Company Quick10K Filing
Quick10K
Banc of California
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$14.22 51 $723
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-K 2016-09-30 Annual: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-06-13 Shareholder Vote
8-K 2019-05-23 Officers, Other Events
8-K 2019-05-15 Other Events, Exhibits
8-K 2019-05-06 Regulation FD, Exhibits
8-K 2019-05-03 Officers
8-K 2019-05-01 Officers, Exhibits
8-K 2019-04-23 Earnings, Exhibits
8-K 2019-03-03 Exhibits
8-K 2019-03-01 Exhibits
8-K 2019-02-15 Exhibits
8-K 2019-01-24 Earnings, Exhibits
8-K 2019-01-24 Earnings, Exhibits
8-K 2018-11-28 Other Events
8-K 2018-11-15 Other Events, Exhibits
8-K 2018-11-01 Regulation FD, Exhibits
8-K 2018-10-25 Earnings, Exhibits
8-K 2018-10-18 Officers, Exhibits
8-K 2018-08-31 Officers, Regulation FD, Exhibits
8-K 2018-08-23 Regulation FD, Exhibits
8-K 2018-08-15 Other Events, Exhibits
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-06-26 Exit Costs, Officers
8-K 2018-05-31 Officers, Amend Bylaw, Shareholder Vote, Exhibits
8-K 2018-05-15 Other Events, Exhibits
8-K 2018-05-09 Regulation FD, Exhibits
8-K 2018-04-27 Earnings, Exhibits
8-K 2018-04-13 Officers
8-K 2018-03-14 Other Events
8-K 2018-03-08 Officers
8-K 2018-02-15 Officers, Exhibits
8-K 2018-02-08 Regulation FD, Exhibits
8-K 2018-01-25 Earnings, Exhibits
8-K 2018-01-19 Officers, Other Events
8-K 2017-12-28 Leave Agreement
MELI MercadoLibre 26,760
OCFC Oceanfirst Financial 1,290
LXRX Lexicon Pharmaceuticals 731
PETS PetMed Express 417
FTEK Fuel Tech 63
CVR Chicago Rivet & Machine 27
FRAN Francesca's Holdings 22
VIST Vist Financial 0
GTII Global Tech Industries Group 0
ZEST Ecoark Holdings 0
BANC 2019-03-31
Part I - Financial Information
Item 1 - Financial Statements
Note 1 - Summary of Significant Accounting Policies
Note 3 - Fair Values of Financial Instruments
Note 4 - Investment Securities
Note 5 - Loans and Leases and Allowance for Loan and Lease Losses
Note 6 - Leases
Note 7 - Goodwill and Other Intangible Assets, Net
Note 8 - Federal Home Loan Bank Advances and Other Borrowings
Note 9 - Long-Term Debt
Note 10 - Income Taxes
Note 11 - Derivative Instruments
Note 12 - Employee Stock Compensation
Note 13 - Stockholders' Equity
Note 14 - Variable Interest Entities
Note 15 - Earnings per Common Share
Note 16 - Loan Commitments and Other Related Activities
Note 17 - Revenue Recognition
Note 18 - Related-Party Transactions
Note 19 - Litigation
Note 20 - Subsequent Events
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Item 4 - Controls and Procedures
Part II - Other Information
Item 1 - Legal Proceedings
Item 1A - Risk Factors
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
Item 3 - Defaults Upon Senior Securities
Item 4 Mine Safety Disclosures
Item 5 - Other Information
Item 6 - Exhibits
EX-31.1 a3312019-ex311.htm
EX-31.2 a3312019-ex312.htm
EX-32.0 a3312019-ex320.htm

Banc of California Earnings 2019-03-31

BANC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 banc-3312019x10q.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
or
¨
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  ý    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  ý    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
 
ý
 
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 ý



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
Depositary Shares each representing a 1/40th interest in a share of 7.375% Non-Cumulative Perpetual Preferred Stock, Series D
 
BANC PRD
 
New York Stock Exchange
Depositary Shares each representing a 1/40th interest in a share of 7.00% Non-Cumulative Perpetual Preferred Stock, Series E
 
BANC PRE
 
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 6, 2019, the registrant had outstanding 50,367,355 shares of voting common stock and 477,321 shares of Class B non-voting common stock.



BANC OF CALIFORNIA, INC.
FORM 10-Q QUARTERLY REPORT
March 31, 2019
Table of Contents
 
 
Page
 
 
 
 
 
Item 1 –
 
 
 
 
 
 
 
 
 
 
 
 
Item 2 –
 
 
 
Item 3 –
 
 
 
Item 4 –
 
 
 
 
 
Item 1 –
 
 
 
Item 1A –
 
 
 
Item 2 –
 
 
 
Item 3 –
 
 
 
Item 4 –
 
 
 
Item 5 –
 
 
 
Item 6 –
 
 


