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What changed in BANC OF CALIFORNIA, INC.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of BANC OF CALIFORNIA, INC.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+556 added−572 removedSource: 10-K (2025-03-03) vs 10-K (2024-02-29)

Top changes in BANC OF CALIFORNIA, INC.'s 2024 10-K

556 paragraphs added · 572 removed · 436 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

121 edited+24 added−22 removed126 unchanged
Biggest changeWhen underwriting real estate loans, we seek to mitigate risk by using the following framework: • requiring borrowers to invest and maintain a meaningful cash equity interest in the properties securing our loans; • reviewing each loan request and renewal individually; • using a credit committee approval process for the approval of loan requests (or aggregated credit exposures) over a certain dollar amount; • adhering to written loan acceptance standards, including among other factors, maximum loan to acquisition or construction cost ratios, maximum loan to as-is or stabilized value ratios, and minimum operating cash flow requirements; • considering market rental and occupancy rates relative to our underwritten or projected rental and occupancy rates; • considering the experience of our borrowers and our borrowers’ abilities to operate and manage the properties securing our loans; • evaluating the supply of comparable real estate and new supply under construction in the collateral's market area; • obtaining independent third-party appraisals that are reviewed by our appraisal department; • obtaining environmental risk assessments; and • obtaining seismic studies where appropriate.
Biggest changeWhen underwriting real estate loans, we seek to mitigate risk by using the following framework: • requiring borrowers to invest and maintain a meaningful cash equity interest in the properties securing our loans; • reviewing each loan request and renewal individually; • using a credit committee approval process for the approval of loan requests (or aggregated credit exposures) over a certain dollar amount; • adhering to written loan acceptance standards, including among other factors, maximum loan to acquisition or construction cost ratios, maximum loan to as-is or stabilized value ratios, and minimum operating cash flow requirements; • considering market rental and occupancy rates relative to our underwritten or projected rental and occupancy rates; • considering the experience of our borrowers and our borrowers’ abilities to operate and manage the properties securing our loans; • evaluating the supply of comparable real estate and new supply under construction in the collateral's market area; • obtaining independent third-party appraisals that are reviewed by our appraisal department; • obtaining environmental risk assessments; and • obtaining seismic studies where appropriate. 10 With respect to real estate construction loans, in addition to the points above, we attempt to mitigate project-specific risks by: • considering the experience of our borrowers and our borrowers’ abilities to manage the properties during construction and into the stabilization periods; • obtaining project completion guaranties from our borrowers; • including covenants in our construction loan agreements that require the borrowers to fund costs that exceed the initial construction budgets; • implementing a controlled disbursement process for loan proceeds in accordance with an agreed upon schedule, which usually results in the borrowers' equity being invested before loan advances commence and which ensures the costs to complete the projects are in balance with our remaining unfunded loan commitments; • conducting project site visits and using construction consultants who review the progress of the project; and • monitoring the construction costs compared to the budgeted costs and the remaining costs to complete.
The Bank Liquidity. The Bank is subject to a variety of requirements under federal law. The Bank is required to maintain sufficient liquidity to ensure safe and sound operations. For additional information, see Liquidity included in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K. Safety and Soundness.
The Bank is subject to a variety of requirements under federal law. The Bank is required to maintain sufficient liquidity to ensure safe and sound operations. For additional information, see Liquidity included in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K. Safety and Soundness.
If restrictions are imposed on the activities of a financial holding company, such information may not necessarily be available to the public. The bank regulatory framework requires that we obtain prior approval of one or more regulators for various initiatives or corporate actions, including certain acquisitions or investments and the establishment of branches.
If restrictions are imposed on the activities of a financial holding company, such information may not necessarily be available to the public. 20 The bank regulatory framework requires that we obtain prior approval of one or more regulators for various initiatives or corporate actions, including certain acquisitions or investments and the establishment of branches.
Multi-family loans either repay on a 30-year amortization schedule or may have an initial interest-only period (up to two years) and then repay on a 30-year amortization schedule. During 2022 and prior years, we purchased single-family residential mortgage loans that met our established lending criteria from multiple third-party lenders.
Multi-family loans either repay on a 30-year amortization schedule or may have an initial interest-only period (typically up to two years) and then repay on a 30-year amortization schedule. During 2022 and prior years, we purchased single-family residential mortgage loans that met our established lending criteria from multiple third-party lenders.
The loans can be up to five years and are secured by a specific asset or assets of the borrower. • Warehouse loans . Warehouse lending is a line of credit given to a loan originator, the funds from which are used to originate or purchase mortgage loans. The loans have one year terms and generally renew annually.
The loans can be up to five years and are secured by a specific asset or assets of the borrower. 12 • Warehouse loans . Warehouse lending is a line of credit given to a loan originator, the funds from which are used to originate or purchase mortgage loans. The loans have one year terms and generally renew annually.
Regulators take into account a range of factors in determining whether to grant a requested approval, including the supervisory status of the applicant and its affiliates. Thus, there is no guarantee that a particular proposal by us would receive the required regulatory approvals. 20 Acquisitions.
Regulators take into account a range of factors in determining whether to grant a requested approval, including the supervisory status of the applicant and its affiliates. Thus, there is no guarantee that a particular proposal by us would receive the required regulatory approvals. Acquisitions.
Thus, if the Bank were to be in financial distress or to otherwise be viewed by the regulators as in unsatisfactory condition, then the regulators could require the Company to provide additional capital or liquidity support, or take other action, in support of the Bank—even if doing so is not otherwise in the best interest of the Company.
Thus, if the Bank were to be in financial distress or to otherwise be viewed by the regulators as in unsatisfactory condition, then the regulators could require the Company to provide additional capital or liquidity support, or take other action, in support of the Bank—even if doing so is not otherwise in the best interest of the Company. 21 The Bank Liquidity.
In allocating total compensation, we seek to provide competitive levels of fixed compensation (base salary) and, through annual and long-term incentives, provide for increased total compensation when performance objectives are exceeded and appropriately lower total compensation if performance objectives are not met.
In allocating total compensation, we seek to provide competitive levels of fixed compensation (base salary) and, through annual and long-term incentives, provide for increased total compensation when performance objectives are met or exceeded and appropriately lower total compensation if performance objectives are not met.
The description below, as well as other descriptions of laws and regulations in this Form 10-K, is not complete and is qualified in its entirety by reference to applicable laws and regulations and is not intended to summarize all laws and regulations applicable to us and our subsidiaries, and is based upon the statutes, regulations, policies, interpretive letters and other written guidance that are in effect as of the date of this Annual Report on Form 10-K.
The description of regulatory requirements below, as well as other descriptions of laws and regulations in this Form 10-K, is not complete and is qualified in its entirety by reference to applicable laws and regulations, is not intended to summarize all laws and regulations applicable to us and our subsidiaries, and is based upon the statutes, regulations, policies, interpretive letters and other written guidance that are in effect as of the date of this Annual Report on Form 10-K.
As of December 31, 2023, the Bank has no loans in excess of its loans-to-one borrower limit. Dividends. The Company’s primary source of liquidity is dividend payments from the Bank. The regulatory regime imposes various restrictions on the ability of the Bank to make capital distributions, which include dividends, stock redemptions or repurchases, and certain other items.
As of December 31, 2024, the Bank has no loans in excess of its loans-to-one borrower limit. Dividends. The Company’s primary source of liquidity is dividend payments from the Bank. The regulatory regime imposes various restrictions on the ability of the Bank to make capital distributions, which include dividends, stock redemptions or repurchases, and certain other items.
To support these objectives, our human resources programs are designed to develop talent to prepare them for critical roles and leadership positions for the future, reward and support employees through competitive pay, benefit, and perquisite programs, enhance the Company’s culture through efforts aimed at making the workplace more engaging and inclusive, acquire talent, and facilitate internal talent mobility to create a high-performing, diverse workforce, and evolve and invest in technology, tools and resources to enable employees to effectively and efficiently perform their responsibilities and achieve their full potential.
To support these objectives, our human resources programs are designed to develop talent to prepare them for critical roles and leadership positions for the future, reward and support team members through competitive pay, benefit, and perquisite programs, enhance the Company’s culture through efforts aimed at making the workplace more engaging and inclusive, acquire talent, and facilitate internal talent mobility to create a high-performing, diverse workforce, and evolve and invest in technology, tools and resources to enable team members to effectively and efficiently perform their responsibilities and achieve their full potential.
As of December 31, 2023, we were in compliance with the minimum CET1, Tier 1, total capital and leverage ratios and the minimum capital conservation buffer set forth in these generally applicable regulations. These capital requirements are the minimum ratios generally applicable to banking organizations. The regulators assess any particular institution’s capital adequacy based on numerous factors.
As of December 31, 2024, we were in compliance with the minimum CET1, Tier 1, total capital, and leverage ratios and the minimum capital conservation buffer set forth in these generally applicable regulations. These capital requirements are the minimum ratios generally applicable to banking organizations. The regulators assess any particular institution’s capital adequacy based on numerous factors.
We take pride in providing equal employment opportunities and building a workplace culture where all employees feel supported and respected, and have equal access to career and development opportunities without regard to race, religion/creed, color, national origin, age, marital status, ancestry, sex, gender, gender identity/expression, sexual orientation, veteran status, physical or mental disability, medical condition, military status, or any other characteristic protected by federal, state or local laws.
We take pride in providing equal employment opportunities and building a workplace culture where all team members feel supported and respected, and have equal access to career and development opportunities without regard to race, religion/creed, color, national origin, age, marital status, ancestry, sex, gender, gender identity/expression, sexual orientation, veteran status, physical or mental disability, medical condition, military status, or any other characteristic protected by federal, state or local laws.
The loans are typically revolving lines of credit with terms of one to three years with contractual borrowing availability as a percentage of eligible collateral. • Venture capital . These are loans directly to venture capital firms or loans to venture-backed companies and are composed of two areas: Fund Finance and Portfolio Company lending.
The loans are typically revolving lines of credit with terms of one to three years with contractual borrowing availability as a percentage of eligible collateral. • Venture capital . These are loans directly to venture capital firms or loans to venture-backed companies and are composed of two categories: Fund Finance and Portfolio Company lending.
As of December 31, 2023, the Company had capital ratios in excess of the minimums required to be considered “well capitalized.” Repurchases/Redemptions; Dividends. The ability of the Company to buy back stock and make other capital distributions is limited by regulatory capital rules and other aspects of the regulatory framework.
As of December 31, 2024, the Company had capital ratios in excess of the minimums required to be considered “well capitalized.” Repurchases/Redemptions; Dividends. The ability of the Company to buy back stock and make capital distributions is limited by regulatory capital rules and other aspects of the regulatory framework.
Generally, the Bank may declare a dividend without the approval of the DFPI as long as the total dividends declared in a calendar year do not exceed either the retained earnings of the Bank or the total of net earnings of the Bank for three previous fiscal years less any dividend paid during such period.
Generally, the Bank may declare a dividend without the approval of the DFPI as long as the total dividends declared in a calendar year do not exceed either the retained earnings of the Bank nor the total of net earnings of the Bank for three previous fiscal years less any dividend paid during such period.
We believe that creating an environment which encourages continual learning and development is essential for us to maintain a high level of service and to achieve our goal to have every employee feel that they are a valued member of a successful company.
We believe that creating an environment which encourages continual learning and development is essential for us to maintain a high level of service and to achieve our goal to have every team member feel that they are a valued member of a successful company.
Our Business Strategy Our strategic objective is to be one of the nation's premier relationship-based business banks by delivering outstanding service to our banking clients through our team's ability to collaborate, execute and perform at a level superior to our competition.
Our Business Strategy Our strategic objective is to continue to be one of the nation's premier relationship-based commercial banks by delivering outstanding service to our banking clients through our team's ability to collaborate, execute and perform at a level superior to our competition.
We typically lend to portfolio companies in two areas: technology, where the portfolio companies are involved in the creation or development of technology or product that has a sizeable market opportunity; and life sciences, where the portfolio companies are involved in the creation and/or development of new medical technology or pharmaceuticals.
We typically lend to portfolio companies in two industries: technology, where the portfolio companies are involved in the creation or development of technology or product that has a sizeable market opportunity; and life sciences, where the portfolio companies are involved in the creation and/or development of new medical technology or pharmaceuticals.
Trading in certain government obligations is not prohibited. These include, among others, obligations of or guaranteed by the United States or an agency or GSE of the United States, obligations of a State of the United States or a political subdivision thereof, and municipal securities.
Trading in certain government obligations is not prohibited by the Volcker Rule. These include, among others, obligations of or guaranteed by the United States, an agency of the United States, or GSE, obligations of a State of the United States or a political subdivision thereof, and municipal securities.
SBA 504 loans are first deed of trust mortgage loans on owner occupied commercial real estate which are 50% loan-to-value at origination where a second deed of trust is also provided by a non-profit certified development company. The SBA 7(a) and 504 mortgage loans repay on a twenty-five year amortization schedule. • Residential real estate mortgage .
SBA 504 loans are first deed of trust mortgage loans on owner occupied commercial real estate which are 50% loan-to-value at origination where a second deed of trust is also provided by a non-profit certified development company. The SBA 7(a) and 504 mortgage loans repay on a 25-year amortization schedule. • Residential real estate mortgage .
Some examples of key programs and initiatives that are focused to attract, develop and retain our workforce include: Compensation and Benefits. The philosophy and objectives underlying our compensation programs are to employ and retain talented employees to ensure we execute on our business goals, drive short- and long-term profitable growth of the Company, and create long-term stockholder value.
Some examples of key programs and initiatives that are focused to attract, develop and retain our workforce include: Compensation and Benefits. The philosophy and objectives underlying our compensation programs are to employ and retain talented team members to ensure we execute on our business goals, drive short- and long-term profitable growth of the Company, and create long-term stockholder value.
The loan terms are generally one to four years, and the loans are typically secured by a first priority, secured blanket lien on all corporate assets and/or a lien on intellectual property. • Secured business . These are secured business loans originated through the Community Banking group. The primary source of repayment is the cash flow of the borrowers.
The loan terms are generally one to four years, and the loans are typically secured by a first priority, secured blanket lien on all corporate assets and/or a lien on intellectual property. • Secured business . These are secured business loans originated through the CCB group. The primary source of repayment is the cash flow of the borrowers.
Our employees are our most important assets and they set the foundation for our ability to achieve our strategic objectives. We believe that we have a competitive advantage in the markets we serve because of our long-standing reputation for providing superior, relationship-based customer service.
Our team members are our most important assets, and they set the foundation for our ability to achieve our strategic objectives. We believe that we have a competitive advantage in the markets we serve because of our long-standing reputation for providing superior, relationship-based customer service.
At December 31, 2023 and 2022, 40%, and 7% of the total commercial real estate mortgage loans were owner occupied (where our borrowers were operating businesses on the premises that collateralize our loans). The real estate construction and land loan portfolio is diversified among various property types.
At December 31, 2024 and 2023, 31%, and 40% of the total commercial real estate mortgage loans were owner occupied (where our borrowers were operating businesses on the premises that collateralize our loans). The real estate construction and land loan portfolio is diversified among various property types.
When we refer to the “parent” or the “holding company”, we are referring to Banc of California, Inc., the parent company, on a stand-alone basis. When we refer to “we,” “us,” “our,” or the “Company”, we are referring to Banc of California, Inc. and its consolidated subsidiaries including the Bank, collectively.
When we refer to the “parent” or the “holding company,” we are referring to Banc of California, Inc., the parent company, on a stand-alone basis. When we refer to “we,” “us,” “our,” or the “Company,” we are referring to Banc of California, Inc. and its consolidated subsidiaries including the Bank, collectively.
