank stock	(19,379)		(6,824)





Purchases of premises and equipment	(2,630)		(529)
Proceeds from sale-leaseback of branch	—		2,400

Funding of equity investments	(689)		(2,789)
Decrease in investments in alternative energy partnerships	365		574
Net cash used in investing activities	(54,439)		(154,973)

Cash flows from financing activities:
Net (decrease) increase in deposits	(168,911)		40,266
Net increase in short-term FHLB advances and FRB borrowings	905,000		80,000