2


Forward-Looking Statements
When used in this report and in public stockholder communications, in other documents of Banc of California, Inc. (the Company, we, us and our) filed with or furnished to the Securities and Exchange Commission (the SEC), 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,” “guidance” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. These statements may relate to our future financial performance, strategic plans or objectives, revenue, expense or earnings projections, or other financial items of Banc of California Inc. and its affiliates (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.
an ongoing investigation by the SEC as well as any related litigation or other litigation may result in adverse findings, reputational damage, the imposition of sanctions, increased costs, the diversion of management time and resources, and other negative consequences;
ii.
the costs and effects of litigation generally, including legal fees and other expenses, settlements and judgments;
iii.
the risk that our performance may be adversely affected by the CEO transition we have recently undergone;
iv.
the risk that the benefits we realize from exiting the third party mortgage origination and brokered single-family residential lending business will be less than anticipated and that the costs we incur from exiting that business will be greater than anticipated;
v.
the risk that the savings we actually realize from our recently announced reduction in force and planned reduction in use of third party advisors will be less than anticipated and the risk that the costs associated with the reduction in force will be greater than anticipated;
vi.
the risk that we will not be successful in the implementation of our capital utilization strategy and our other strategies for transitioning to a traditional community bank;
vii.
risks that the Company’s merger and acquisition transactions may disrupt current plans and operations and lead to difficulties in customer and employee retention, risks that the costs, fees, expenses and charges related to these transactions could be significantly higher than anticipated and risks that the expected revenues, cost savings, synergies and other benefits of these transactions might not be realized to the extent anticipated, within the anticipated timetables, or at all;
viii.
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 but not limited to the effectiveness of our underwriting practices and the risk of fraud, any of which credit and operational risks may lead to increased loan and lease delinquencies, losses and nonperforming assets in our loan and lease portfolio, and may result in our allowance for loan and lease losses not being adequate to cover actual losses and require us to materially increase our loan and lease loss reserves;
ix.
the quality and composition of our securities portfolio;
x.
changes in general economic conditions, either nationally or in our market areas, or changes in financial markets;
xi.
continuation of or changes in the short-term interest rate environment, changes in the levels of general interest rates, volatility in the interest rate environment, the relative differences between short- and long-term interest rates, deposit interest rates, our net interest margin and funding sources;
xii.
fluctuations in the demand for loans and leases, the number of unsold homes and other properties and fluctuations in commercial and residential real estate values in our market area;
xiii.
our ability to develop and maintain a strong core deposit base or other low cost funding sources necessary to fund our activities;
xiv.
results of examinations of us by regulatory authorities and the possibility that any such regulatory authority may, among other things, limit our business activities, require us to change our business mix, increase our allowance for loan and lease losses, write-down asset values, or increase our capital levels, or affect our ability to borrow funds or maintain or increase deposits, any of which could adversely affect our liquidity and earnings;
xv.
legislative or regulatory changes that adversely affect our business, including, without limitation, changes in tax laws and policies and changes in regulatory capital or other rules, and the availability of resources to address or respond to such changes;
xvi.
our ability to control operating costs and expenses;
xvii.
staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our work force and potential associated charges;
xviii.
the risk that our enterprise risk management framework may not be effective in mitigating risk and reducing the potential for losses;
xix.
errors in estimates of the fair values of certain of our assets and liabilities, which may result in significant changes in valuation;
xx.
the network and computer systems on which we depend could fail or experience a security breach;
xxi.
our ability to attract and retain key members of our senior management team;
xxii.
increased competitive pressures among financial services companies;
xxiii.
changes in consumer spending, borrowing and saving habits;
xxiv.
the effects of severe weather, natural disasters, acts of war or terrorism and other external events on our business;
xxv.
the ability of key third-party providers to perform their obligations to us;
xxvi.
the dependency of our single family residential mortgage loan origination business on third party mortgage brokers who are not contractually obligated to do business with us;
xxvii.
changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board or their application to our business, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods;
xxviii.
share price volatility and reputational risks, related to, among other things, speculative trading and certain traders shorting our common shares and attempting to generate negative publicity about us; and
xxix.
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, 2018 and under “Part II. Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q.
The Company undertakes no obligation to update any such statement to reflect circumstances or events that occur after the date, on which the forward-looking statement is made, except as required by law.

3


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,
2019
 
December 31,
2018
ASSETS
 
 
 
Cash and due from banks
$
36,258

 
$
21,875

Interest-earning deposits in financial institutions
268,447

 
369,717

Total cash and cash equivalents
304,705

 
391,592

Securities available-for-sale, at fair value
1,471,303

 
1,992,500

Loans held-for-sale, carried at fair value
25,191

 
7,690

Loans held-for-sale, carried at lower of cost or fair value

 
426

Loans and leases receivable
7,557,200

 
7,700,873

Allowance for loan and lease losses
(63,885
)
 
(62,192
)
Loans and leases receivable, net
7,493,315

 
7,638,681

Federal Home Loan Bank and other bank stock, at cost
55,794

 
68,094

Premises, equipment, and capital leases, net
130,417

 
129,394

Bank owned life insurance
107,552

 
107,027

Operating lease right of use assets
24,519

 

Goodwill
37,144

 
37,144

Investments in alternative energy partnerships, net
26,578

 
28,988

Deferred income taxes, net
45,111

 
49,404

Income tax receivable
4,787

 
2,695

Other intangible assets, net
5,726

 
6,346

Other assets
154,383

 
150,596

Assets of discontinued operations

 
19,490

Total assets
$
9,886,525

 
$
10,630,067

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Noninterest-bearing deposits
$
1,120,700

 
$
1,023,360

Interest-bearing deposits
6,604,232

 
6,893,284

Total deposits
7,724,932

 
7,916,644

Advances from Federal Home Loan Bank
935,000

 
1,520,000

Long term debt, net
173,203

 
173,174

Operating lease liabilities
25,893

 

Accrued expenses and other liabilities
79,172

 
74,715

Total liabilities
8,938,200

 
9,684,533

Commitments and contingent liabilities

 

Preferred stock
231,128

 
231,128

Common stock, $0.01 par value per share, 446,863,844 shares authorized; 51,898,870 shares issued and 50,315,490 shares outstanding at March 31, 2019; 51,755,398 shares issued and 50,172,018 shares outstanding at December 31, 2018
518

 
518

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, 2019 and 477,321 shares issued and outstanding at December 31, 2018
5

 
5

Additional paid-in capital
626,608

 
625,834

Retained earnings
136,943

 
140,952

Treasury stock, at cost (1,583,380 shares at March 31, 2019 and December 31, 2018)
(28,786
)
 
(28,786
)
Accumulated other comprehensive loss, net
(18,091
)
 
(24,117
)
Total stockholders’ equity
948,325

 
945,534

Total liabilities and stockholders’ equity
$
9,886,525

 
$
10,630,067

See Accompanying Notes to Consolidated Financial Statements (Unaudited)


4


BANC OF CALIFORNIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
Interest and dividend income
 
 
 
Loans and leases, including fees
$
90,558

 
$
74,912

Securities
17,841

 
21,631

Other interest-earning assets
2,313

 
2,164

Total interest and dividend income
110,712

 
98,707

Interest expense
 
 
 
Deposits
31,443

 
16,795

Federal Home Loan Bank advances
9,081

 
7,392

Securities sold under repurchase agreements
18

 
750

Long term debt and other interest-bearing liabilities
2,362

 
2,332

Total interest expense
42,904

 
27,269

Net interest income
67,808

 
71,438

Provision for loan and lease losses
2,512

 
19,499

Net interest income after provision for loan and lease losses
65,296

 
51,939

Noninterest income
 
 
 
Customer service fees
1,515

 
1,592

Loan servicing income
118

 
2,311

Income from bank owned life insurance
525

 
533

Net gain on sale of securities available-for-sale
208

 
5,241

Net gain (loss) on sale of loans
1,553

 
(41
)
Net loss on sale of mortgage servicing rights

 
(2,295
)
Other income
2,376

 
1,241

Total noninterest income
6,295

 
8,582

Noninterest expense
 
 
 