Our lending activities are focused on providing thoughtful financing solutions to our clients. We consistently invest in automated solutions and our technology infrastructure to gain operating efficiencies and to improve the client experience as we deliver our high standard of service.
Our lending activities are focused on providing thoughtful financing solutions to our clients. We are consistently investing in our technology infrastructure to gain operating efficiencies and to improve the client experience as we deliver our high standard of service.
Loans aggregated into the category of “Other lending” are various commercial loan types including Community Banking group business loans, loans to homeowner associations, loans to municipalities and non-profit borrowers, and SBA 7(a) loans for small business expansion.
Loans aggregated into the category of “Other lending” are various commercial loan types including the CCB group business loans, loans to homeowner associations, loans to municipalities and non-profit borrowers, and SBA 7(a) loans for small business expansion.
It is the policy of the Federal Reserve Board that bank holding companies should pay cash dividends on common stock only out of income available over the past year and only if prospective earnings retention is consistent with the organization's expected future capital needs, asset quality, and overall financial condition.
It is the policy of the FRB that bank holding companies should pay cash dividends on common stock only out of income available over the past year and only if prospective earnings retention is consistent with the organization's expected future capital needs, asset quality, and overall financial condition.
Our residential real estate mortgage loans generally are collateralized by first deeds of trust on multi-family and other residential properties. Multi-family properties comprised 54% of our residential real estate mortgage loans at December 31, 2023. Other types of properties securing these loans include non-owner occupied for-rent residential properties, owner-occupied single-family properties, and mobile home parks.
Our residential real estate mortgage loans generally are collateralized by first deeds of trust on multi-family and other residential properties. Multi-family properties comprised 68% of our residential real estate mortgage loans at December 31, 2024. Other types of properties securing these loans include non-owner occupied for-rent residential properties, owner-occupied single-family properties, and mobile home parks.
We adopted this phase in option and elected to phase in the full effect of CECL on regulatory capital over the five-year transition period. The add-back as of December 31, 2023 ranged from 0 basis points to 5 basis points on our various capital ratios.
We adopted this phase in option and elected to phase in the full effect of CECL on regulatory capital over the five-year transition period. The add-back as of December 31, 2024 ranged from 0 basis points to 3 basis points on our various capital ratios.
As of December 31, 2023, our minimum starting wage is $18 per hour. • We engage nationally recognized outside compensation and benefits consulting firms to independently evaluate the effectiveness of our compensation and benefit programs and to provide benchmarking against our peers within the industry.
As of December 31, 2024, our minimum starting wage is $20 per hour. • We engage nationally recognized outside compensation and benefits consulting firms to independently evaluate the effectiveness of our compensation and benefit programs and to provide benchmarking against our peers within the industry.
Regarding dividends, see “ Capital Requirements ” below. 22 FDIC Insurance The Bank’s deposits are insured by the Deposit Insurance Fund (the “DIF”) of the FDIC up to applicable legal limits. As an FDIC-insured depository institution, the Bank is subject under certain circumstances to regulation by the FDIC.
Regarding dividends, see “ Capital Requirements ” below. 22 FDIC Insurance The Bank’s deposits are insured by the DIF of the FDIC up to applicable legal limits. As an FDIC-insured depository institution, the Bank is subject under certain circumstances to regulation by the FDIC.
This is why we have implemented a variety of learning and development resources for all levels of employees across the bank. Employees have access to more than 700 training resources online to foster personal and professional development with enhanced training centered on building strong relationships and always striving to be client focused.
This is why we have implemented a variety of learning and development resources for all levels of employees across the Bank. Team members have access to more than 20,000 training resources online to foster personal and professional development with enhanced training centered on building strong relationships and always striving to be client focused.
Specifically: • We provide employee wages that are competitive and consistent with employee positions, skill levels, experience, knowledge and geographic location.
Specifically: • We provide employee wages that are competitive and consistent with employee positions, skill levels, experience and knowledge.
This regulation and supervision by the banking agencies is intended primarily for the protection of clients and depositors, the public, the stability of the U.S. financial system, and the Deposit Insurance Fund administered by the FDIC and not for the benefit of stockholders or debt holders.
This regulation and supervision by the banking agencies is intended primarily for the protection of clients and depositors, the public, the stability of the U.S. financial system, and the DIF administered by the FDIC and not for the benefit of stockholders or debt holders.
We mitigate this risk by adhering to SBA requirements. 12 Commercial Loans and Leases Our commercial loans and leases portfolio is diverse and includes various asset-secured loans, equipment-secured loans and leases, venture capital loans to support venture capital firms’ operations and the operations of entrepreneurial and venture-backed companies, warehouse loans, and business loans originated through our Community Banking group.
We mitigate this risk by adhering to SBA requirements. 11 Commercial Loans and Leases Our commercial loans and leases portfolio is diverse and includes various asset-secured loans, equipment-secured loans and leases, venture capital loans to support venture capital firms’ operations and the operations of entrepreneurial and venture-backed companies, warehouse loans, and business loans originated through our CCB group.
The primary source of repayment is the operating income of the borrower or lessee. The loan and lease terms are two to ten years and generally amortize to either a full repayment or residual balance or investment that is expected to be collected through a sale of the equipment to the lessee or a third party. • Other asset-based .
The loan and lease terms are two to ten years and generally amortize to either a full repayment or residual balance or investment that is expected to be collected through a sale of the equipment to the lessee or a third party. • Other asset-based .
To facilitate talent attraction and retention, we strive to make the Bank a diverse, inclusive, and safe workplace, with opportunities for our employees to grow and advance in their careers, supported by strong compensation, benefits, and health and wellness programs. 17 Oversight and Management We strive to attract, develop, and retain highly qualified employees for each role in the organization.
To facilitate talent attraction and retention, we strive to make the Bank an inclusive and safe workplace, with opportunities for our team members to grow and advance in their careers, supported by strong compensation, benefits, and health and wellness programs. 17 Oversight and Management We strive to attract, develop, and retain highly qualified team members for each role in the organization.
We primarily rely on our relationships from our lending activities, competitive pricing policies, marketing and exceptional client service to attract and retain deposits. We also provide international banking services, multi-state deposit services, and asset management services. The Bank’s deposits are insured by the Deposit Insurance Fund (the “DIF”) of the FDIC up to applicable legal limits.
We primarily rely on our relationships from our lending activities, competitive pricing policies, marketing, and superior client service to attract and retain deposits. We also provide international banking services, multi-state deposit services, and asset management services. The Bank’s deposits are insured by the DIF of the FDIC up to applicable legal limits.
Our Compensation, Nominating and Corporate Governance Committee also works closely with the Enterprise Risk Committee to monitor current and emerging human capital management risks and to mitigate exposure to those risks. Demographics At December 31, 2023, we had 2,304 full-time, part-time, and temporary employees, the overwhelming majority of which were full-time employees.
Our Compensation, Nominating and Corporate Governance Committee also works closely with the Enterprise Risk Committee to monitor current and emerging human capital management risks and to mitigate exposure to those risks. Demographics At December 31, 2024, we had 1,903 full-time, part-time, and temporary employees, the overwhelming majority of which were full-time employees.
The Bank is organized into four business groups – Community Banking, Specialty Banking, Deposit Services, and Payment Solutions. Community Banking provides in-market relationship lending and deposit gathering through regional offices and over 90 branch locations throughout California, in Denver, Colorado and in Durham, North Carolina.
The Bank is organized into four business groups – Commercial & Community Banking ("CCB"), Specialty Banking, Deposit Services, and Payment Solutions. CCB provides in-market relationship lending and deposit gathering through regional offices and 80 branch locations throughout California, in Denver, Colorado and in Durham, North Carolina.
The health, safety, and wellness of our employees is fundamentally connected to the success of our business. We provide our employees and their families with access to a variety of flexible, convenient and innovative health and wellness programs to help them improve or maintain their physical and mental well-being. The safety of our employees and customers is paramount.
The health, safety, and wellness of our team members is fundamentally connected to the success of our business. We provide our team members and their families with access to a variety of flexible, convenient, and innovative health and wellness programs to help them improve or maintain their physical and mental well-being.
Federal, state and local legislators and regulators regularly introduce measures or take actions that would modify the regulatory requirements applicable to banks, their holding companies and other financial institutions.
Future Legislation or Regulation Federal, state and local governments, legislators and regulators regularly introduce measures or take actions that would modify the regulatory requirements applicable to banks, their holding companies and other financial institutions.
The Bank maintains a Program to meet the requirements of the FACT Act and the Bank believes it is currently in compliance with these requirements. 25 Consumer Protection Laws and Regulations We are subject to a broad array of federal, state and local consumer protection laws and regulations that govern almost every aspect of our business relationships with consumers, including but not limited to the Truth-in-Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Secure and Fair Enforcement in Mortgage Licensing Act, the Real Estate Settlement Procedures Act, the Home Mortgage Disclosure Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Service Members Civil Relief Act, the Right to Financial Privacy Act, the Home Ownership and Equity Protection Act, the Consumer Leasing Act, the Fair Credit Billing Act, the Homeowners Protection Act, the Check Clearing for the 21st Century Act, laws governing flood insurance, federal and state laws prohibiting unfair and deceptive business practices, foreclosure laws and various regulations that implement the foregoing.
Consumer Protection Laws and Regulations We are subject to a broad array of federal, state and local consumer protection laws and regulations that govern almost every aspect of our business relationships with consumers, including but not limited to the Truth-in-Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Secure and Fair Enforcement in Mortgage Licensing Act, the Real Estate Settlement Procedures Act, the Home Mortgage Disclosure Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Service Members Civil Relief Act, the Right to Financial Privacy Act, the Home Ownership and Equity Protection Act, the Consumer Leasing Act, the Fair Credit Billing Act, the Homeowners Protection Act, the Check Clearing for the 21st Century Act, laws governing flood insurance, federal and state laws prohibiting unfair and deceptive business practices, foreclosure laws and various regulations that implement the foregoing.
Included in our commercial real estate loans and real estate construction loans are business-purpose loans secured by non-owner-occupied residential investment properties provided by Civic, a wholly-owned subsidiary.
Our commercial real estate loans and real estate construction loans are secured by a range of property types. Included in our commercial real estate loans and real estate construction loans are business-purpose loans secured by non-owner-occupied residential investment properties provided by Civic, a wholly-owned subsidiary.
In addition to the points above, real estate construction loans are also subject to project-specific risks including, but not limited to, the following: • construction costs being more than anticipated; • construction taking longer than anticipated; • failure by developers and contractors to meet project specifications or timelines; • disagreement between contractors, subcontractors and developers; • estimated value and/or demand for completed projects being less than anticipated, particularly in a weaker economy or recession; and • buyers of the completed projects not being able to secure permanent financing. 11 Many of the risks outlined above result from market conditions and are not controllable by us.
In addition to the points above, real estate construction loans are also subject to project-specific risks including, but not limited to, the following: • construction costs being more than anticipated; • construction taking longer than anticipated; • failure by developers and contractors to meet project specifications or timelines; • disagreement between contractors, subcontractors and developers; • estimated value and/or demand for completed projects being less than anticipated, particularly in a weaker economy or recession; and • buyers of the completed projects not being able to secure permanent financing.
The increased assessment rate is intended to improve the likelihood that the Deposit Insurance Fund reserve ratio will reach the required minimum of 1.35% by the statutory deadline of September 30, 2028.
The increased assessment rate is intended to improve the likelihood that the DIF reserve ratio will reach the required minimum of 1.35% by the statutory deadline of September 30, 2028.
We actively manage real estate and commercial loans and seek to mitigate credit risk on most loans by using the following framework: • monitoring the economic conditions in the regions or areas in which our borrowers are operating; • measuring operating performance of our borrower or collateral and comparing it to our underwriting expectations; • assessing compliance with financial and operating covenants as set forth in our loan agreements and considering the effects of incidences of noncompliance and taking corrective actions; • assigning a credit risk rating to each loan and ensuring the accuracy of our credit risk ratings by using an independent credit review function to assess the appropriateness of the credit risk ratings assigned to loans; • conducting loan portfolio review meetings where senior management and members of credit administration discuss the credit status and related action plans on loans with unfavorable credit risk ratings; and • subjecting loan modifications and loan renewal requests to underwriting and assessment standards similar to the underwriting and assessment standards applied before closing the loans.
We actively manage real estate and commercial loans and seek to mitigate credit risk on most loans by using the following framework: • monitoring the economic conditions in the regions or areas in which our borrowers are operating; • measuring operating performance of our borrower or collateral and comparing it to our underwriting expectations; • assessing compliance with financial and operating covenants as set forth in our loan agreements and considering the effects of incidences of noncompliance and taking corrective actions; • assigning a credit risk rating to each loan and ensuring the accuracy of our credit risk ratings by using an independent credit review function to assess the appropriateness of the credit risk ratings assigned to loans; • conducting loan portfolio review meetings where senior management and members of credit administration discuss the credit status and related action plans on loans with unfavorable credit risk ratings; and • subjecting loan modifications and loan renewal requests to underwriting and assessment standards similar to the underwriting and assessment standards applied before closing the loans. 13 Consumer Loans Consumer loans are primarily purchased private student loans originated and serviced by third parties and not guaranteed by any program of the U.S.
We cannot predict the nature of future monetary policies and the effect of such policies on our business and earnings. Regulation of Certain Subsidiaries BofCal Asset Management Inc. (“BAM”) is registered with the SEC under the Investment Advisers Act of 1940, as amended, and is subject to its rules and regulations.
We cannot predict the nature of future monetary policies and the effect of such policies on our business and earnings. Regulation of Certain Subsidiaries BAM is registered with the SEC under the Investment Advisers Act of 1940, as amended, and is subject to its rules and regulations.
Competition for deposits is also affected by the ease with which customers can transfer deposits from one institution to another. 8 Client Investment Funds In addition to deposit products, we also offer select clients non-depository cash investment options through BofCal Asset Management, Inc. (“BAM”), our SEC registered investment adviser subsidiary, and third-party money market sweep products.
Competition for deposits is also affected by the ease with which customers can transfer deposits from one institution to another. 7 Client Investment Funds In addition to deposit products, we also offer select clients non-depository cash investment options through BAM, our SEC registered investment adviser subsidiary, and third-party money market sweep products.
At December 31, 2023, we had ATMs at 76 of our branches located in California and one A TM a t our branch in Denver, Colorado. We provide access to customer accounts via a 24 hour seven-day-a-week, toll-free, automated telephone customer service and secure online banking services.
At December 31, 2024, we had ATMs at 69 of our branches located in California and one ATM at our branch in Denver, Colorado. We provide access to customer accounts via a 24-hour seven-day-a-week, toll-free, automated telephone customer service and secure online banking services.
In the fourth quarter of 2022, we decided to cease originating new loans to finance life insurance premiums and will allow these loans to repay upon maturities. At December 31, 2023, there were $732.2 million of premium finance loans outstanding.
In the fourth quarter of 2022, we decided to cease originating new loans to finance life insurance premiums and will allow these loans to repay upon maturities. At December 31, 2024, there were $546.4 million of premium finance loans outstanding.
We also offer team members career development resources, including individual development plans, a mentor program and tuition reimbursement. Through our talent management processes of goal setting, performance reviews, succession planning, career development and encouraging internal mobility we strive to continually develop our people and meet the dynamic needs of our customers. Diversity and Inclusion.
We also offer team members career development resources, including individual development plans, an internship program, a mentorship program, leadership and management programs, and tuition reimbursement. Through our talent management processes of goal setting, performance reviews, succession planning, career development, and encouraging internal mobility, we strive to continually develop our people and meet the dynamic needs of our customers.
We are focused on fostering relationships with businesses in our markets and verticals to establish this understanding and provide an exceptional level of service. 7 We offer a wide variety of deposit, loan and other financial services to small and middle-market businesses, venture capital firms, non-profit organizations, business owners, entrepreneurs, professionals and high-net worth individuals.
We are focused on fostering relationships with businesses in our markets and verticals and providing an exceptional level of service. 6 We offer a wide variety of deposit, loan, and other financial services to small and middle-market businesses, venture capital and private equity firms, non-profit organizations, business owners, entrepreneurs, professionals and high-net worth individuals.
BAM provides customized investment advisory and asset management solutions. At December 31, 2023, total off-balance sheet client investment funds were $0.6 billion, of which $0.2 billion was managed by BAM. At December 31, 2022, total off-balance sheet client investment funds were $1.4 billion, of which $0.9 billion was managed by BAM.
BAM provides customized investment advisory and asset management solutions. At December 31, 2024, total off-balance sheet client investment funds were $1.5 billion, of which $0.7 billion was managed by BAM. At December 31, 2023, total off-balance sheet client investment funds were $0.6 billion, of which $0.2 billion was managed by BAM.
At December 31, 2022, the three largest property types for real estate construction and land loans were multi-family properties, industrial/warehouse properties, and hotel properties, which comprised 71%, 5%, and 5% of our real estate construction and land loans, respectively. 15 Financing We depend on deposits, including brokered deposits, and external financing sources to fund our operations.
At December 31, 2023, the three largest property types for real estate construction and land loans were multi-family properties, industrial properties, and commercial land, which comprised 72%, 6%, and 5% of our real estate construction and land loans, respectively. 15 Financing We depend on deposits, including brokered deposits, and external financing sources to fund our operations.
The regulators require banking organizations to file detailed periodic reports and regularly examine the operations of banking organizations. Banking organizations that do not meet the regulators’ supervisory expectations can be subjected to increased scrutiny and supervisory criticism.
The banking and financial regulators have broad examination and enforcement authority. The regulators require banking organizations to file detailed periodic reports and regularly examine the operations of banking organizations. Banking organizations that do not meet the regulators’ supervisory expectations can be subjected to increased scrutiny and supervisory criticism.
ITEM 1. BUSINESS General Banc of California, Inc., a Maryland corporation, was incorporated in March 2002 and serves as the holding company for its wholly owned subsidiary, Banc of California (the “Bank”), a California state-chartered bank and a member of the Board of Governors of the Federal Reserve System (the “FRB”).
ITEM 1. BUSINESS General Banc of California, Inc., a Maryland corporation, was incorporated in March 2002 and serves as the holding company for its wholly owned subsidiary, Banc of California (the “Bank”), a California state-chartered bank and a member of the FRB.
We seek to provide a higher level of personal service than our larger competitors, many of whom have more assets, capital and resources than we do and who may be able to conduct more intensive and broader based promotional efforts to reach potential customers.
We actively compete for deposits and emphasize solicitation of noninterest-bearing deposits. We seek to provide a higher level of personal service than our larger competitors, many of whom have more assets, capital, and resources than we do and who may be able to conduct more intensive and broader based promotional efforts to reach potential customers.
We employ a variety of financing arrangements, including term debt, subordinated debt, and equity. As a member of the FHLB, the Bank had secured financing capacity with the FHLB as of December 31, 2023 of $5.3 billion, collateralized by a blanket lien on $9.5 billion of qualifying loans and $20.3 million of securities.
We employ a variety of financing arrangements, including term debt, subordinated debt, and equity. As a member of the FHLB, the Bank had secured financing capacity with the FHLB as of December 31, 2024 of $6.9 billion, collateralized by a blanket lien on $10.5 billion of qualifying loans and $19.8 million of securities.
Civic, a lending subsidiary, up until the second quarter of 2023 originated business-purpose loans to real estate investors for short-term bridge loans, longer-term loans secured by for-rent residential properties, and, to a lesser extent, loans on multi-family properties. • Real estate construction and land .
Civic, a lending subsidiary, up until the second quarter of 2023 originated business-purpose loans to real estate investors for short-term bridge loans, longer-term loans secured by for-rent residential properties, and, to a lesser extent, loans on multi-family properties. In the second quarter of 2023, we ceased making new originations of Civic loans.
At December 31, 2023 and 2022, SNC loans held for investment comprised 0.07% and 1.9% of total loans and leases held for investment, net of deferred fees. 9 Real Estate Mortgage Loans and Real Estate Construction and Land Loans Our real estate lending activities focus primarily on loans to professional developers and real estate investors for the acquisition, construction, refinancing, renovation, and on-going operation of commercial real estate.
At December 31, 2024 and 2023, SNC loans held for investment comprised 0.9% and 0.7% of total loans and leases held for investment. 8 Real Estate Mortgage Loans and Real Estate Construction and Land Loans Our real estate lending activities focus primarily on loans to professional developers and real estate investors for the acquisition, construction, refinancing, renovation, and on-going operation of commercial real estate.
In the second quarter of 2023, we divested non-core loan portfolios which included selling: • National Construction portfolio, including $2.6 billion of loans and $2.3 billion of unfunded commitments • Lender Finance portfolio, including $2.1 billion of loans and $0.2 billion of unfunded commitments • A portion of the Civic portfolio, including $521 million of loans and $24 million of unfunded commitments We price loans to preserve our interest spread and maintain our net interest margin.
In the second quarter of 2023, we divested non-core loan portfolios, which included selling: • the National Construction portfolio, including $2.6 billion of loans and $2.3 billion of unfunded commitments, • the Lender Finance portfolio, including $2.1 billion of loans and $0.2 billion of unfunded commitments, • and a portion of the Civic portfolio, including $521 million of loans and $24 million of unfunded commitments.
We strive to ensure that all employees feel safe in their respective work environment. We closely monitor external developments and governmental regulations regarding workplace safety and employee health and adjust our policies and procedures accordingly. Talent Development.
The safety of our team members and customers is paramount. We strive to ensure that all team members feel safe in their respective work environment. We closely monitor external developments and governmental regulations regarding workplace safety and employee health and adjust our policies and procedures accordingly. Talent Development.
At December 31, 2023, the three largest property types for real estate construction and land loans were multi-family properties, industrial/warehouse properties, and commercial land, which comprised 72%, 6% and 5% of our real estate construction and land loans, respectively.
At December 31, 2024, the three largest property types for real estate construction and land loans were multi-family properties, industrial properties, and office land, which comprised 72%, 8% and 5% of our real estate construction and land loans, respectively.
The Bank provides a broad range of loan and deposit products and services through more than 90 full-service branches throughout California and in Denver, Colorado, and Durham, North Carolina, as well as full-stack payment processing solutions through its subsidiary, Deepstack Technologies, LLC (“Deepstack”).
The Bank offers a broad range of loan and deposit products and services through 80 full-service branches located throughout California and in Denver, Colorado, and Durham, North Carolina, as well as through regional offices nationwide. The Bank also provides full-stack payment processing solutions through its subsidiary, Deepstack Technologies, LLC (“Deepstack”).
Volcker Rule The so-called “Volcker Rule” issued under the Dodd-Frank Act, which became effective in July 2015, imposes certain restrictions on the ability of the Company and its subsidiaries, including the Bank, to sponsor, invest in, or conduct certain other activities with private funds or to engage in certain types of short-term proprietary trading.
Volcker Rule The so-called “Volcker Rule” imposes certain restrictions on the ability of the Company and its subsidiaries, including the Bank, to sponsor, invest in, or conduct certain other activities with private funds or to engage in certain types of short-term proprietary trading.
The Company has also elected to be a financial holding company under the BHCA. As a California state-chartered bank that is a member of the FRB, the Bank is subject to ongoing and comprehensive supervision, regulation, examination and enforcement by the DFPI and the FRB.
As a bank holding company, the holding company is subject to ongoing and comprehensive supervision, regulation, examination, and enforcement by the FRB. As a California state-chartered bank that is a member of the FRB, the Bank is subject to ongoing and comprehensive supervision, regulation, examination, and enforcement by the DFPI and the FRB.
The primary sources of repayment for loans to municipalities are tax collections from their tax jurisdictions. 13 Our portfolio of commercial loans and leases is subject to certain risks including, but not limited to, the following: • the economic conditions of the United States; • interest rate increases; • deterioration of the value of the underlying collateral; • increased competition in pricing and loan structure; • the deterioration of a borrower’s or guarantor’s financial capabilities; and • various environmental risks, including natural disasters, which can negatively affect a borrower’s business.
Our portfolio of commercial loans and leases is subject to certain risks including, but not limited to, the following: • the economic conditions of the United States; • changes in interest rate; • deterioration of the value of the underlying collateral; • increased competition in pricing and loan structure; • the deterioration of a borrower’s or guarantor’s financial capabilities; and • various environmental risks, including natural disasters, which can negatively affect a borrower’s business.
The real estate mortgage loan portfolio is diversified among various property types. At December 31, 2023, the three largest property types securing real estate mortgage loans were multi-family properties, single-family residential properties, and office properties, which comprised 37%, 31%, and 7% of our real estate mortgage loans, respectively.
The real estate mortgage loan portfolio is diversified among various property types. At December 31, 2024, the three largest property types securing real estate mortgage loans were multi-family properties, single-family residential properties, and industrial properties, which comprised 45%, 18%, and 8% of our real estate mortgage loans, respectively.
Engaging in unsafe or unsound practices or failing to comply with applicable laws, regulations and supervisory agreements could subject us and our subsidiaries or their officers, directors and institution-affiliated parties to the remedies described above and other sanctions. Acquisitions.
Engaging in unsafe or unsound practices or failing to comply with applicable laws, regulations and supervisory agreements could subject us and our subsidiaries or their officers, directors and institution-affiliated parties to the remedies described above and other sanctions. Acquisitions. The FRB and the DFPI must approve the Bank’s acquisition of other financial institutions and certain other acquisitions.
These regulations establish required minimum ratios for common equity Tier 1 (the “CET1”) capital, Tier 1 capital and total capital and a leverage ratio; set risk-weighting for assets and certain other items for purposes of the risk-based capital ratios; require an additional capital conservation buffer over the minimum required capital ratios in order to avoid certain limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses; and define what qualifies as capital for purposes of meeting the capital requirements.
These regulations establish required minimum ratios for common equity Tier 1 (the “CET1”) capital, Tier 1 capital and total capital and a leverage ratio; set risk-weighting for assets and certain other items for purposes of the risk-based capital ratios; require an additional capital conservation buffer over the minimum required capital ratios in order to avoid certain limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses; and define what qualifies as capital for purposes of meeting the capital requirements. 23 In 2020, the federal bank regulatory authorities approved a rule that delays the estimated impact on regulatory capital resulting from the adoption of CECL.
At December 31, 2022, the three largest property types securing real estate mortgage loans were multi-family properties, single-family residential properties, and office properties, which comprised 36%, 40% and 6% of our real estate mortgage loans, respectively.
At December 31, 2023, the three largest property types securing real estate mortgage loans were multi-family properties, single-family residential properties, and office properties, which comprised 38%, 29% and 7% of our real estate mortgage loans, respectively.
None of the Company’s employees are represented by a labor union or by collective bargaining agreements. During 2023, the number of employees increased by approximately 260% due primarily to the Merger. Human Capital Management Objectives Our key human capital management objectives are to attract, retain, and develop the highest quality talent.
None of the Company’s employees are represented by a labor union or by collective bargaining agreements. Human Capital Management Objectives Our key human capital management objectives are to attract, retain, and develop the highest quality talent.
We cannot predict whether new legislation will be enacted or adopted and, if enacted or adopted, the effect that it, or any implementing regulations, would have on us and our subsidiaries’ business, financial condition or results of operations. The majority of these changes will be implemented over time by various regulatory agencies.
We cannot predict whether new policies or legislation will be enacted or adopted and, if enacted or adopted, the effect that it, or any implementing regulations, would have on us and our subsidiaries’ business, financial condition or results of operations.
Our commercial loans and leases portfolio is diverse and includes various asset-secured loans, equipment-secured loans and leases, venture capital loans to support venture capital firms’ operations and the operations of entrepreneurial and venture-backed companies, warehouse loans, and business loans originated through our Community Banking group.
Our commercial loans and leases portfolio is diverse and generally includes various asset-secured loans, equipment-secured loans and leases, venture capital loans to support venture capital firms’ operations and the operations of entrepreneurial and venture-backed companies during the various stages of their early life cycles, warehouse loans, and secured business loans originated through our CCB group.
Civic, a lending subsidiary, up until the second quarter of 2023 originated business-purpose loans secured by non-owner-occupied residential properties undergoing renovation. 10 Our real estate portfolio is subject to certain risks including, but not limited to, the following: • increased competition in pricing and loan structure; • the economic conditions of the United States and in the markets where we lend; • decreased demand or decreased values as a result of legislative changes such as new rent control laws, and permanent shifts in corporate work environment such as remote working and consumer behavior such as online retail; • interest rate increases; • decreased commercial and residential real estate values in the markets where we lend; • the borrower's inability to repay our loan due to decreased cash flow or operating losses; • the borrower’s inability to refinance or payoff our loan upon maturity; • loss of our loan principal stemming from a collateral foreclosure; and • various environmental risks, including natural disasters.
We divested a portion of this non-core loan portfolio in 2023 and 2024, and continued to run off the remaining portfolio. 9 Our real estate portfolio is subject to certain risks including, but not limited to, the following: • increased competition in pricing and loan structure; • the economic conditions of the United States and in the markets where we lend; • decreased demand or decreased values as a result of legislative changes such as new rent control laws, and permanent shifts in corporate work environment such as remote working and consumer behavior such as online retail; • changes in interest rate; • decreased commercial and residential real estate values in the markets where we lend; • the borrower's inability to repay our loan due to decreased cash flow or operating losses; • the borrower’s inability to refinance or payoff our loan upon maturity; • loss of our loan principal stemming from a collateral foreclosure; and • various environmental risks, including natural disasters.
At December 31, 2023, our total deposits were $30.4 billion and consisted of $7.8 billion in noninterest-bearing deposits, $7.8 billion in interest-bearing checking accounts, $6.2 billion in money market accounts, $2.0 billion in savings accounts, and $6.6 billion in time deposits.
At December 31, 2024, our total deposits were $27.2 billion and consisted of $7.7 billion in noninterest-bearing deposits, $7.6 billion in interest-bearing checking accounts, $5.4 billion in money market accounts, $1.9 billion in savings accounts, and $4.6 billion in time deposits.
Our consumer loan portfolio is subject to certain risks, including, but not limited to, the following: • the economic conditions of the United States and the levels of unemployment; • the amount of credit offered to consumers in the market; • interest rate increases; • consumer bankruptcy laws which allow consumers to discharge certain debts (excluding student loans); • compliance with consumer lending regulations; • additional regulations and oversight by the CFPB; and • the ability of the sub-servicers of the Bank’s student loans to service the loans in accordance with the terms of the loan purchase agreements. 14 We seek to mitigate the exposure to such risks through the direct approval of all internally originated consumer loans by reviewing each new loan request and each renewal individually and adhering to written credit policies.