Salaries and employee benefits
28,439

 
31,115

Occupancy and equipment
7,686

 
7,687

Professional fees
11,041

 
9,177

Outside service fees
403

 
2,546

Data processing
1,496

 
1,656

Advertising and promotion
2,057

 
3,277

Regulatory assessments
2,482

 
2,092

Loss (gain) on investments in alternative energy partnerships
1,950

 
(34
)
Reversal of provision for loan repurchases
(116
)
 
(1,788
)
Amortization of intangible assets
620

 
843

Restructuring expense
2,795

 

All other expense
2,982

 
3,229

Total noninterest expense
61,835

 
59,800

Income from continuing operations before income taxes
9,756

 
721

Income tax expense (benefit)
2,719

 
(6,353
)
Income from continuing operations
7,037

 
7,074

Income from discontinued operations before income taxes (including net gain on disposal of $0 and $1,003, respectively, for the three months ended March 31, 2019 and 2018)

 
2,044

Income tax expense

 
560

Income from discontinued operations

 
1,484

Net income
7,037

 
8,558

Preferred stock dividends
4,308

 
5,113

Participating securities dividends
202

 
203

Net income available to common stockholders
$
2,527

 
$
3,242

Basic earnings per common share
 
 
 
Income from continuing operations
$
0.05

 
$
0.03

Income from discontinued operations

 
0.03

Net income
$
0.05

 
$
0.06

Diluted earnings per common share
 
 
 
Income from continuing operations
$
0.05

 
$
0.03

Income from discontinued operations

 
0.03

Net income
$
0.05

 
$
0.06

Basic earnings per class B common share
 
 
 
Income from continuing operations
$
0.05

 
$
0.03

Income from discontinued operations

 
0.03

Net income
$
0.05

 
$
0.06

Diluted earnings per class B common share
 
 
 
Income from continuing operations
$
0.05

 
$
0.03

Income from discontinued operations

 
0.03

Net income
$
0.05

 
$
0.06

See Accompanying Notes to Consolidated Financial Statements (Unaudited)


5


BANC OF CALIFORNIA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands)
(Unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
Net income
$
7,037

 
$
8,558

Other comprehensive income (loss), net of tax:
 
 
 
Unrealized gain (loss) on available-for-sale securities:
 
 
 
Unrealized gain (loss) arising during the period
6,173

 
(13,561
)
Reclassification adjustment for gain included in net income
(147
)
 
(3,704
)
Total change in unrealized gain (loss) on available-for-sale securities
6,026

 
(17,265
)
Total other comprehensive income (loss)
6,026

 
(17,265
)
Comprehensive income (loss)
$
13,063

 
$
(8,707
)
See Accompanying Notes to Consolidated Financial Statements (Unaudited)


6


BANC OF CALIFORNIA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Amounts in thousands)
(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
 
 
 
 
 
Balance at December 31, 2017
$
269,071

 
$
517

 
$
5

 
$
621,435

 
$
144,839

 
$
(28,786
)
 
$
5,227

 
$
1,012,308

Reclassification of stranded tax effects to retained earnings

 

 

 

 
(496
)
 

 
496

 

Adjusted Balance at December 31, 2017
269,071

 
517

 
5

 
621,435

 
144,343

 
(28,786
)
 
5,723

 
1,012,308

Comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 
8,558

 

 

 
8,558

Other comprehensive loss, net

 

 

 

 

 

 
(17,265
)
 
(17,265
)
Share-based compensation expense

 

 

 
2,087

 

 

 

 
2,087

Restricted stock surrendered due to employee tax liability

 

 

 
(97
)
 

 

 

 
(97
)
Shares purchased under the Dividend Reinvestment Plan

 

 

 
58

 
(74
)
 

 

 
(16
)
Stock appreciation right dividend equivalents

 

 

 

 
(203
)
 

 

 
(203
)
Dividends declared ($0.13 per common share)

 

 

 

 
(6,503
)
 

 

 
(6,503
)
Preferred stock dividends

 

 

 

 
(5,113
)
 

 

 
(5,113
)
Balance at March 31, 2018
$
269,071

 
$
517

 
$
5

 
$
623,483

 
$
141,008

 
$
(28,786
)
 
$
(11,542
)
 
$
993,756

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
$
231,128

 
$
518

 
$
5

 
$
625,834

 
$
140,952

 
$
(28,786
)
 
$
(24,117
)
 
$
945,534

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 
7,037

 

 

 
7,037

Other comprehensive income, net

 

 

 

 

 

 
6,026

 
6,026

Share-based compensation expense

 

 

 
853

 

 

 

 
853

Restricted stock surrendered due to employee tax liability

 

 

 
(79
)
 

 

 

 
(79
)
Shares purchased under the Dividend Reinvestment Plan

 

 

 

 
(50
)
 

 

 
(50
)
Stock appreciation right dividend equivalents

 

 

 

 
(202
)
 

 

 
(202
)
Dividends declared ($0.13 per common share)

 

 

 

 
(6,486
)
 

 

 
(6,486
)
Preferred stock dividends

 

 

 

 
(4,308
)
 

 

 
(4,308
)
Balance at March 31, 2019
$
231,128

 
$
518

 
$
5

 
$
626,608

 
$
136,943

 
$
(28,786
)
 
$
(18,091
)
 
$
948,325

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

7


BANC OF CALIFORNIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
7,037

 
$
8,558

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Provision for loan and lease losses
2,512

 
19,499

(Reversal of) provision for unfunded loan commitments
(414
)
 
577

Reversal of provision for loan repurchases
(116
)
 
(1,788
)
Depreciation on premises and equipment
2,683

 
2,575

Amortization of intangible assets
620

 
843

Amortization of debt issuance cost
29

 
25

Net amortization of premium and discount on securities
286

 
73

Net amortization (accretion) of deferred loan costs and fees
289

 
(122
)
Accretion of discounts on purchased loans
(97
)
 

Deferred income tax expense (benefit)
1,785

 
(4,956
)
Bank owned life insurance income
(525
)
 
(533
)
Share-based compensation expense
853

 
2,087

Loss (gain) on investments in alternative energy partnerships
1,950

 
(34
)
Impairment on capitalized software projects
38

 

Net revenue from mortgage banking activities

 
(232
)
Net (gain) loss on sale of loans
(1,553
)
 
41

Net gain on sale of securities available for sale
(208
)
 