Our consumer loan portfolio is subject to certain risks, including, but not limited to, the following: • the economic conditions of the United States and the levels of unemployment; • the amount of credit offered to consumers in the market; • interest rate increases; • consumer bankruptcy laws which allow consumers to discharge certain debts (excluding student loans); • compliance with consumer lending regulations; • additional regulations and oversight by the CFPB; and • the ability of the sub-servicers of the Bank’s student loans to service the loans in accordance with the terms of the loan purchase agreements.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRisks Related to Credit and Interest Rate • If actual losses on our loans exceed our estimates used to establish our allowance for credit losses, our business, financial condition, and profitability may suffer. • There are risks associated with our lending activities, and our allowance for credit losses may be insufficient. • Our business and operating results could be adversely affected by the political environment and governmental fiscal and monetary policies. • Our business may be adversely affected by difficult economic conditions. • Our business may be adversely affected by credit risk associated with residential property and declining property values. • Our loan portfolio possesses increased risk due to our level of adjustable rate loans. • Our underwriting practices may not protect us against losses in our loan portfolio. • Repayment of our commercial and industrial loans is often dependent on the cash flows of the borrower, which may be unpredictable, and the collateral securing these loans may not be sufficient to repay the loan. • Secondary mortgage market conditions could have a material adverse impact on our business. • Any breach of representations and warranties made by us to our residential mortgage loan purchasers or credit default on our loan sales may require us to repurchase such loans. • Credit impairment in our investment securities portfolio could adversely affect our continuing operations. • Our income property loans involve higher principal amounts than other loans and repayments of these loans may be dependent on factors outside our control or the control of our borrowers. 29 • Our business is subject to interest rate risk and variations in interest rates may hurt our profits. • A reduction in our credit ratings could adversely affect our access to capital and could increase our cost of funds. • We have a number of large credit relationships and individual commitments.
Biggest changeRisks Related to Credit and Interest Rate • If actual losses on our loans exceed our estimates used to establish our allowance for credit losses, our business, financial condition, and profitability may suffer. • There are risks associated with our lending activities, and our allowance for credit losses may prove to be insufficient to absorb actual losses in our loan portfolio. • Our business and operating results could be adversely affected by uncertainty in the political environment and governmental fiscal and monetary policies. • Our business, financial position, and results of operations may be adversely affected by difficult economic conditions, including inflationary pressures or volatility in the financial markets. • Our business may be adversely affected by credit risk associated with residential property and declining property values. 29 • Our loan portfolio possesses increased risk due to our level of adjustable rate loans. • Our underwriting practices may not protect us against losses in our loan portfolio. • Repayment of our commercial and industrial loans is often dependent on the cash flows of the borrower, which may be unpredictable, and the collateral securing these loans may not be sufficient to repay the loan in the event of default. • Our real estate loan portfolio is subject to certain risks including market, environmental, and project-specific risks. • Secondary mortgage market conditions could have a material adverse impact on our business, results of operations, financial condition, or liquidity. • Any breach of representations and warranties made by us to our loan purchasers or credit default on our loan sales may require us to repurchase loans we have sold. • Credit impairment in our investment securities portfolio could adversely affect our continuing operations. • Our income property loans, consisting of commercial real estate and multi-family loans, involve higher principal amounts than other loans and repayments of these loans may be dependent on factors outside our control or the control of our borrowers. • Our business is subject to interest rate risk and variations in interest rates may hurt our profits. • A reduction in our credit ratings could adversely affect our access to capital and could increase our cost of funds. • We have a number of large credit relationships and individual commitments.
Ongoing geopolitical instability, including as a result of Russia’s invasion of Ukraine and the recent Middle East conflict, has negatively impacted, and could in the future negatively impact, the global and U.S. economies, including by causing supply chain disruptions, rising prices for oil and other commodities, volatility in capital markets and foreign currency exchange rates, rising interest rates and heightened cybersecurity risks.
Ongoing geopolitical instability, including as a result of Russia’s invasion of Ukraine and the conflict in the Middle East, has negatively impacted, and could in the future negatively impact, the global and U.S. economies, including by causing supply chain disruptions, rising prices for oil and other commodities, volatility in capital markets and foreign currency exchange rates, rising interest rates and heightened cybersecurity risks.
If our enterprise risk framework is ineffective, either because it fails to keep pace with changes in the financial markets, regulatory requirements, our businesses, our counterparties, clients or service providers or for other reasons, we could incur losses, suffer reputational damage or find ourselves out of compliance with applicable regulatory or contractual mandates.
If our enterprise risk management framework is ineffective, either because it fails to keep pace with changes in the financial markets, regulatory requirements, our businesses, our counterparties, clients or service providers or for other reasons, we could incur losses, suffer reputational damage, or find ourselves out of compliance with applicable regulatory or contractual mandates.
Bank regulators have, and may in the future, hold banks responsible for the activities of these fintech companies, including in respect of bank secrecy act or anti-money laundering matters, or may take the view that these relationships present safety and soundness issues. We are subject to certain risks in connection with our use of technology.
Bank regulators have, and may in the future, hold banks responsible for the activities of these fintech companies, including in respect of bank secrecy act or anti-money laundering matters, or may take the view that these relationships present safety and soundness issues. 31 We are subject to certain risks in connection with our use of technology.
These precautions may not protect our systems from future vulnerabilities, data breaches or other cyber threats. Losses due to unauthorized account activity could harm our reputation and may have a material adverse effect on our business, financial condition, results of operations, and prospects. 31 Our security measures may not protect us from systems failures or interruptions.
These precautions may not protect our systems from future vulnerabilities, data breaches or other cyber threats. Losses due to unauthorized account activity could harm our reputation and may have a material adverse effect on our business, financial condition, results of operations, and prospects. Our security measures may not protect us from systems failures or interruptions.
In addition, any claims asserted against us in the future by loan purchasers may result in liabilities or legal expenses that could have a material adverse effect on our results of operations and financial condition. 39 Credit impairment in our investment securities portfolio could result in losses and adversely affect our continuing operations.
In addition, any claims asserted against us in the future by loan purchasers may result in liabilities or legal expenses that could have a material adverse effect on our results of operations and financial condition. Credit impairment in our investment securities portfolio could result in losses and adversely affect our continuing operations.
The foregoing summary of risks should be read in conjunction with the more detailed Risk Factors below and is not an exhaustive summary of all risks facing our business. 30 Risks Relating to Our Operations New lines of business, new products and services, or strategic project initiatives, or new partnerships may subject us to additional risks.
The foregoing summary of risks should be read in conjunction with the more detailed Risk Factors below and is not an exhaustive summary of all risks facing our business. Risks Relating to Our Operations New lines of business, new products and services, or strategic project initiatives, or new partnerships may subject us to additional risks.
FRB policies can also materially affect the value of financial instruments that we hold, such as debt securities, certain mortgage loans held-for-sale and MSRs. Its policies also can affect our borrowers, potentially increasing the risk that they may fail to repay their loans or satisfy their obligations to us.
FRB policies can also materially affect the value of financial instruments that we hold, such as debt securities and certain mortgage loans held for sale. Its policies also can affect our borrowers, potentially increasing the risk that they may fail to repay their loans or satisfy their obligations to us.
Finally, we may have higher credit risk, or experience higher credit losses, to the extent our loans are concentrated by loan type, industry segment, borrower type, or location of the borrower or collateral. Deterioration in real estate values and underlying economic conditions in Southern California could result in significantly higher credit losses to our portfolio.
Finally, we may have higher credit risk, or experience higher credit losses, to the extent our loans are concentrated by loan type, industry segment, borrower type, or location of the borrower or collateral. Deterioration in real estate values and underlying economic conditions in Southern California in particular could result in significantly higher credit losses to our portfolio.
Applicable laws and regulations, including capital and liquidity requirements, could restrict the Bank’s ability to pay dividends or distribute capital to the Company, which could adversely affect our cash flow and financial condition. There can be no assurance as to the level of dividends we may pay on our common stock and NVCE stock.
Applicable laws and regulations, including capital and liquidity requirements, could restrict the Bank’s ability to pay dividends or distribute capital to the Company, which could adversely affect our cash flow and financial condition. 45 There can be no assurance as to the level of dividends we may pay on our common stock and NVCE stock.
FRB policies can also materially affect the value of financial instruments that we hold, such as debt securities, certain mortgage loans held-for-sale and MSRs. Its policies also can affect our borrowers, potentially increasing the risk that they may fail to repay their loans or satisfy their obligations to us.
FRB policies can also materially affect the value of financial instruments that we hold, such as debt securities and certain mortgage loans held for sale. Its policies also can affect our borrowers, potentially increasing the risk that they may fail to repay their loans or satisfy their obligations to us.
Our failure to adequately implement enhanced risk management policies, procedures and controls could adversely affect our ability to increase this portfolio going forward and could result in an increased rate of delinquencies in, and increased losses from, this portfolio. Our business is subject to interest rate risk and variations in interest rates may hurt our profits.
Our failure to adequately implement enhanced risk management policies, procedures and controls could adversely affect our ability to increase this portfolio going forward and could result in an increased rate of delinquencies in, and increased losses from, this portfolio. 42 Our business is subject to interest rate risk and variations in interest rates may hurt our profits.
Additionally, tax and other fiscal policies, moreover, impact not only general economic and market conditions but also give rise to incentives or disincentives that affect how we and our customers prioritize objectives, deploy resources, and run households or operate businesses.
Additionally, tax, tariff, and other fiscal policies, moreover, impact not only general economic and market conditions but also give rise to incentives or disincentives that affect how we and our customers prioritize objectives, deploy resources, and run households or operate businesses.
See Item 1 —Supervision and Regulation included in this Annual Report on Form 10-K for information on the regulation and supervision framework which governs our Company and its activities. 44 We are regularly examined and inspected by our regulators, including the FRB and DFPI.
See Item 1 —Supervision and Regulation included in this Annual Report on Form 10-K for information on the regulation and supervision framework which governs our Company and its activities. We are regularly examined and inspected by our regulators, including the FRB and DFPI.
Its fiscal and monetary policies determine in a large part our cost of funds for lending and investing and the return that can be earned on those loans and investments, both of which affect our net interest margin.
Its monetary policies determine in a large part our cost of funds for lending and investing and the return that can be earned on those loans and investments, both of which affect our net interest margin.
Its fiscal and monetary policies determine in a large part our cost of funds for lending and investing and the return that can be earned on those loans and investments, both of which affect our net interest margin.
Its monetary policies determine in a large part our cost of funds for lending and investing and the return that can be earned on those loans and investments, both of which affect our net interest margin.
In connection with the Merger, legacy Banc of California, legacy Pacific Western Bank and the combined company sold approximately $6.1 billion in assets as part of the balance sheet repositioning strategy, comprised of (i) $2.7 billion of Pacific Western Bank’s securities portfolio, which included agency commercial mortgage-backed securities, agency collateralized mortgage obligations (“CMO”), treasury bonds, municipal bonds, and corporate bonds, (ii) $1.3 billion of Banc of California ’s securities portfolio, which included agency mortgage-backed securities, CMOs, and bonds, (iii) the forward sale of $1.5 billion book value of Banc of California ’s single-family residential ("SFR") mortgage portfolio and (iv) $673 million book value of Banc of California ’s multi-family residential mortgage portfolio.
In connection with the Merger, legacy Banc of California, legacy Pacific Western Bank, and the combined company sold approximately $6.1 billion in assets as part of the balance sheet repositioning strategy, comprised of (i) $2.7 billion of Pacific Western Bank’s securities portfolio, which included agency commercial mortgage-backed securities, agency collateralized mortgage obligations (“CMO”), treasury bonds, municipal bonds, and corporate bonds, (ii) $1.3 billion of Banc of California ’s securities portfolio, which included agency mortgage-backed securities, CMOs, and bonds, (iii) $1.5 billion book value of Banc of California ’s single-family residential ("SFR") mortgage portfolio, and (iv) $673 million book value of Banc of California ’s multi-family residential mortgage portfolio.
We have policies and procedures in place to promote ethical conduct and protect our reputation. However, these policies and procedures may not be fully effective and cannot adequately protect against all threats to our reputation.
We have policies and procedures in place to promote ethical conduct and protect our reputation. However, these policies and procedures may not be fully effective and cannot protect against all threats to our reputation.
In addition, the U.S. banking regulatory agencies recently adopted a rule requiring us to notify the FRB within 36 hours of any significant computer security incident, and in July 2023, the SEC adopted new rules that require reporting on Form 8-K of material cybersecurity incidents. Several states and their governmental agencies also have adopted or proposed cybersecurity laws.
In addition, the U.S. banking regulatory agencies adopted a rule requiring us to notify the FRB within 36 hours of any significant computer security incident, and in July 2023, the SEC adopted rules that require reporting on Form 8-K of material cybersecurity incidents. Several states and their governmental agencies also have adopted or proposed cybersecurity laws.
We may fail to fully understand the implications of changes in our businesses or the financial markets or fail to adequately or timely enhance our enterprise risk framework to address those changes.
We may fail to fully understand the implications of changes in our businesses or the financial markets or fail to adequately or timely enhance our enterprise risk management framework to address those changes.
These transition matters could have an adverse effect on us for an undetermined amount of time after the completion of any acquisition. 32 If we fail to comply with the applicable requirements of the payment card networks or NACHA, they could seek to fine us, suspend us or terminate our registrations. Our subsidiary, Deepstack, offers payment processing solutions to clients.
These transition matters could have an adverse effect on us for an undetermined amount of time after the completion of any acquisition. 33 If we fail to comply with the applicable requirements of the payment card networks or NACHA, they could seek to fine us, suspend us or terminate our registrations. Our subsidiary, Deepstack, offers payment processing solutions to clients.
This interconnectedness of financial institutions has been starkly evidenced by the recent events affecting the banking industry, as banks including the Bank have been impacted by concerns regarding the soundness or creditworthiness of other financial institutions, which has caused substantial and cascading disruption within the financial markets and increased expenses.
This interconnectedness of financial institutions has been starkly evidenced in recent years by events affecting the banking industry, as banks including the Bank have been impacted by concerns regarding the soundness or creditworthiness of other financial institutions, which has caused substantial and cascading disruption within the financial markets and increased expenses.
Funding and Liquidity Risks • We may not be able to develop and maintain a strong core deposit base or other low cost funding sources. • Liquidity risk could impair our ability to fund operations and jeopardize our financial condition. • Problems encountered by, or adverse news concerning, other financial institutions may adversely affect financial and capital markets generally as well as the Bank. • We are subject to regulatory capital requirements, which could be made more stringent by our regulators. • The FRB may require us to commit capital resources or take other action to support the Bank. • We may elect or be compelled to seek additional capital in the future, but that capital may not be available when it is needed or on acceptable terms. • Our holding company relies on dividends from the Bank for substantially all of its income. • There can be no assurance as to the level of dividends we may pay on our common stock.
Funding and Liquidity Risks • We may not be able to develop and maintain a strong core deposit base or other low cost funding sources. • Liquidity risk could impair our ability to fund operations and jeopardize our financial condition. • Problems encountered by, or adverse news concerning, other financial institutions may adversely affect financial and capital markets generally as well as the Bank. • We are subject to regulatory capital requirements, which could be made more stringent by our regulators. • The FRB may require us to commit capital resources or take other action to support the Bank. • We may elect or be compelled to seek additional capital in the future, but that capital may not be available when it is needed or on acceptable terms. • Our holding company relies on dividends from the Bank for substantially all of its income and as the primary source of funds for cash dividends to our preferred, common, and NVCE stockholders. • There can be no assurance as to the level of dividends we may pay on our common stock and NVCE stock.
Such balloon payments may require the borrower to either sell or refinance the underlying property in order to make the payment, which may increase the risk of default or non-payment. The COVID-19 pandemic has had a potentially long-term negative impact on some commercial real estate portfolios.
Such balloon payments may require the borrower to either sell or refinance the underlying property in order to make the payment, which may increase the risk of default or non-payment. The COVID-19 pandemic and its aftermath has had a potentially long-term negative impact on some commercial real estate portfolios.
Any increases in the provision for credit losses will result in a decrease in net income and may have a material adverse effect on our financial condition and results of operations.
Any increases in the provision for credit losses will result in a decrease in net earnings and may have a material adverse effect on our financial condition and results of operations.
Commercial real estate and multi-family loans also expose us to credit risk because the collateral securing these loans often cannot be sold easily. In addition, many of our commercial real estate and multi-family loans are not fully amortizing and contain large balloon payments upon maturity.
Commercial real estate and multi-family loans also expose us to credit risk because the collateral securing these loans often cannot be sold easily at acceptable terms. In addition, many of our commercial real estate and multi-family loans are not fully amortizing and contain large balloon payments upon maturity.
In addition to the disruption of financial, credit and capital markets, the recent banking industry events may have other adverse impacts on the Bank. For example, these developments may result in increased regulatory requirements and scrutiny, increasing our costs and adversely affecting our profitability.
In addition to the disruption of financial, credit, and capital markets, the 2023 banking industry events may have other adverse impacts on the Bank. For example, these developments may continue to result in increased regulatory requirements and scrutiny, increasing our costs and adversely affecting our profitability.
Any change in such regulation and oversight, whether in the form of regulatory policy, new regulations or legislation, that applies to us or additional deposit insurance premiums could have a material adverse impact on our operations. Because our business is highly regulated, the laws and applicable regulations are subject to frequent change.
Any change in such regulation and oversight, whether in the form of regulatory policy, new regulations or legislation, that applies to us could have a material adverse impact on our operations. Because our business is highly regulated, the laws and applicable regulations are subject to frequent change.
We are subject to extensive regulation, supervision and legal requirements that affect virtually all aspects of our business and operations. The regulatory agencies governing banking organizations are focused on protecting customers, depositors, the Deposit Insurance Fund, and the overall financial stability of the United States—not our stockholders or creditors.
We are subject to extensive regulation, supervision and legal requirements that affect virtually all aspects of our business and operations. The regulatory agencies governing banking organizations are focused on protecting customers, depositors, the DIF, and the overall financial stability of the United States—not our stockholders or creditors.
To recognize the potential loan repurchase or indemnification losses on all SFR mortgage and multi-family loans sold, we maintained a total reserve of $2.1 million as of December 31, 2023. Increases to this reserve as a result of the sale of loans are a reduction in our gain on the sale of loans.
To recognize the potential loan repurchase or indemnification losses on all SFR mortgage and multi-family loans sold, we maintained a total reserve of $1.5 million as of December 31, 2024. Increases to this reserve as a result of the sale of loans are a reduction in our gain on the sale of loans.
Our exposure to repurchases under our representations and warranties could include the current unpaid balance of all loans we have sold. During the years ended December 31, 2023, 2022, and 2021, we sold multi-family and SFR mortgage loans aggregating $3.0 billion, $33.5 million, and $11.8 million, respectively.
Our exposure to repurchases under our representations and warranties could include the current unpaid balance of all loans we have sold. During the years ended December 31, 2024, 2023, and 2022, we sold multi-family and SFR mortgage loans aggregating $2.0 billion, $3.0 billion, and $33.5 million, respectively.
If our third party service providers encounter difficulties, or if we have difficulty in communicating with them, our ability to adequately process and account for transactions could be affected, and our business operations could be adversely impacted.
If our third party service providers encounter difficulties, or if we have difficulty in communicating with them, our ability to adequately process and account for transactions could be affected, our and our clients’ information may be compromised, and our business operations could be adversely impacted.
Such information has in the past and may in the future be posted on social media or other Internet forums or published by news organizations and the speed and pervasiveness with which information can be disseminated through these channels, in particular social media, may magnify risks relating to negative publicity. We depend on key management personnel.
Such information has in the past and may in the future be posted on social media or other Internet forums or published by news organizations and the speed and pervasiveness with which information can be disseminated through these channels, in particular social media, may magnify risks relating to negative publicity.
We also could be adversely affected to the extent such an agreement is not renewed by the third party vendor or is renewed on terms less favorable to us. 34 In addition, our use of third party vendors is subject to increasingly demanding regulatory requirements and attention by our regulators.
We also could be adversely affected to the extent such an agreement is not renewed by the third party vendor or is renewed on terms less favorable to us. In addition, our use of third party vendors is subject to regulatory requirements and scrutiny by our regulators.
Risks Relating to Our Operations • New lines of business, new products and services, or strategic project initiatives, or new partnerships may subject us to additional risks. • We are subject to certain risks in connection with our use of technology. • To the extent we acquire other banks, bank branches, other assets or other businesses, we may be negatively impacted by certain risks inherent with such acquisitions. • If we fail to comply with the applicable requirements of the payment card networks or NACHA, we could be fined, suspended or have our registrations terminated. • Fraud by merchants or others could adversely affect our business, and our merchants may be unable to satisfy obligations, including chargebacks, for which we may also be liable. • We face operational risks, including fraud and loss due to execution errors, data processing and technology errors. • Our enterprise risk management framework may not be effective in mitigating risk and losses. • Managing reputational risk is important to attracting and maintaining clients, investors and employees. • We depend on key management personnel. • We rely on numerous external vendors. • We have a net deferred tax asset that may not be fully realized. • Our level of indebtedness could adversely affect our ability to raise capital and meet our debt obligations.
Risks Relating to Our Operations • New lines of business, new products and services, or strategic project initiatives, or new partnerships may subject us to additional risks. • We are subject to certain risks in connection with our use of technology. • To the extent we acquire other banks, bank branches, other assets or other businesses, we may be negatively impacted by certain risks inherent with such acquisitions. • If we fail to comply with the applicable requirements of the payment card networks or NACHA, they could fine us, suspend us, or terminate our registration. • Fraud by merchants or others could adversely affect our business, and our merchants may be unable to satisfy obligations, including chargebacks, for which we may also be liable. • We face significant operational risks, including fraud and loss due to execution errors, data processing and technology errors. • Our enterprise risk management framework may not be effective in mitigating risk and reducing the potential for losses. • Managing reputational risk is important to attracting and maintaining clients, investors and employees. • We depend on key management personnel. • We rely on numerous external vendors. • We have a net deferred tax asset that may not be fully realized. • We have suffered significant losses from the balance sheet repositioning and may suffer significant losses from future asset sales. • Our level of indebtedness could adversely affect our ability to raise capital and meet our debt obligations.
A downgrade of the credit ratings of the Company or the Bank could adversely affect our access to liquidity and capital and could significantly increase our cost of funds, trigger additional collateral or funding requirements, and decrease the number of investors and counterparties willing to lend to us or purchase our securities, reducing our ability to generate earnings. 41 We have a number of large credit relationships and individual commitments.
A downgrade of the credit ratings of the Company or the Bank could adversely affect our access to liquidity and capital and could significantly increase our cost of funds, trigger additional collateral or funding requirements, and decrease the number of investors and counterparties willing to lend to us or purchase our securities, reducing our ability to generate earnings.
In addition, the premiums of the FDIC’s deposit insurance program have increased and are expected to further increase as a result of the March 2023 bank failures, and we are no longer eligible to utilize credits to reduce our FDIC insurance premiums as a result of us exceeding $10 billion in assets.
In addition, the premiums of the FDIC’s deposit insurance program increased significantly as a result of the March 2023 bank failures, and we are no longer eligible to utilize credits to reduce our FDIC insurance premiums as a result of our exceeding $10 billion in assets.
Our regulators have extensive authority and discretion in their interpretation, implementation, supervision and enforcement of their regulatory agenda, including on matters related to: • dividends or capital distributions by the Bank or the Company; • capital and liquidity requirements applicable to us, including the imposition of requirements more stringent than those required under generally applicable laws; • the types and terms of products we offer, activities we may conduct, our operations, or investments we may make; • the composition, risk characteristics, potential adverse classification, allowance and risk reserves in connection with our loans or other assets, including reclassifying assets; • level of our deposit insurance premiums; • our deposit-gathering and other funding sources; • the quality of our board and management oversight; • the effectiveness of our risk management and compliance program, including with respect to consumer protection, information technology, cybersecurity, third-party risk management, anti-money laundering and sanctions; • the Bank’s commitment to helping meet the credit needs of low- and moderate-income neighborhoods under the CRA; • their willingness to approve applications, such as the establishment of new branches, the commencement of new activities, or the conduct of mergers and acquisitions; and • our rate of growth and other expansionary or strategic initiatives.
Our regulators have extensive authority and discretion in their interpretation, implementation, supervision and enforcement of their regulatory agenda, including on matters related to: • dividends or capital distributions by the Bank or the Company; • capital and liquidity requirements applicable to us, including the imposition of requirements more stringent than those required under generally applicable laws; • the types and terms of products we offer, activities we may conduct, our operations, or investments we may make; • the composition, risk characteristics, potential adverse classification, allowance and risk reserves in connection with our loans or other assets, including reclassifying assets; • level of our deposit insurance premiums; • our deposit-gathering and other funding sources; • the quality of our board and management oversight; • the effectiveness of our risk management and compliance program, including with respect to consumer protection, information technology, cybersecurity, third-party risk management, anti-money laundering and sanctions; • the Bank’s commitment to helping meet the credit needs of low- and moderate-income neighborhoods under the CRA; • their willingness to approve applications, such as the establishment of new branches, the commencement of new activities, or the conduct of mergers and acquisitions; and • our rate of growth and other expansionary or strategic initiatives. 46 Also, failure by the Company to meet the applicable eligibility requirements for financial holding company status (including capital and management requirements and that the Bank maintain at least a “Satisfactory” CRA rating) may result in restrictions on certain activities of the Company, including the commencement of new activities and mergers with or acquisitions of other financial institutions and could ultimately result in the loss of financial holding company status.
These conditions may fluctuate or even worsen in the future. From time to time, as part of our balance sheet management process, we may also sell SFR loans and other types of mortgage loans from our portfolio, including multi-family loans. We may use the proceeds of loan sales for generating new loans or for other purposes.
From time to time, as part of our balance sheet management process, we may also sell SFR loans and other types of mortgage loans from our portfolio, including multi-family loans. We may use the proceeds of loan sales for generating new loans or for other purposes.
General economic conditions, including inflation, unemployment and money supply fluctuations, also may affect our profitability adversely. 48 A deterioration in economic conditions could result in a number of consequences, including but not limited to the following, any of which could have a material adverse effect on our business, financial condition, and results of operations: • Demand for our products and services may decline; • Loan delinquencies, problem assets and foreclosures may increase; • Collateral for our loans may decline in value; and • The amount of our low cost or noninterest-bearing deposits may decrease.
A deterioration in economic conditions could result in a number of consequences, including but not limited to the following, any of which could have a material adverse effect on our business, financial condition, and results of operations: • demand for our products and services may decline; • loan delinquencies, problem assets and foreclosures may increase; • collateral for our loans may decline in value; and • the amount of our low cost or noninterest-bearing deposits may decrease.
Although we have developed policies, procedures and processes designed to assist in compliance with these laws and regulations, no assurance can be given that these policies and procedures will be effective in detecting violations of these laws and regulations. 47 Risks Relating to External Factors and Markets Severe weather, natural disasters, pandemics, acts of war or terrorism and other external events could significantly impact our business.
Although we have developed policies, procedures and processes designed to assist in compliance with these laws and regulations, no assurance can be given that these policies and procedures will be effective in detecting violations of these laws and regulations. 49 Risks Relating to External Factors and Markets Severe weather events, natural disasters such as earthquakes and wildfires, pandemics, epidemics and other public health crises, acts of war or terrorism, and other external events could significantly impact our business.
Severe weather, natural disasters such as earthquakes and wildfires, acts of war or terrorism (and any responses thereto), pandemics (including the ongoing COVID-19 pandemic), epidemics and other health-related crises, and other adverse external events have had and could have a significant impact on our ability to conduct business.
Severe weather events, natural disasters such as earthquakes and wildfires, pandemics, epidemics and other public health crises, acts of war or terrorism (and any responses thereto), and other external events have had and could have a significant adverse impact on our ability to conduct business.
Changes in policies of the FRB are beyond our control and the impact of changes in those policies on our activities and results of operations can be difficult to predict. 45 We are a party to a variety of litigation and other actions in the ordinary course of business and in connection with the Merger.
Changes in policies of the FRB are beyond our control and the impact of changes in those policies on our activities and results of operations can be difficult to predict. We are a party to a variety of litigation and other actions.
However, if actual results differ from our expectations, it could have a material adverse effect on the Company’s financial condition, results of operations, or cash flows. For a discussion on current legal proceedings, see "Item 3. Legal Proceedings," and Note 13. Commitments and Contingencies of the Notes to Consolidated Financial Statements included in Item 8.
However, if actual results differ from our expectations, it could have a material adverse effect on the Company’s financial condition, results of operations, or cash flows. For a discussion on current legal proceedings, see "Item 3. Legal Proceedings," and Note 13.
Changes resulting from these events could include increased regulatory oversight, higher capital requirements or changes in the way regulatory capital is calculated, and impositions of additional restrictions through regulatory changes or supervisory or enforcement activities, and, as a result, our operating margins, financial condition, and results of operations may be materially adversely affected.
Changes resulting from these events could include increased regulatory oversight, higher capital requirements or changes in the way regulatory capital is calculated, and impositions of additional restrictions through regulatory changes or supervisory or enforcement activities, and, as a result, our operating margins, financial condition, and results of operations may be materially adversely affected. 44 We are subject to regulatory capital requirements, which could be made more stringent in the discretion of our regulators.
If any of the following risks actually occur, our business, results of operations, and financial condition could suffer. In that event, the value of our securities could decline, and you may lose all or part of your investment. Risk Factors Summary The following is a summary of the principal risks that could adversely affect our business, operations and financial results.
If any of the following risks actually occur, our business, results of operations, and financial condition could suffer. In that event, the value of our securities could decline, and you may lose all or part of your investment.
Any rise in prevailing market interest rates may result in increased payments for some borrowers who have adjustable rate loans, increasing the possibility of defaults. Our underwriting practices may not protect us against losses in our loan portfolio.
Approximately 34% of our loans held for investment are adjustable rate loans as of December 31, 2024. Any rise in prevailing market interest rates may result in increased payments for some borrowers who have adjustable rate loans, increasing the possibility of defaults. Our underwriting practices may not protect us against losses in our loan portfolio.
In addition, technological advances, including digital currencies and alternative payment methods, may diminish the importance of depository institutions and other financial intermediaries in the transfer of funds between parties.
In addition, technological advances, including digital currencies and alternative payment methods, may diminish the importance of depository institutions and other financial intermediaries in the transfer of funds between parties. 51 ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Additionally, commercial real estate and multi-family loans generally have relatively large balances to single borrowers or groups of related borrowers. Accordingly, if we make any errors in judgment in the collectability of our commercial real estate and multi-family loans, any resulting charge-offs may be larger on a per loan basis than those incurred with our residential or consumer loan portfolios.
Accordingly, if we make any errors in judgment in the collectability of our commercial real estate and multi-family loans, any resulting charge-offs may be larger on a per loan basis than those incurred with our residential or consumer loan portfolios.