(5,241
)
Loss from change of fair value of mortgage servicing rights
191

 
920

Loss on sale or disposal of property and equipment

 
16

Loss on sale of mortgage servicing rights

 
2,295

Net gain on disposal of discontinued operations

 
(1,003
)
Repurchase of mortgage loans

 
(9,670
)
Originations of other loans held-for-sale

 
(773
)
Proceeds from sales of and principal collected on loans held-for-sale from mortgage banking
2,139

 
10,629

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

 
5

Change in accrued interest receivable and other assets
(5,245
)
 
1,847

Change in accrued interest payable and other liabilities
6,282

 
(11,294
)
Net cash provided by operating activities
18,536

 
14,344

Cash flows from investing activities:
 
 
 
Proceeds from sales of securities available-for-sale
502,606

 
190,917

Proceeds from maturities and calls of securities available-for-sale
19,078

 
96,600

Proceeds from principal repayments of securities available-for-sale
7,969

 
9,351

Purchases of securities available-for-sale

 
(100,754
)
Loan and lease originations and principal collections, net
(100,702
)
 
(291,593
)
Redemption of Federal Home Loan Bank stock
23,341

 

Purchase of Federal Home Loan Bank and other bank stock
(11,041
)
 
(7,061
)
Proceeds from sale of loans
245,013

 
6,506

Proceeds from sale of other real estate owned
489

 
553

Proceeds from sale of mortgage servicing rights

 
27,347

Purchases of premises and equipment
(3,748
)
 
(2,090
)
Payments of capital lease obligations
(86
)
 
(125
)
Funding of equity investment, net
(574
)
 
(275
)
Net cash provided by (used in) investing activities
682,345

 
(70,624
)
Cash flows from financing activities:
 
 
 
Net decrease in deposits
(191,712
)
 
(182,738
)
Net (decrease) increase in short-term Federal Home Loan Bank advances
(585,000
)
 
30,000

Proceeds from long-term Federal Home Loan Bank advances

 
180,000

Purchase of restricted stock surrendered due to employee tax liability
(79
)
 
(97
)
Dividend equivalents paid on stock appreciation rights
(202
)
 
(202
)
Dividends paid on preferred stock
(4,308
)
 
(5,113
)
Dividends paid on common stock
(6,467
)
 
(6,565
)
Net cash (used in) provided by financing activities
(787,768
)
 
15,285

Net change in cash and cash equivalents
(86,887
)
 
(40,995
)
Cash and cash equivalents at beginning of period
391,592

 
387,699

Cash and cash equivalents at end of period
$
304,705

 
$
346,704

Supplemental cash flow information
 
 
 
Interest paid on deposits and borrowed funds
$
39,436

 
$
25,430

Income taxes paid
2,372

 
31

Income taxes refunds received

 
(22
)
Supplemental disclosure of non-cash activities
 
 
 
Transfer from loans to other real estate owned, net
$
276

 
$

Transfer of loans held-for-investment to loans held-for-sale
243,364

 
6,546

Equipment acquired under capital leases
30

 
496

Operating lease right of use assets recognized
26,365

 

Operating lease liabilities recognized

27,766

 
 
Due on unsettled securities purchases

 
59,000

Loans sold to Ginnie Mae that are subject to a repurchase option

 
6,774

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

8


BANC OF CALIFORNIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2019

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: Banc of California, Inc. (collectively, with its consolidated subsidiaries, the Company, we, us and our) is a financial holding company under the Bank Holding Company Act of 1956, as amended, headquartered in Santa Ana, California and incorporated under the laws of Maryland. Banc of California, Inc. is subject to regulation by the Board of Governors of the Federal Reserve System (FRB) and its wholly owned subsidiary, Banc of California, National Association (the Bank), operates under a national bank charter issued by the Office of the Comptroller of the Currency (OCC), the Bank's primary regulator. The Bank is a member of the Federal Home Loan Bank (FHLB) system, and maintains insurance on deposit accounts with the Federal Deposit Insurance Corporation (FDIC).
The Bank offers a variety of financial services to meet the banking and financial needs of the communities it serves, with operations conducted through 32 banking offices, serving San Diego, Los Angeles, Santa Barbara, and Orange counties in California as of March 31, 2019.
Basis of Presentation: The accompanying unaudited interim consolidated financial statements have been prepared pursuant to Article 10 of SEC Regulation S-X and other SEC rules and regulations for reporting on the Quarterly Report on Form 10-Q. Accordingly, certain disclosures required by U.S. generally accepted accounting principles (GAAP) are not included herein. These interim statements should be read in conjunction with the consolidated financial statements and notes included in the Annual Report on Form 10-K for the year ended December 31, 2018 filed by the Company with the SEC. The December 31, 2018 consolidated statements of financial condition presented herein has been derived from the audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC, but does not include all of the disclosures required by GAAP for complete financial statements.
In the opinion of management of the Company, the accompanying unaudited interim consolidated financial statements reflect all of the adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial condition and consolidated results of operations as of the dates and for the periods presented. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
Principles of Consolidation: The accompanying unaudited consolidated financial statements include the accounts of the Company and its consolidated subsidiaries as of March 31, 2019 and December 31, 2018 and for the three months ended March 31, 2019 and 2018. Significant intercompany accounts and transactions have been eliminated in consolidation. Unless the context requires otherwise, all references to the Company include its then wholly owned subsidiaries.
Significant Accounting Policies: The accounting and reporting policies of the Company are based upon GAAP and conform to predominant practices within the banking industry. The Company has not made any significant changes in its critical accounting policies from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC, except for the accounting for leases as described below.
Leases. The Company determines if an arrangement is a lease at inception. The Company’s operating lease agreements are primarily for real estate space and are included within right of use (ROU) assets and lease liabilities on the consolidated balance sheets. The ROU asset is based on the operating lease liabilities adjusted for any prepaid or deferred rent. The Company has elected not to recognize on its consolidated balance sheet leases with terms of one-year or less.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, the Company uses its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment, at lease commencement date in determining the present value of lease payments. Many of the Company’s lessee agreements include options to extend the lease, which the Company does not include in its minimum lease terms unless they are reasonably certain to be exercised. The Company elected the practical expedient to combine its lease and related nonlease components for the Company’s building leases. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term
Use of Estimates in the Preparation of Financial Statements: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and disclosures provided, and actual results could differ. The allowance for loan and lease losses (ALLL), reserve for loss on repurchased loans, reserve for unfunded loan