For example, it could: • limit our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes; • restrict us from making strategic acquisitions or cause us to make non-strategic divestitures; • restrict us from paying dividends to our stockholders; • increase our vulnerability to general economic and industry conditions; and • require a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, thereby reducing our ability to use cash flows to fund our operations, capital expenditures and future business opportunities. 35 Risks Related to Credit and Interest Rate If actual losses on our loans exceed our estimates used to establish our allowance for credit losses, our business, financial condition and profitability may suffer.
For example, it could: • limit our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes; • restrict us from making strategic acquisitions or cause us to make non-strategic divestitures; • restrict us from paying dividends to our stockholders; • increase our vulnerability to general economic and industry conditions; and • require a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, thereby reducing our ability to use cash flows to fund our operations, capital expenditures and future business opportunities.
Although we have entered into employment agreements with our Chief Executive Officer and our Chief Financial Officer, no assurance can be given that these individuals, or any of our key management personnel, will continue to be employed by us.
The unexpected loss of the services of any of these individuals could have a detrimental effect on our business. Although we have entered into employment agreements with our Chief Executive Officer and our Chief Financial Officer, no assurance can be given that these individuals, or any of our key management personnel, will continue to be employed by us.
As of December 31, 2023, we had a net DTA of $739.1 million. For additional information, see Note 16. Income Taxes of the Notes to Consolidated Financial Statements included in Item 8. We have suffered significant losses from the balance sheet repositioning and may suffer significant losses from future asset sales.
As of December 31, 2024, we had a net DTA of $720.6 million. For additional information, see Note 16. Income Taxes of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. We have suffered significant losses from the balance sheet repositioning and may suffer significant losses from future asset sales.
After the closing of the Merger, at December 31, 2023, the Company had outstanding indebtedness in the amount of approximately $3.8 billion. Our existing indebtedness, together with any future incurrence of additional indebtedness, could have important consequences for our creditors and stockholders.
As of December 31, 2024, the Company had outstanding indebtedness in the amount of approximately $2.3 billion. Our existing indebtedness, together with any future incurrence of additional indebtedness, could have important consequences for our creditors and stockholders.
As of December 31, 2022, securities available-for-sale that were in an unrealized loss position had a total fair value of $4.8 billion with aggregate unrealized losses of $811.1 million These unrealized losses related primarily to changes in overall interest rates and the resulting impact on valuations of mortgage-backed securities, U.S. Treasury securities, collateralized mortgage obligations and municipal securities.
As of December 31, 2023, AFS securities that were in an unrealized loss position had a total fair value of $2.3 billion with aggregate unrealized losses of $352.5 million These unrealized losses related primarily to changes in overall interest rates and the resulting impact on valuations of mortgage-backed securities, U.S. Treasury securities, collateralized mortgage obligations, and municipal securities.
Any failure or interruption, or breaches in security, of these systems could result in failures or interruptions in our client relationship management, general ledger, deposit, loan origination and servicing systems, thereby harming our business reputation, operating results, and financial condition.
Any failure or interruption, or breaches in security, of these systems could result in failures or interruptions in our client relationship management, general ledger, deposit, loan origination, and servicing systems.
Every loan carries a certain risk that it will not be repaid in accordance with its terms or that any underlying collateral will not be sufficient to assure repayment.
Lending money is a substantial part of our business. Every loan carries a certain risk that it will not be repaid in accordance with its terms or that any underlying collateral will not be sufficient to assure repayment.
We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our clients. 49 ITEM 1B. UNRESOLVED STAFF COMMENTS None.
We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our clients.
Our commercial real estate and multi-family loans increased during the year ended December 31, 2023, to $11.1 billion, or 43% of our total loans held for investment from $9.5 billion, or 33% of our total loans held for investment, as of December 31, 2022.
Our commercial real estate and multi-family loans decreased during the year ended December 31, 2024 to $10.6 billion, or 45% of our total loans held for investment, from $11.1 billion, or 43% of our total loans held for investment, as of December 31, 2023.
We are subject to regulatory capital requirements, which could be made more stringent in the discretion of our regulators. We are subject to capital and other regulatory requirements specifying minimum amounts and types of capital that we must maintain. From time to time, the regulators may change these regulatory capital and related requirements.
We are subject to capital and other regulatory requirements specifying minimum amounts and types of capital that we must maintain. From time to time, the regulators may change these regulatory capital and related requirements.
Third party service providers may experience unauthorized access to and disclosure of our consumer or client information or result in the destruction or corruption of Company information. In addition, we are exposed indirectly through our third party service providers who may experience their own cyber breach and as a result compromise our data and/or lead to service interruptions.
In addition, we are exposed indirectly through our third party service providers who may experience their own cyber breach and as a result compromise our data and/or lead to service interruptions.
This risk is affected by, among other things: • Cash flow of the borrower and/or the project being financed; • In the case of a collateralized loan, the changes and uncertainties as to the future value of the collateral; • The credit history of a particular borrower; • Changes in interest rates; • Changes in economic and industry conditions; and • The duration of the loan. 36 We maintain an allowance for credit losses which we believe is appropriate to provide for probable losses inherent in our loan portfolio.
This risk is affected by, among other things: • cash flow of the borrower and/or the project being financed; • in the case of a collateralized loan, the changes and uncertainties as to the future value of the collateral; • the credit history of a particular borrower; • changes in interest rates; • changes in economic and industry conditions; and • the duration of the loan.
Changes in interest rates can affect numerous aspects of our business and may impact our future performance. 37 Prolonged periods of inflation have impacted, and may continue to impact, our profitability by negatively impacting our costs and expenses, including increasing funding costs and expense related to talent acquisition and retention, and negatively impacting the demand for our products and services.
Prolonged periods of inflation have impacted, and may continue to impact, our profitability by negatively impacting our costs and expenses, including increasing funding costs and expense related to talent acquisition and retention, and negatively impacting the demand for our products and services.
Legal and Compliance Risks • We operate in a highly regulated environment and our business, operations and income may be adversely affected by changes in laws, rules and regulations governing our operations. • We are a party to a variety of litigation and other actions. • Changes in federal, state or local tax laws, or audits from tax authorities, could negatively affect our financial condition and results of operations. • Failure to comply with applicable laws or regulations, or to satisfy our regulators’ supervisory expectations, could subject us to supervisory or enforcement action. • Non-compliance with laws and regulations could result in fines or sanctions or operating restrictions. • We are subject to federal and state fair lending laws, and failure to comply with these laws could lead to material penalties. • We are subject to a wide range of laws related to anti-money laundering, economic sanctions, and prevention of financial crime, which could increase our costs or subject us to significant penalties.
Legal and Compliance Risks • We operate in a highly regulated environment and our business, operations and income may be adversely affected by changes in laws, rules and regulations governing our operations. • We are a party to a variety of litigation and other actions. • Changes in federal, state or local tax laws, or audits from tax authorities, could negatively affect our financial condition and results of operations. • Failure to comply with applicable laws or regulations, or to satisfy our regulators’ supervisory expectations, could subject us to supervisory or enforcement action. • Non-compliance with laws and regulations could result in fines or sanctions or operating restrictions. • We are subject to federal and state fair lending laws, and failure to comply with these laws could lead to material penalties. • We are subject to a wide range of laws related to anti-money laundering, economic sanctions, and prevention of financial crime, which could increase our costs or subject us to significant penalties. 30 Risks Relating to External Factors and Markets • Severe weather events, natural disasters such as earthquakes and wildfires, pandemics, epidemics and other public health crises, acts of war or terrorism, and other external events could significantly impact our business. • Our financial condition and results of operations are dependent on the national and local economy, particularly in the Bank's market areas.
The occurrence of any systems failure or interruption could damage our reputation and result in a loss of clients and business, could subject us to additional regulatory scrutiny, or could expose us to legal liability. Any of these occurrences could have a material adverse effect on our financial condition and results of operations.
The occurrence of any systems failure or interruption could damage our reputation and result in a loss of clients and business, could subject us to additional regulatory scrutiny, or could expose us to legal liability.
Adverse economic conditions in any of these areas can reduce our rate of growth, affect our clients’ ability to repay loans and adversely impact our financial condition and earnings.
Adverse economic conditions in any of these areas can reduce our rate of growth, affect our clients’ ability to repay loans and adversely impact our financial condition and earnings. General economic conditions, including inflation, unemployment and money supply fluctuations, also may affect our profitability adversely.
In addition, our ability to maintain existing or obtain additional deposits may be impacted by factors beyond our control, including perceptions about our reputation, financial strength or the banking industry generally, which could reduce the number of consumers choosing to place deposits with us.
In addition, our ability to maintain existing or obtain additional deposits may be impacted by factors beyond our control, including perceptions about our reputation, financial strength or the banking industry generally, which could reduce the number of consumers choosing to place deposits with us. 43 Our ability to obtain deposit funding and offer competitive interest rates on deposits is also dependent on capital levels of our bank subsidiary.
As of December 31, 2023, we had $2.3 billion of securities available-for-sale, as compared with $4.8 billion of securities available-for-sale as of December 31, 2022. As of December 31, 2023, securities available-for-sale that were in an unrealized loss position had a total fair value of $2.3 billion with aggregate unrealized losses of $352.5 million.
As of December 31, 2024, we had $2.2 billion of AFS securities, as compared with $2.3 billion of AFS securities as of December 31, 2023. As of December 31, 2024, AFS securities that were in an unrealized loss position had a total fair value of $1.9 billion with aggregate unrealized losses of $280.5 million.
The Company monitors to ensure it has adequate credit support and, as of December 31, 2023 we believed there was no credit losses and did not have the intent to sell any of our securities in an unrealized loss position and it is likely that we will not be required to sell such securities before their anticipated recovery.
As of December 31, 2023, we had $2.3 billion of HTM securities, which had a total fair value of $2.2 billion. 41 The Company follows a robust credit monitoring process to ensure it has appropriate credit support and, as of December 31, 2024, we believed there was no credit losses and did not have the intent to sell any of our securities in an unrealized loss position and it is likely that we will not be required to sell such securities before their anticipated recovery.
Strong competition within our market areas may limit our growth and profitability. Competition in the banking and financial services industry is intense. In our market areas, we compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, non-bank lenders, mutual funds, insurance companies, and brokerage and investment banking firms operating locally and elsewhere.
In our market areas, we compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, non-bank lenders, mutual funds, insurance companies, and brokerage and investment banking firms operating locally and elsewhere.
We face the risk of becoming subject to new or more stringent requirements in connection with the introduction of new regulations or modifications of existing regulations, which could require us to hold more capital or liquidity or have other adverse effects on our businesses or profitability.
We face the risk of becoming subject to new or more stringent requirements in connection with the introduction of new regulations or modifications of existing regulations, including based on changes in the U.S. presidential administrations or one or both houses of Congress and other factors, and this could require us to hold more capital or liquidity or have other adverse effects on our businesses or profitability.
Depending on the existence of various potential buyers and competitive prices, we may sell assets at a significant loss, which could affect our financial condition and results of operations.
Depending on the existence of various potential buyers and competitive prices, we may sell additional assets at a significant loss, which could adversely affect our financial condition and results of operations. 36 Our level of indebtedness could adversely affect our ability to raise capital and meet our debt obligations.
The primary sources of repayment are future additional venture capital equity investments or the sale of the company or its assets. Our venture-backed borrowers’ business plans may fail, increasing the likelihood for credit losses related to loans to venture-backed borrowers.
The primary sources of repayment are future additional venture capital equity investments or the sale of the company or its assets. Our venture-backed borrowers’ business plans may fail, increasing the likelihood for credit losses related to loans to venture-backed borrowers. In accordance with GAAP, we maintain an allowance for loan and lease losses to provide for loan defaults and non-performance.
At December 31, 2023, there were two individual real estate construction and land commitments greater than or equal to $100 million with the largest commitment being $135 million. At December 31, 2023, these two individual commitments totaled $240 million and had an aggregate outstanding balance of $140 million. The projects financed by these commitments are two multifamily projects.
We have a number of large credit relationships and individual commitments. At December 31, 2024, there were two individual real estate construction and land commitments greater than or equal to $100 million with the largest commitment being $135 million. At December 31, 2024, these two individual commitments totaled $240 million and had an aggregate outstanding balance of $182 million.
Our business and financial results are also significantly affected by the fiscal and monetary policies of the U.S. government and its agencies. We are particularly affected by the policies of the FRB, which regulates the supply of money and credit in the United States in pursuit of maximum employment, stable prices, and moderate long-term interest rates.
We are particularly affected by the policies of the FRB, which regulates the supply of money and credit in the United States in pursuit of maximum employment, stable prices, and moderate long-term interest rates.
Our allowance for credit losses was 1.22% of loans and leases held for investment and 497.80% of nonaccrual loans and leases as of December 31, 2023.
Our allowance for credit losses was 1.13% of loans and leases held for investment and 141.57% of nonaccrual loans and leases as of December 31, 2024.
In addition, our future success will depend, in part, upon our ability to address the needs of our clients by using technology to provide products and services that will satisfy client demands for convenience, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements.
Our future success will depend, in part, upon our ability to address the needs of our clients by using technology to provide products and services that will satisfy client demands for convenience, as well as to assess the proper operation of AI models and capabilities to create additional efficiencies in our operations.
We continue to monitor our real estate loans secured by office properties because of the risk that tenants may continue to reduce the office space they lease as some portion of the workforce continues to work remotely on a hybrid or permanent basis and that we may not collect all amounts contractually owed to us. 40 If we foreclose on a commercial real estate or multi-family loan, our holding period for the collateral typically is longer than for residential mortgage loans because there are fewer potential purchasers of the collateral.
We continue to monitor our real estate loans secured by office properties because of the risk that tenants may continue to reduce the office space they lease as some portion of the workforce continues to work remotely on a hybrid or permanent basis and that we may not collect all amounts contractually owed to us.
We face significant capital and other regulatory requirements as a financial institution. We may need to raise additional capital in the future to provide sufficient capital resources and liquidity to meet our commitments and business needs, which could include the possibility of financing acquisitions.
We may need to raise additional capital in the future to provide sufficient capital resources and liquidity to meet our commitments and business needs, which could include the possibility of financing acquisitions. In addition, we, on a consolidated basis, and the Bank, on a standalone basis, must meet certain regulatory capital requirements and maintain sufficient liquidity.
In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to us. Any such losses could have a material adverse effect on our business, financial condition, and results of operations.
In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to us.
Accordingly, if market conditions deteriorate further and we determine our holdings of other investment securities have experienced credit losses, our future earnings, stockholders’ equity, regulatory capital and continuing operations could be materially adversely affected.
The valuation of our investment securities also is influenced by external market and other factors, including implementation of SEC and FASB guidance on fair value accounting. Accordingly, if market conditions deteriorate further and we determine our holdings of other investment securities have experienced credit losses, our future earnings, stockholders’ equity, regulatory capital, and continuing operations could be materially adversely affected.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe Information Technology and Information Security sub-committee is a working group of the management level Enterprise Risk Management Committee and represented by managers within various departments and includes the CISO and Chief Information Officer as well as their direct reports and other key departmental managers from throughout the entire company.
Biggest changeThe Information Technology and Information Security sub-committee is a sub-committee of the management level Enterprise Risk Management Committee and is represented by managers within various departments and includes the CISO, the Chief Technology Officer ("CTO"), and the Chief Information Officer ("CIO") and other key departmental managers from throughout the entire company.
ITEM 1C. CYBERSECURITY Risk Management and Strategy Our enterprise risk management program is designed to identify, measure, monitor and control all significant risks across various aspects of our company. Cybersecurity risk management processes are integrated into this program, given the increasing reliance on technology and potential of cyber threats.
ITEM 1C. CYBERSECURITY Cybersecurity Risk Management and Strategy Our enterprise risk management program is designed to identify, measure, monitor and control all significant risks across various aspects of our company. Cybersecurity risk management processes are integrated into this program, given the increasing reliance on technology and potential of cyber threats.
Risk Factors in the section titled “ We are subject to certain risks in connection with our use of technology. ” 50 Governance Our Board of Directors considers cybersecurity risk as part of its risk management function and has delegated to the Enterprise Risk Committee oversight and governance of the technology program and the information security program, including management’s actions to identify, assess, mitigate, and remediate or prevent material cybersecurity issues and risks.
Risk Factors in the section titled “ We are subject to certain risks in connection with our use of technology. ” 52 Governance Our Board of Directors considers cybersecurity risk as part of its risk management function and has delegated to the Enterprise Risk Committee oversight and governance of the technology program and the information security program, including management’s actions to identify, assess, mitigate, and remediate or prevent material cybersecurity issues and risks.
We adopt the “trust by design” framework when designing new products, services and technology. We employ a variety of preventative and detective tools designed to monitor, detect, block, and provide alerts regarding suspicious and unauthorized activity and to report on suspected advanced persistent threats. • Incident Response.
We adopt the “trust by design” framework when designing new products, services and technology. We employ a variety of administrative, preventative and detective controls and tools designed to monitor, detect, block, and provide alerts regarding suspicious and unauthorized activity and to report on suspected advanced persistent threats. • Incident Response.
The Company's Executive Leadership Team meets monthly with the CISO and Deputy CISO and reports summaries of key issues, including significant cybersecurity and/or privacy incidents, discussed at various meetings and responses to any actions taken to/from the Enterprise Risk Committee on a quarterly basis or more frequently as may be required by the IRP.
The Company's Executive Leadership Team meets monthly with the CISO, CIO, and CTO and reports summaries of key issues, including significant cybersecurity and/or privacy incidents, discussed at various meetings and responses to any actions taken to/from the Enterprise Risk Committee on a quarterly basis or more frequently as may be required by the IRP.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES As of January 31, 2024, we had a total of 155 properties consisting of 95 full-service branch offices and 60 other offices. We own six locations and the remaining properties are leased. Our properties are located throughout the United States, however, approximately 86% are located in California.
Biggest changeITEM 2. PROPERTIES As of December 31, 2024, we had a total of 111 properties consisting of 80 full-service branch offices and 31 other offices. We own six locations, and the remaining properties are leased. Our properties are located throughout the United States, however, approximately 88% are located in California.
We lease our principal office, which is located at 11611 San Vicente Blvd., Suite 500, Los Angeles, CA 90049. For additional information regarding properties of the Company and Pacific Western, see Note 6. Premises and Equipment, Net of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data.”
We lease our principal office, which is located at 11611 San Vicente Blvd., Suite 500, Los Angeles, CA 90049. For additional information regarding properties of the Company, see Note 6. Premises and Equipment, Net of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data.”

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS See Note 13. Commitments and Contingencies of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data.” That information is incorporated into this item by reference. ITEM 4. MINE SAFETY DISCLOSURE Not applicable. 51 PART II
Biggest changeITEM 3. LEGAL PROCEEDINGS See Note 13. Commitments and Contingencies of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data.” That information is incorporated into this item by reference. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 53 PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosure 51 PART II ITEM 5. Market For Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities 52 ITEM 6. Reserved 56 ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 57 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 102 ITEM 8.
Biggest changeItem 4. Mine Safety Disclosure 53 PART II ITEM 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 54 ITEM 6. Reserved 57 ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 58 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 103 ITEM 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

12 edited+2 added−13 removed8 unchanged
Biggest changeThe foregoing description of the Investment Agreements, the Registration Rights Agreement, the Warrants, and the transactions contemplated thereby are not complete and are qualified in their entirety by reference to the full text of the Investment Agreements, which are filed as Exhibits 10.1 and 10.2 to this Annual Report on Form 10-K, the Registration Rights Agreement, which is filed as Exhibit 10.3 to this Annual Report on Form 10-K, and the Warrants, which are filed as Exhibits 4.4 and 4.5 to this Annual Report on Form 10-K, and in each case incorporated by reference herein. 54 Repurchases of Common Stock The following table presents stock repurchases we made during the fourth quarter of 2023: Total Number of Maximum Dollar Shares Purchased Value of Shares Total as Part of That May Yet Number of Average Publicly Be Purchased Shares Price Paid Announced Under the Purchase Dates Purchased (1) Per Share Program (2) Program (2) (Dollars in thousands, except per share amounts) October 1 - October 31, 2023 — $ — — $ 13,852,812 November 1 - November 30, 2023 2,971 $ 11.40 — $ 13,852,812 December 1 - December 31, 2023 9,445 $ 12.77 — $ 13,852,812 Total 12,416 $ 12.44 — ___________________________________ (1) Includes shares repurchased pursuant to net settlement by employees in satisfaction of income tax withholding obligations incurred through the vesting of Company stock awards.
Biggest changeRepurchases of Common Stock The following table presents stock repurchases we made during the fourth quarter of 2024: Total Number of Maximum Dollar Shares Purchased Value of Shares Total as Part of That May Yet Number of Average Publicly Be Purchased Shares Price Paid Announced Under the Purchase Dates Purchased (1) Per Share Program (2) Program (2) (Dollars in thousands, except per share amounts) October 1 - October 31, 2024 884 $ 14.01 — $ — November 1 - November 30, 2024 9,018 $ 15.41 — $ — December 1 - December 31, 2024 383 $ 16.72 — $ — Total 10,285 $ 15.34 — ___________________________________ (1) Includes shares repurchased pursuant to net settlement by employees in satisfaction of income tax withholding obligations incurred through the vesting of Company stock awards.
As of December 31, 2023, we had 477,321 shares of Class B non-voting common stock outstanding and held by three holders of record. Our NVCE stock is not listed or traded on any national securities exchange or automated quotation system, and there currently is no established trading market for such stock.
As of December 31, 2024, we had 477,321 shares of Class B non-voting common stock outstanding and held by three holders of record. Our NVCE stock is not listed or traded on any national securities exchange or automated quotation system, and there currently is no established trading market for such stock.
The chart is historical only and may not be indicative of possible future performance. 55 ___________________________________ * $100 invested on December 31, 2018 in stock or index, including reinvestment of dividends.
The chart is historical only and may not be indicative of possible future performance. 56 ___________________________________ * $100 invested on December 31, 2019 in stock or index, including reinvestment of dividends.
As of December 31, 2023, we had 10,829,990 shares of NVCE stock outstanding and held by two holders of record. As of December 31, 2023, we had 513,250 shares of preferred stock outstanding, all of which were shares of our 7.75% fixed rate reset non-cumulative perpetual preferred stock, Series F, liquidation amount $1,000 per share (“Series F Preferred Stock”).
As of December 31, 2024, we had 9,790,600 shares of NVCE stock outstanding and held by three holders of record. As of December 31, 2024, we had 513,250 shares of preferred stock outstanding, all of which were shares of our 7.75% fixed rate reset non-cumulative perpetual preferred stock, Series F, liquidation amount $1,000 per share (“Series F Preferred Stock”).
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Marketplace Designation and Holders Our voting common stock is listed on the NYSE and is traded under the symbol “BANC.” As of February 20, 2024, and based on the records of our transfer agent, there were approximate ly 2,144 record holders of our voting common stock.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Marketplace Designation and Holders Our voting common stock is listed on the NYSE and is traded under the symbol “BANC.” As of February 14, 2025, and based on the records of our transfer agent, there were approximately 2,278 record holders of our voting common stock.
The chart compares the yearly percentage change in the cumulative stockholder return on our common stock based on the closing price during the five years ended December 31, 2023, with (1) the Total Return Index for U.S. companies traded on The New York Stock Exchange (the “NYSE Composite Index”), (2) the Total Return Index for KBW NASDAQ Regional Bank Stocks (the “KBW NASDAQ Regional Banking Index”) and (3) the Total Return Index for bank constituents of the S&P United States Board Market Index that fall within the Western region of the U.S.
The chart compares the yearly percentage change in the cumulative stockholder return on our common stock based on the closing price during the five years ended December 31, 2024, with (1) the Total Return Index for U.S. companies traded on The New York Stock Exchange (the “NYSE Composite Index”) and (2) the Total Return Index for KBW NASDAQ Regional Bank Stocks (the “KBW NASDAQ Regional Banking Index”).
(the "S&P U.S. BMI Banks - West Regional Index"). This comparison assumes $100 was invested on December 31, 2018, in our common stock and the comparison groups and assumes the reinvestment of all cash dividends prior to any tax effect and retention of all stock dividends.
This comparison assumes $100 was invested on December 31, 2019, in our common stock and the comparison groups and assumes the reinvestment of all cash dividends prior to any tax effect and retention of all stock dividends.
Financial Statements and Supplementary Data.” 52 Securities Authorized for Issuance Under Equity Compensation Plans The following table provides information as of December 31, 2023 regarding securities issued and to be issued under our equity compensation plan in effect during fiscal year 2023: Number of Securities Weighted Number of Securities to be Issued Upon Average Exercise Remaining Available Exercise of Price of for Future Issuance Outstanding Outstanding Under Equity Options, Options, Compensation Plans Warrants, and Warrants, and (Excluding Securities Rights Rights Reflected in Column (a)) Plan Category Plan Name (a) (b) (c) Amended and Restated Equity compensation Banc of California, plans approved by Inc. 2018 Stock security holders Incentive Plan (1) 13,068 (2) $ — 8,756,260 (3) Equity compensation plans not approved by security holders None — — — Total 13,068 $ — 8,756,260 __________________________________ (1) The Amended and Restated Banc of California, Inc. 2018 Stock Incentive Plan (the “Amended and Restated 2018 Plan”) was approved by our stockholders at our November 22, 2023 Special Meeting of Stockholders, authorizing 8,789,197 shares for issuance, representing 2,489,197 shares available for new awards under the existing 2018 Stock Incentive Plan as of the merger close date, plus 6,300,000 shares added as a result of the approval of the Amended and Restated 2018 Plan.
Financial Statements and Supplementary Data.” 54 Securities Authorized for Issuance Under Equity Compensation Plans The following table provides information as of December 31, 2024 regarding securities issued and to be issued under our equity compensation plan in effect during fiscal year 2024: Number of Securities Weighted Number of Securities to be Issued Upon Average Exercise Remaining Available Exercise of Price of for Future Issuance Outstanding Outstanding Under Equity Options, Options, Compensation Plans Warrants, and Warrants, and (Excluding Securities Rights Rights Reflected in Column (a)) Plan Category Plan Name (a) (b) (c) Amended and Restated Equity compensation Banc of California, plans approved by Inc. 2018 Stock security holders Incentive Plan (1) 11,232 (2) $ 13.75 4,955,607 (3) Equity compensation plans not approved by security holders None — — — Total 11,232 $ 13.75 4,955,607 __________________________________ (1) The Amended and Restated Banc of California, Inc. 2018 Stock Incentive Plan (the “Amended and Restated 2018 Plan”) was approved by our stockholders at our November 22, 2023 Special Meeting of Stockholders, authorizing 10,717,882 shares for issuance.
Business - Supervision and Regulation - Dividends and Share Repurchases ” and Note 22. Dividend Availability and Regulatory Matters of the Notes to Consolidated Financial Statements contained in “Item 8.
For a discussion of dividend restrictions on the Company's common stock, or of dividends from the Company's subsidiaries to the Company, see “Item 1. Business - Supervision and Regulation - Dividends and Share Repurchases ” and Note 22. Dividend Availability and Regulatory Matters of the Notes to Consolidated Financial Statements contained in “Item 8.
(3) The Amended and Restated 2018 Plan permits these remaining shares to be issued in the form of options, PRSUs, RSUs, restricted stock, or stock appreciation rights. 53 Recent Sales of Unregistered Securities Concurrently with the Merger on November 30, 2023 (the “Closing Date”), Banc of California, Inc.
(3) The Amended and Restated 2018 Plan permits these remaining shares to be issued in the form of options, PSUs, RSUs, restricted stock, or stock appreciation rights. 55 Recent Sales of Unregistered Securities None.
(2) Amount does not include 501,050 shares of unvested time-based restricted stock units ("RSUs") granted under the Amended and Restated 2018 Plan and 861,403 unvested time-based restricted shares outstanding under the Amended and Restated PacWest Bancorp 2017 Stock Incentive Plan as of December 31, 2023.
(2) Amount does not include 1,759,335 shares of unvested time-based restricted stock units and 2,283,531 of unvested PSUs granted under the Amended and Restated 2018 Plan and 211,206 unvested time-based restricted shares outstanding under the PacWest 2017 Plan as of December 31, 2024.
During the year ended December 31, 2023 and prior to the completion of the Merger, PacWest Bancorp paid dividends in the amount of $48.9 million to its common stockholders and $39.8 million to its preferred stockholders.
During the year ended December 31, 2024, the holding company paid dividends in the amount of $68.3 million to its common stockholders and $39.8 million to its preferred stockholders. The Bank paid dividends of $80.0 million to the holding company during the year ended December 31, 2024.
Removed
Legacy Pacific Western Bank paid dividends of $46.0 million to PacWest Bancorp during the year ended December 31, 2023, all of which were paid prior to the completion of the Merger. For a discussion of dividend restrictions on the Company's common stock, or of dividends from the Company's subsidiaries to the Company, see “Item 1.
Added
In addition to the Amended and Restated 2018 Plan, in connection with the Merger, the Company assumed the Amended and Restated PacWest Bancorp 2017 Stock Incentive Plan (the "PacWest 2017 Plan") with respect to PacWest's outstanding stock-based awards.
Removed
(a) issued and sold to affiliates of funds managed by Warburg Pincus LLC (the “Warburg Investors”) and certain investment vehicles sponsored, managed or advised by Centerbridge Partners, L.P. and its affiliates (the “Centerbridge Investor” and, together with the Warburg Investors, the “Investors”), for $12.30 per share and an aggregate purchase price of $400 million, approximately (i) 21.7 million shares of Banc of California, Inc.’s common stock and (ii) 10.8 million shares of Banc of California, Inc.’s NVCE stock and (b) issued to the (i) Warburg Investors warrants to purchase approximately 15.9 million shares of Banc of California, Inc.’s NVCE stock and (ii) Centerbridge Investor warrants to purchase approximately 3.0 million shares of Banc of California, Inc.’s common stock, in each case, with such warrants having an exercise price of $15.375 (a 25% premium to the price paid on our common stock and NVCE stock) per share (the “Warrants”).
Added
Year Ended December 31, Index 2019 2020 2021 2022 2023 2024 Banc of California, Inc. $ 100.00 $ 87.43 $ 118.09 $ 97.23 $ 84.55 $ 100.04 NYSE Composite Index 100.00 106.99 129.11 117.04 133.16 154.19 KBW NASDAQ Regional Banking Index 100.00 91.29 124.74 116.10 115.64 130.90
Removed
The Warrants carry a term of seven years but are subject to mandatory exercise when the market price of Banc of California, Inc.’s common stock reaches or exceeds $24.60 (a 100% premium to the price paid by the Warburg Investors and the Centerbridge Investor for Banc of California, Inc.’s common stock and NVCE stock) for 20 or more trading days during any 30-consecutive trading day period.
Removed
The Warrants may be settled on a “net share” basis by applying shares otherwise issuable under the Warrants in satisfaction of the exercise price.