9


commitments, realization of deferred tax assets, the valuation of goodwill and other intangible assets, mortgage banking derivatives, Hypothetical Liquidation at Book Value (HLBV) of investments in alternative energy partnerships, and the fair value measurement of financial instruments are particularly subject to change and such change could have a material effect on the consolidated financial statements.
Discontinued Operations: During the three months ended March 31, 2017, the Company completed the sale of its Banc Home Loans division, which largely represented the Company's Mortgage Banking segment. In accordance with Accounting Standards Codification (ASC) 205-20, the Company determined that the sale of the Banc Home Loans division and certain other mortgage banking related assets and liabilities that would be sold or settled separately within one year met the criteria to be classified as a discontinued operation and the related operating results and financial condition have been presented as discontinued operations on the consolidated financial statements. See Note 2 for additional information. Unless otherwise indicated, information included in these notes to the consolidated financial statements is presented on a consolidated operations basis, which includes results from both continuing and discontinued operations, as of December 31, 2018 and for the three months ended March 31, 2018. There were no material assets, liabilities or operating income as of and for the three months ended March 31, 2019 related to discontinued operations.
Restructuring Expense: During the first quarter March 31, 2019, the Company continued to implement its strategic objective to de-emphasize the production of low margin loan products through its exit from the third-party mortgage origination ("TPMO") and brokered single family lending business. The Company recognized non-recurring costs of $2.8 million for the three months ended March 31, 2019 associated with the exit from the TPMO and brokered single family lending business and CEO transition.
Adopted Accounting Pronouncements: During the three months ended March 31, 2019, the following pronouncements applicable to the Company were adopted:
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2016-02 Topic 842, “Leases” which increases transparency and comparability among organizations by requiring the recognition of right of use (ROU) assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The Company adopted Topic 842 and related updates effective January 1, 2019 and used the effective date as the date of initial application, and therefore, periods prior to January 1, 2019 were not restated. The Company elected the package of practical expedients, which permits us not to reassess prior conclusions about lease identifications, lease classification and initial direct costs under the new standard. The Company did not elect to apply the hindsight practical expedient pertaining to using hindsight knowledge as of the effective date when determining lease terms and impairment. The Company also has elected the short-term lease recognition exemption (leases with terms 12 months or less) for all leases that qualify, and thus will not recognize ROU assets or lease liabilities for those leases. In addition, the Company elected the practical expedient to not separate lease and non-lease components for all of our leases. Upon adoption, the Company recognized on its balance sheet ROU assets of approximately $23.3 million (inclusive of an adjustment to remove the Company's existing deferred rent liability of approximately $1.4 million) with a corresponding operating lease liability of approximately $24.7 million. The standard did not have an impact on our consolidated statements of operations. In addition, the Company's accounting for finance leases remained substantially unchanged.
NOTE 2 – SALE OF BUSINESS UNIT (DISCONTINUED OPERATIONS)
Banc Home Loans Sale
On March 30, 2017, the Company completed the sale of specific assets and activities related to its Banc Home Loans division to Caliber Home Loans, Inc. (Caliber). The Banc Home Loans division largely represented the Company's Mortgage Banking segment, the activities of which related to originating, servicing, underwriting, funding and selling single family residential (SFR) mortgage loans. Assets sold to Caliber included mortgage servicing rights (MSRs) on certain conventional agency SFR mortgage loans. The Banc Home Loans division, along with certain other mortgage banking related assets and liabilities that were sold or settled separately within one year, was classified as discontinued operations in the accompanying Consolidated Statements of Financial Condition and Consolidated Statements of Operations at December 31, 2018 and for the three months ended March 31, 2018. Certain components of the Company’s Mortgage Banking segment, including MSRs on certain conventional agency SFR mortgage loans that were not sold as part of the Banc Home Loans sale and repurchase reserves related to previously sold loans, have been classified as continuing operations in the consolidated financial statements as they remain part of the Company’s ongoing operations. Refer to Note 2 of the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 for additional information related to this sale.
For the three months ended March 31, 2019 and 2018, the Company recognized gains related to the disposal of zero and $1.0 million, respectively. During the three months ended March 31, 2019 and 2018, the Company recognized an earn-out of $492

10


thousand and $635 thousand, respectively. At March 31, 2019 there were no material assets or liabilities associated with discontinued operations. At December 31, 2018, assets and liabilities of discontinued operations totaled $19.5 million and zero, respectively.
NOTE 3 – FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair Value Hierarchy
ASC 820-10 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The topic describes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Assets and Liabilities Measured on a Recurring Basis
Securities Available-for-Sale: The fair values of securities available-for-sale are generally determined by quoted market prices in active markets, if available (Level 1). If quoted market prices are not available, the Company primarily employs independent pricing services that utilize pricing models to calculate fair value. Such fair value measurements consider observable data such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and respective terms and conditions for debt instruments. The Company employs procedures to monitor the pricing service's assumptions and establishes processes to challenge the pricing service's valuations that appear unusual or unexpected. Level 2 securities include U.S. Small Business Administration (SBA) loan pool securities, U.S. government agency and U.S. government sponsored enterprise (GSE) residential mortgage-backed securities, non-agency residential mortgage-backed securities, non-agency commercial mortgage-backed securities, collateralized loan obligations, and corporate debt securities. When a market is illiquid or there is a lack of transparency around the inputs to valuation, including at least one unobservable input, the securities are classified as Level 3 and reliance is placed upon internally developed models, and management judgment and evaluation for valuation. The Company had no securities available-for-sale classified as Level 3 at March 31, 2019 or December 31, 2018.
Loans Held-for-Sale, Carried at Fair Value: The fair value of loans held-for-sale is based on commitments outstanding from investors as well as what secondary market investors are currently offering for portfolios with similar characteristics, except for loans that are repurchased out of GNMA loan pools that become severely delinquent which are valued based on an internal model that estimates the expected loss the Company will incur on these loans. Loans previously sold to GNMA that are delinquent more than 90 days are subject to a repurchase option when that condition exists. These loans are re-recognized at fair value and offset by a secured borrowing, as the loans are still legally owned by GNMA but failed sale accounting treatment under GAAP due to the repurchase option. Loans held-for-sale subject to recurring fair value adjustments are classified as Level 2 or, in the case of loans repurchased, Level 3. The fair value includes the servicing value of the loans as well as any accrued interest. As of March 31, 2019 and December 31, 2018, there were no loans that were delinquent more than 90 days and eligible to be repurchased out of GNMA loan pools.
Derivative Assets and Liabilities:
Interest Rate Swaps and Caps.
The Company offers interest rate swaps and caps products to certain loan customers to allow them to hedge the risk of rising interest rates on their variable rate loans. The Company originates a variable rate loan and enters into a variable-to-fixed interest rate swap with the customer. The Company also enters into an offsetting swap with a correspondent bank. These back-to-back agreements are intended to offset each other and allow the Company to originate a variable rate loan, while providing a contract for fixed interest payments for the customer. The net cash flow for the Company is equal to the interest income received from a variable rate loan originated with the customer. The fair value of these derivatives is based on a discounted cash flow approach. Due to the observable nature of the inputs used in deriving the fair value of these derivative contracts, the valuation of interest rate swaps is classified as Level 2.


11


Foreign Exchange Contracts. 
The Company offers short-term foreign exchange contracts to its customers to purchase and/or sell foreign currencies at set rates in the future. These products allow customers to hedge the foreign exchange rate risk of their deposits and loans denominated in foreign currencies. In conjunction with these products the Company also enters into offsetting contracts with institutional counterparties to hedge the Company’s foreign exchange rate risk. These back-to-back contracts allow the Company to offer its customers foreign exchange products while minimizing its exposure to foreign exchange rate fluctuations. The fair value of these instruments is determined at each reporting period based on the change in the foreign exchange rate. Given the short-term nature of the contracts, the counterparties’ credit risks are considered nominal and resulted in no adjustments to the valuation of the short-term foreign exchange contracts. Due to the observable nature of the inputs used in deriving the fair value of these derivative contracts, the valuation of these contracts is classified as Level 2.
The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis as of the dates indicated:
 
 
 
 
Fair Value Measurement Level
($ in thousands)
 
Carrying Value
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
March 31, 2019
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
Securities available-for-sale:
 
 
 
 
 
 
 
 
SBA loan pools securities
 
$
820

 
$

 
$
820

 
$

U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities
 
434,461

 

 
434,461

 

Non-agency residential mortgage-backed securities
 
331

 

 
331

 

Collateralized loan obligations
 
1,035,691

 

 
1,035,691

 

Loans held-for-sale, carried at fair value
 
25,191

 

 
2,122

 
23,069

Derivative assets:
 
 
 
 
 
 
 
 
Interest rate swaps and caps (1)
 
2,309

 

 
2,309

 

Foreign exchange contracts (1)
 
57

 

 
57

 

Liabilities
 
 
 
 
 
 
 
 
Derivative liabilities:
 
 
 
 
 
 
 
 
Interest rate swaps and caps (2)
 
2,497

 

 
2,497

 

Foreign exchange contracts (2)
 
32

 

 
32

 

December 31, 2018
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
Securities available-for-sale:
 
 
 
 
 
 
 
 
SBA loan pools securities
 
$
910

 
$

 
$
910

 
$

U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities
 
437,442

 

 
437,442

 

Non-agency residential mortgage-backed securities
 
427

 

 
427

 

Non-agency commercial mortgage-backed securities
 
132,199

 

 
132,199

 

Collateralized loan obligations
 
1,421,522

 

 
1,421,522

 

Loans held-for-sale, carried at fair value (3)
 
27,180

 

 
2,140

 
25,040

Derivative assets:
 
 
 
 
 
 
 
 
Interest rate swaps and caps (1)
 
1,534

 

 
1,534

 

Liabilities
 
 
 
 
 
 
 
 
Derivative liabilities:
 
 
 
 
 
 
 
 
Interest rate swaps and caps (2)
 
1,600

 

 
1,600

 


(1)
Included in Other Assets in the Consolidated Statements of Financial Condition.
(2)
Included in Accrued Expenses and Other Liabilities in the Consolidated Statements of Financial Condition.

12


(3)
Includes loans held-for-sale carried at fair value of $19.5 million ($2.1 million at Level 2 and $17.4 million at Level 3) of discontinued operations, which are included in Assets of Discontinued Operations in the Consolidated Statements of Financial Condition.
The following table presents a reconciliation of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3), on a consolidated operations basis, for the periods indicated:
 
 
Three Months Ended March 31,
($ in thousands)
 
2019
 
2018
Loans repurchased from GNMA Loan Pools (1)
 
 
 
 
Balance at beginning of period
 
$
25,040

 
$
98,940

Total gains or losses (realized/unrealized):
 
 
 
 
Included in earnings—fair value adjustment
 
3

 
(6
)
Additions
 

 
24,620

Sales, settlements, and other
 
(1,974
)
 
(80,592
)
Balance at end of period
 
$
23,069

 
$
42,962


(1)
Includes loans repurchased from GNMA Loan Pools of discontinued operations, which is included in Assets of Discontinued Operations in the Consolidated Statements of Financial Condition, of $17.3 million and $32.3 million, respectively, for the three months ended March 31, 2019 and 2018 in balance at beginning of period, and zero and $24.0 million, respectively, for the three months ended March 31, 2019 and 2018 in balance at end of period.
The significant unobservable inputs used in the fair value measurement of the Company's loans repurchased from GNMA loan pools at March 31, 2019 and December 31, 2018 included an expected loss rate of 1.55 percent for insured loans and 20.00 percent for uninsured loans. There may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results.
Fair Value Option
Loans Held-for-Sale, Carried at Fair Value: The Company elected the fair value option for certain SFR mortgage loans held-for-sale. Electing to measure SFR mortgage loans held-for-sale at fair value reduces certain timing differences and better matches changes in the value of these assets with changes in the value of derivatives used as economic hedges for these assets. The Company also elected to record loans repurchased from GNMA at fair value, as the Company intends to sell them after curing any defects and, accordingly, they are classified as held-for-sale. Loans previously sold to GNMA that are delinquent more than 90 days are subject to a repurchase option when that condition exists. These loans are re-recognized at fair value and offset by a secured borrowing, as the loans are still legally owned by GNMA.
The following table presents the fair value and aggregate principal balance of certain assets, on a consolidated operations basis, under the fair value option:
 
 
March 31, 2019
 
December 31, 2018
($ in thousands)
 
Fair Value
 
Unpaid Principal Balance
 
Difference
 
Fair Value
 
Unpaid Principal Balance
 
Difference
Loans held-for-sale, carried at fair value in continuing operations:
 
 
 
 
 
 
 
 
 
 
 
 
Total loans
 
$
25,191

 
$
25,932

 
$
(741
)
 
$
7,690

 
$
7,906

 
$
(216
)
Non-accrual loans (1)
 
9,217

 
9,350

 
(133
)
 
2,427

 
2,538

 
(111
)
Loans held-for-sale, carried at fair value in discontinued operations:
 
 
 
 
 
 
 
 
 
 
 
 
Total loans
 
$

 
$

 
$

 
$
19,490

 
$
20,027

 
$
(537
)
Non-accrual loans (2)
 

 

 

 
8,430

 
8,496

 
(66
)
(1)
Includes loans guaranteed by the U.S. government of $8.0 million and $1.6 million, respectively, at March 31, 2019 and December 31, 2018.
(2)
Includes loans guaranteed by the U.S. government of zero and $7.6 million, respectively, at March 31, 2019 and December 31, 2018.
There were no loans held-for-sale that were 90 days or more past due and still accruing interest as of March 31, 2019 and December 31, 2018.
The assets and liabilities accounted for under the fair value option are initially measured at fair value. Gains and losses from initial measurement and subsequent changes in fair value are recognized in earnings. The following table presents changes in

13


fair value related to initial measurement and subsequent changes in fair value included in earnings for these assets and liabilities measured at fair value for the periods indicated:
 
 
Three Months Ended March 31,
($ in thousands)
 
2019
 
2018
Net gains (losses) from fair value changes
 
 
 
 
Net gain (loss) on sale of loans (continuing operations)
 
$
1

 
$
(15
)
Net revenue on mortgage banking activities (discontinued operations)
 

 
8

Changes in fair value due to instrument-specific credit risk were insignificant for the three months ended March 31, 2019 and 2018. Interest income on loans held-for-sale under the fair value option is measured based on the contractual interest rate and reported in Loans and Leases, including Fees under Interest and Dividend Income and Income from Discontinued Operations in the Consolidated Statements of Operations.
Assets and Liabilities Measured on a Non-Recurring Basis
Impaired Loans and Leases: The fair value of impaired loans and leases with specific allocations of the ALLL based on collateral is generally based on recent real estate appraisals and automated valuation models (AVMs). These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically deemed significant unobservable inputs used for determining fair value and result in a Level 3 classification.
The following table presents the Company’s financial assets and liabilities measured at fair value on a non-recurring basis as of the dates indicated:
 
 
 
 
Fair Value Measurement Level
($ in thousands)
 
Carrying Value
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
March 31, 2019
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
Impaired loans:
 
 
 
 
 
 
 
 
Single family residential mortgage
 
$
674

 
$

 
$

 
$
674

SBA
 
765

 

 

 
765

December 31, 2018
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
Impaired loans:
 
 
 
 
 
 
 
 
SBA
 
$
226

 

 

 
$
226

The following table presents the gains (losses) recognized on assets measured at fair value on a non-recurring basis for the periods indicated:
 
 
Three Months Ended March 31,
($ in thousands)
 
2019
 
2018
Impaired loans:
 
 
 
 
Single family residential mortgage
 
$
(490
)
 
$
(115
)
Commercial and industrial
 

 
(60
)
SBA
 
(54
)
 
(381
)
Other consumer
 
(88
)
 
(141
)

14


Estimated Fair Values of Financial Instruments
The following table presents the carrying amounts and estimated fair values of financial assets and liabilities, on a consolidated operations basis, as of the dates indicated:
 
 
Carrying Amount
 
Fair Value Measurement Level
($ in thousands)
 
 
Level 1
 
Level 2
 
Level 3
 
Total
March 31, 2019
 
 
 
 
 
 
 
 
 
 
Financial assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
304,705

 
$
304,705

 
$

 
$

 
$
304,705

Securities available-for-sale
 
1,471,303

 

 
1,471,303

 

 
1,471,303

Federal Home Loan Bank and other bank stock
 
55,794

 

 
55,794

 

 
55,794

Loans held-for-sale
 
25,191

 

 
2,122

 
23,069

 
25,191

Loans and leases receivable, net of ALLL
 
7,493,315

 

 

 
7,360,071

 
7,360,071

Accrued interest receivable
 
36,468

 
36,468

 

 

 
36,468

Derivative assets
 
2,366

 

 
2,366

 

 
2,366

Financial liabilities
 
 
 
 
 
 
 
 
 
 
Deposits
 
7,724,932

 

 

 
7,536,887

 
7,536,887

Advances from Federal Home Loan Bank
 
935,000

 

 
938,536

 

 
938,536

Long term debt
 
173,203

 

 
173,483

 

 
173,483

Derivative liabilities
 
2,529

 

 
2,529

 

 
2,529

Accrued interest payable
 
16,726

 
16,726

 

 

 
16,726

December 31, 2018
 
 
 
 
 
 
 
 
 
 
Financial assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
391,592

 
$
391,592

 
$

 
$

 
$
391,592

Securities available-for-sale
 
1,992,500

 

 
1,992,500

 

 
1,992,500

Federal Home Loan Bank and other bank stock
 
68,094

 

 
68,094

 

 
68,094

Loans held-for-sale (1)
 
27,606

 

 
2,566

 
25,040

 
27,606

Loans and leases receivable, net of allowance
 
7,638,681

 

 

 
7,513,910

 
7,513,910

Accrued interest receivable
 
38,807

 
38,807

 

 

 
38,807

Derivative assets
 
1,534

 

 
1,534

 

 
1,534

Financial liabilities
 
 
 
 
 
 
 
 
 
 
Deposits
 
7,916,644

 

 

 
7,689,324

 
7,689,324

Advances from Federal Home Loan Bank
 
1,520,000

 

 
1,517,761

 

 
1,517,761

Long-term debt
 
173,174

 

 
174,059

 

 
174,059

Derivative liabilities
 
1,600

 

 
1,600

 

 
1,600

Accrued interest payable
 
13,253

 
13,253

 

 

 
13,253

(1)
Includes loans held-for-sale carried at fair value of $19.5 million ($2.1 million at Level 2 and $17.4 million at Level 3) of discontinued operations.

15


NOTE 4 – INVESTMENT SECURITIES
The following table presents the amortized cost and fair value of the investment securities portfolio as of the dates indicated:
($ in thousands)
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
March 31, 2019
 
 
 
 
 
 
 
 
Securities available-for-sale:
 
 
 
 
 
 
 
 
SBA loan pool securities
 
$
831

 
$

 
$
(11
)
 
$
820

U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities
 
448,956

 
18

 
(14,513
)
 
434,461

Non-agency residential mortgage-backed securities
 
319

 
12

 

 
331

Collateralized loan obligations
 
1,046,845

 
132

 
(11,286
)
 
1,035,691

Total securities available-for-sale
 
$
1,496,951

 
$
162

 
$
(25,810
)
 
$
1,471,303

December 31, 2018
 
 
 
 
 
 
 
 
Securities available-for-sale:
 
 
 
 
 
 
 
 
SBA loan pool securities
 
$
911

 
$

 
$
(1
)
 
$
910

U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities
 
461,987

 

 
(24,545
)
 
437,442

Non-agency residential mortgage-backed securities
 
418

 
9

 

 
427

Non-agency commercial mortgage-backed securities
 
132,199

 

 

 
132,199

Collateralized loan obligations
 
1,431,171

 
141

 
(9,790
)
 
1,421,522

Total securities available-for-sale
 
$
2,026,686

 
$
150

 
$
(34,336
)
 
$
1,992,500

As of December 31, 2018, the Company changed its intent and decided to sell its non-agency commercial mortgage-backed securities in an unrealized loss position due to its strategy to reposition its securities profile and recognized $3.3 million of OTTI losses during the fourth quarter of 2018. During the three months ended March 31, 2019, the Company completed the sale of all remaining non-agency commercial mortgage-backed securities totaling $132.2 million resulting in a gain of $9 thousand. Additionally, during the three months ended March 31, 2019, the Company sold $365.3 million in collateralized loan obligations resulting in a gain of $143 thousand. During the three months ended March 31, 2018, the Company completed the sale of all remaining corporate debt securities, totaling $76.8 million resulting in a gain of $4.9 million, to reposition its securities available-for-sale portfolio.
At March 31, 2019, the Company's investment securities portfolio consisted of SBA loan pool securities, mortgage-backed securities, and collateralized loan obligations. The expected maturities of these types of securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
At March 31, 2019 and December 31, 2018, there were no holdings of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10 percent of the Company's stockholders’ equity.
The following table presents proceeds from sales and calls of securities available-for-sale and the associated gross gains and losses realized through earnings upon the sales and calls of securities available-for-sale for the periods indicated:
 
 
Three Months Ended March 31,
($ in thousands)
 
2019
 
2018
Gross realized gains on sales and calls of securities available-for-sale
 
$
208

 
$
5,241

Gross realized losses on sales and calls of securities available-for-sale
 

 

Net realized gains on sales and calls of securities available-for-sale
 
$
208

 
$
5,241

Proceeds from sales and calls of securities available-for-sale
 
$
521,684

 
$
287,517

Investment securities with carrying values of $107.3 million and $163.0 million as of March 31, 2019 and December 31, 2018, respectively, were pledged to secure FHLB advances, public deposits and for other purposes as required or permitted by law.

16


The following table summarizes the investment securities with unrealized losses by security type and length of time in a continuous unrealized loss position as of the dates indicated:
 
 
Less Than 12 Months
 
12 Months or Longer
 
Total
($ in thousands)
 
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
SBA loan pool securities
 
$
820

 
$
(11
)
 
$

 
$

 
$
820

 
$
(11
)
U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities
 
200,351

 
(6,653
)
 
230,807

 
(7,860
)
 
431,158

 
(14,513
)
Non-agency residential mortgage-backed securities
 
15

 

 
7

 

 
22

 

Collateralized loan obligations
 
739,508

 
(10,437
)
 
195,301

 
(849
)
 
934,809

 
(11,286
)
Total securities available-for-sale
 
$
940,694

 
$
(17,101
)
 
$
426,115

 
$
(8,709
)
 
$
1,366,809

 
$
(25,810
)
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
SBA loan pool securities
 
$

 
$

 
$
910

 
$
(1
)
 
$
910

 
$
(1
)
U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities
 
13,494

 
(133
)
 
423,916

 
(24,412
)
 
437,410

 
(24,545
)
Non-agency residential mortgage-backed securities
 
90

 

 
16

 

 
106

 

Collateralized loan obligations
 
1,364,317

 
(9,480
)
 
32,790

 
(310
)
 
1,397,107

 
(9,790
)
Total securities available-for-sale
 
$
1,377,901

 
$
(9,613
)
 
$
457,632

 
$
(24,723
)
 
$
1,835,533

 
$
(34,336
)
The Company did not record other-than-temporary-impairment (OTTI) for investment securities for the three months ended March 31, 2019 or 2018.
At March 31, 2019, the Company’s securities available-for-sale portfolio consisted of 99 securities, 88 of which were in an unrealized loss position. At December 31, 2018, the Company’s securities available-for-sale portfolio consisted of 145 securities, 118 of which were in an unrealized loss position.
The Company monitors its securities portfolio to ensure it has adequate credit support. The majority of unrealized losses are related to the Company's mortgage-backed securities issued by U.S government sponsored entities and agencies. The Company also considers the lowest credit rating for identification of potential OTTI for other securities. As of March 31, 2019, nearly all of the Company's non-agency mortgage-backed securities or collateralized loan obligations investment securities in an unrealized loss position received an investment grade credit rating. The decline in fair value is attributable to changes in interest rates, and not credit quality. The Company believes there was no OTTI as of March 31, 2019 and does not have the intent to sell its securities in an unrealized loss position and further believes it is not likely that it will be required to sell these securities before their anticipated recovery.

17


The following table presents the composition and the repricing and yield information of the investment securities portfolio as of March 31, 2019:
 
 
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)
 
Fair
Value
 
Weighted-Average Yield
 
Fair
Value
 
Weighted-Average Yield
 
Fair
Value
 
Weighted-Average Yield
 
Fair
Value
 
Weighted-Average Yield
 
Fair
Value
 
Weighted-Average Yield
Securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SBA loan pool securities
 
$

 
%
 
$

 
%
 
$

 
%
 
$
820

 
3.06
%
 
$
820

 
3.06
%
U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities
 
267

 
2.71
%
 
3,317

 
3.16
%
 

 
%
 
430,877

 
3.06
%
 
434,461

 
3.03
%
Non-agency residential mortgage-backed securities
 
76

 
3.96
%
 

 
%
 

 
%
 
255

 
5.57
%
 
331

 
5.20
%
Collateralized loan obligations
 
1,035,691

 
4.25
%
 

 
%
 

 
%