Removed
The issuance and sale were made pursuant to the investment agreements, each dated as of July 25, 2023, entered into by Banc of California, Inc. with the Warburg Investors (such agreement, the “Warburg Investment Agreement”) and the Centerbridge Investor (together with the Warburg Investment Agreement, the “Investment Agreements”), respectively.
Removed
Subject to certain exceptions, the Investors are prohibited from transferring any securities acquired pursuant to the Investment Agreements for 90 days following the Closing Date (the “Lock-Up Period”).
Removed
Following the Lock-Up Period, until the 180-day anniversary of the Closing Date, subject to certain exceptions, the Warburg Investors are prohibited from transferring 25% of the securities acquired pursuant to the Warburg Investment Agreement. The Warburg Investors are subject to certain additional transfer restrictions following the expiration of such 180-day period.
Removed
The offering and sale of shares of Banc of California, Inc.’s common stock, NVCE stock, and the Warrants were made in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act of 1933 (the “Securities Act”).
Removed
On the Closing Date, Banc of California, Inc. entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with each Investor, pursuant to which Banc of California, Inc. agreed to provide customary registration rights to the Investors and their affiliates and certain permitted transferees with respect to the shares of our common stock purchased under the Investment Agreements and the shares of Banc of California, Inc.’s common stock issued upon the conversion of shares of our NVCE stock purchased under the Warburg Investment Agreement or issued upon the exercise of the Warrants.
Removed
Under the Registration Rights Agreement, the Investors will, following the Lock-Up Period, be entitled to S-3 shelf registration rights (or S-1 demand registration rights, if applicable), rights to request a certain number of underwritten shelf takedowns, as well as piggyback registration rights, in each case, subject to certain limitations as set forth in the Registration Rights Agreement.
Removed
The Company's total cumulative return was 11.45% over the five year period ending December 31, 2023 compared to returns of 67.12%, 43.17% and 8.54% for the NYSE Composite Index, KBW NASDAQ Regional Banking Index and S&P U.S. BMI Banks - Western Region Index.
Removed
Year Ended December 31, Index 2018 2019 2020 2021 2022 2023 Banc of California, Inc. $ 100.00 $ 131.81 $ 115.24 $ 155.66 $ 128.16 $ 111.45 NYSE Composite Index 100.00 125.51 134.28 162.04 146.89 167.12 KBW NASDAQ Regional Banking Index 100.00 123.81 113.03 154.45 143.75 143.17 S&P U.S.
Removed
BMI Banks - Western Region Index 100.00 121.94 91.26 140.71 109.19 108.54

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

147 edited+54 added−79 removed74 unchanged
Biggest change(4) Common and equivalent shares outstanding in prior periods have been restated by multiplying the historical amounts by the Merger exchange ratio of 0.6569. 64 Adjusted Noninterest Income to Adjusted Total Revenue Year Ended December 31, and Adjusted Noninterest Expense to Average Assets 2023 2022 2021 (Dollars in thousands) Net interest income $ 747,128 $ 1,290,762 $ 1,103,824 Noninterest (loss) income (448,285) 74,827 193,927 Total revenue $ 298,843 $ 1,365,589 $ 1,297,751 Noninterest (loss) income $ (448,285) $ 74,827 $ 193,927 Add: Loss (gain) on sale of securities 442,413 50,321 (1,615) Less: Legal recoveries (22,087) — — Add: Loan fair value loss adjustments 170,971 — — Adjusted noninterest income 143,012 125,148 192,312 Net interest income 747,128 1,290,762 1,103,824 Adjusted total revenue $ 890,140 $ 1,415,910 $ 1,296,136 Noninterest expense $ 2,458,181 $ 773,521 $ 637,417 Less: Goodwill impairment (1,376,736) (29,000) — Less: Acquisition, integration, and reorganization costs (142,633) (5,703) (9,415) Less: Unfunded commitments fair value loss adjustments (106,767) — — Adjusted noninterest expense $ 832,045 $ 738,818 $ 628,002 Average total assets $ 40,293,380 $ 40,481,581 $ 35,518,488 Noninterest (loss) income to total revenue (150.01) % 5.48 % 14.94 % Adjusted noninterest income to adjusted total revenue 16.07 % 8.84 % 14.84 % Noninterest expense to average total assets 6.10 % 1.91 % 1.79 % Adjusted noninterest expense to average total assets 2.06 % 1.83 % 1.77 % 65 Results of Operations Earnings Performance The following table presents performance metrics for the years indicated: Year Ended December 31, 2023 2022 2021 Earnings Summary: Interest income $ 1,971,000 $ 1,556,489 $ 1,158,729 Interest expense (1,223,872) (265,727) (54,905) Net interest income 747,128 1,290,762 1,103,824 Provision for credit losses (52,000) (24,500) 162,000 Noninterest (loss) income (448,285) 74,827 193,927 Operating expense (938,812) (738,818) (628,002) Acquisition, integration and reorganization costs (142,633) (5,703) (9,415) Goodwill impairment (1,376,736) (29,000) — (Loss) earnings before income taxes (2,211,338) 567,568 822,334 Income tax benefit (expense) 312,201 (143,955) (215,375) Net (loss) earnings (1,899,137) 423,613 606,959 Preferred stock dividends (39,788) (19,339) — Net (loss) earnings available to common and equivalent stockholders $ (1,938,925) $ 404,274 $ 606,959 Per Common Share Data: Diluted (loss) earnings per share (1) $ (22.71) $ 5.14 $ 7.76 Book value per share (1) $ 17.12 $ 43.71 $ 50.91 Tangible book value per share (2) $ 14.96 $ 25.88 $ 32.45 Performance Ratios: Return on average assets (4.71) % 1.05 % 1.71 % Return on average tangible common equity (2) (30.66) % 20.52 % 24.48 % Net interest margin (tax equivalent) 1.98 % 3.49 % 3.40 % Yield on average loans and leases (tax equivalent) 5.92 % 5.07 % 5.08 % Cost of average total deposits 2.61 % 0.59 % 0.09 % Efficiency ratio 124.91 % 51.48 % 47.49 % Capital Ratios (consolidated): Common equity tier 1 capital ratio 10.14 % 8.70 % 8.86 % Tier 1 capital ratio 12.44 % 10.61 % 9.32 % Total capital ratio 16.43 % 13.61 % 12.69 % Tier 1 leverage capital ratio 9.00 % 8.61 % 6.84 % Risk-weighted assets $ 27,338,852 $ 33,030,960 $ 28,508,808 _____________________________ (1) Shares include non-voting common stock equivalents that are participating securities.
Biggest change(4) Adjusted net earnings divided by average assets 68 Results of Operations Earnings Performance The following table presents performance metrics for the years indicated: Year Ended December 31, 2024 2023 2022 (Dollars in thousands) Earnings Summary: Interest income $ 1,812,705 $ 1,971,000 $ 1,556,489 Interest expense (886,655) (1,223,872) (265,727) Net interest income 926,050 747,128 1,290,762 Provision for credit losses (42,801) (52,000) (24,500) Noninterest income (loss) 77,145 (448,285) 74,827 Operating expense (805,923) (938,812) (738,818) Acquisition, integration and reorganization costs 14,183 (142,633) (5,703) Goodwill impairment — (1,376,736) (29,000) Earnings (loss) before income taxes 168,654 (2,211,338) 567,568 Income tax (expense) benefit (41,766) 312,201 (143,955) Net earnings (loss) 126,888 (1,899,137) 423,613 Preferred stock dividends (39,788) (39,788) (19,339) Net earnings (loss) available to common and equivalent stockholders $ 87,100 $ (1,938,925) $ 404,274 Per Common Share Data: Diluted earnings (loss) per share (1) $ 0.52 $ (22.71) $ 5.14 Adjusted diluted earnings (loss) per share (2) $ 0.80 $ 0.15 $ 6.05 Book value per share (1) $ 17.78 $ 17.12 $ 43.71 Tangible book value per share (1)(2) $ 15.72 $ 14.96 $ 25.88 Performance Ratios: Return on average assets 0.36 % (4.71) % 1.05 % Adjusted return on average assets (2) 0.50 % 0.13 % 1.20 % Return on average tangible common equity (2) 4.35 % (35.27) % 20.53 % Adjusted return on average tangible common equity (2) 6.23 % 1.06 % 22.50 % Net interest margin 2.85 % 1.98 % 3.49 % Yield on average loans and leases 6.11 % 5.92 % 5.07 % Cost of average total deposits 2.52 % 2.61 % 0.59 % Noninterest expense to average total assets 2.24 % 6.10 % 1.91 % Capital Ratios (consolidated): Common equity tier 1 capital ratio 10.55 % 10.14 % 8.70 % Tier 1 capital ratio 12.97 % 12.44 % 10.61 % Total capital ratio 17.05 % 16.43 % 13.61 % Tier 1 leverage capital ratio 10.15 % 9.00 % 8.61 % Risk-weighted assets $ 25,976,675 $ 27,338,852 $ 33,030,960 _____________________________ (1) Shares include non-voting common stock equivalents that are participating securities.
(2) Adjusted net (loss) earnings divided by average stockholders' equity.
(2) Adjusted net earnings (loss) divided by average stockholders' equity.
Additionally, we fund our operations with cash flows from our loan and securities portfolios. 99 Our deposit balances may decrease if customers withdraw funds from the Bank. In order to address the Bank’s liquidity risk from fluctuating deposit balances, the Bank maintains adequate levels of available liquidity on and off the balance sheet.
Additionally, we fund our operations with cash flows from our loan and securities portfolios. Our deposit balances may decrease if customers withdraw funds from the Bank. In order to address the Bank’s liquidity risk from fluctuating deposit balances, the Bank maintains adequate levels of available liquidity on and off the balance sheet.
Loans and Leases of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data.” For information regarding the allowance for credit losses on held-to-maturity debt securities, see Note 1(g). Nature of Operations and Summary of Significant Accounting Policies - Allowance for Credit Losses on Held-to-Maturity Debt Securities , and Note 4.
Loans and Leases of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data.” For information regarding the allowance for credit losses on HTM debt securities, see Note 1(g). Nature of Operations and Summary of Significant Accounting Policies - Allowance for Credit Losses on Held-to-Maturity Debt Securities , and Note 4.
As part of our allowance for credit losses process, sensitivity analyses are performed to assess the impact of how changing certain assumptions could impact the estimated allowance for credit losses. At times, these analyses can provide information to further assist management in making decisions on certain assumptions.
As part of our allowance for credit losses process, sensitivity analyses are performed to assess the impact of how changing certain assumptions could impact the estimated ACL. At times, these analyses can provide information to further assist management in making decisions on certain assumptions.
The primary sources of liquidity for the holding company include dividends from the Bank, intercompany tax payments from the Bank, and Banc of California, Inc.'s ability to raise capital, issue subordinated debt, and secure outside borrowings.
The primary sources of liquidity for the holding company include dividends from the Bank, intercompany tax payments from the Bank, and Banc of California, Inc.'s ability to raise capital, issue subordinated and senior debt, and secure outside borrowings.
Banc of California, Inc.'s ability to obtain funds for the payment of dividends to our stockholders, the repurchase of shares of common stock, and other cash requirements is largely dependent upon the Bank’s earnings.
Banc of California, Inc.'s ability to obtain funds for the payment of dividends to our stockholders, the repurchase of shares of common stock and preferred stock, and other cash requirements is largely dependent upon the Bank’s earnings.
The cost of total deposits is calculated as annualized interest expense on total deposits divided by average total deposits. (5) Total funds is the sum of total interest-bearing liabilities and noninterest-bearing demand deposits.
(4) Total deposits is the sum of total interest-bearing deposits and noninterest-bearing demand deposits. The cost of total deposits is calculated as annualized interest expense on total deposits divided by average total deposits. (5) Total funds is the sum of total interest-bearing liabilities and noninterest-bearing demand deposits.
As of December 31, 2023, there was no balance outstanding related to these unsecured lines of credit. The Bank is a member of the AFX, through which it may either borrow or lend funds on an overnight or short-term basis with a group of pre-approved commercial banks. The availability of funds changes daily.
As of December 31, 2024, there was no balance outstanding related to these unsecured lines of credit. The Bank is a member of the AFX, through which it may either borrow or lend funds on an overnight or short-term basis with a group of pre-approved commercial banks. The availability of funds changes daily.
Financial Statements and Supplementary Data." We have identified four policies and estimates as being critical because they require management to make particularly difficult, subjective, and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions.
Financial Statements and Supplementary Data." We have identified three policies and estimates as being critical because they require management to make particularly difficult, subjective, and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions.
From the announcement of the Merger on July 25, 2023, through the end of the year, the combined company, legacy PacWest Bancorp and legacy Banc of California, Inc., sold assets totaling $6.1 billion and completed the paydown of $8.6 billion of high-cost liabilities, which improved the mix of earning assets and reduced the amount of higher-cost funding.
From the announcement of the Merger on July 25, 2023, through the end of 2024, the combined company, legacy PacWest Bancorp and legacy Banc of California, Inc., sold assets totaling $6.1 billion and completed the paydown of $8.6 billion of high-cost liabilities, which improved the mix of earning assets and reduced the amount of higher-cost funding.
The Bank is a member of the AFX, through which it may either borrow or lend funds on an overnight or short-term basis with a group of pre-approved commercial banks. The availability of funds changes daily. As of December 31, 2023, there was no outstanding balance through the AFX.
The Bank is a member of the AFX, through which it may either borrow or lend funds on an overnight or short-term basis with a group of pre-approved commercial banks. The availability of funds changes daily. As of December 31, 2024, there was no outstanding balance through the AFX.
Financial Statements and Supplementary Data.” Recent Accounting Pronouncements See Note 1. Nature of Operations and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data” for information on recent accounting pronouncements and their expected impact, if any, on our consolidated financial statements. 101
Financial Statements and Supplementary Data.” 102 Recent Accounting Pronouncements See Note 1. Nature of Operations and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data” for information on recent accounting pronouncements and their expected impact, if any, on our consolidated financial statements.
When we refer to the “parent” or the “holding company", we are referring to Banc of California, Inc., the parent company, on a stand-alone basis. When we refer to “we,” “us,” “our,” or the “Company”, we are referring to Banc of California, Inc. and its consolidated subsidiaries including the Bank, collectively.
When we refer to the “parent” or the “holding company," we are referring to Banc of California, Inc., the parent company, on a stand-alone basis. When we refer to “we,” “us,” “our,” or the “Company,” we are referring to Banc of California, Inc. and its consolidated subsidiaries including the Bank, collectively.
We determine whether a deferred tax asset is realizable based on facts and circumstances, including our current and projected future tax position, the historical level of our taxable income, and estimates of our future taxable income. In most cases, the realization of deferred tax assets is based on our future profitability.
We determine whether a deferred tax asset is realizable based on facts and circumstances, including our current and projected future tax position, the historical level of our taxable income, and estimates of our future taxable income. In most cases, the realization of DTAs is based on our future profitability.
At December 31, 2023, banks considered to be “well capitalized” must maintain a minimum Tier 1 leverage ratio of 5.00%, a minimum common equity Tier 1 risk-based capital ratio of 6.50%, a minimum Tier 1 risk-based capital ratio of 8.00%, and a minimum total risk-based capital ratio of 10.00%.
At December 31, 2024, banks considered to be “well capitalized” must maintain a minimum Tier 1 leverage ratio of 5.00%, a minimum common equity Tier 1 risk-based capital ratio of 6.50%, a minimum Tier 1 risk-based capital ratio of 8.00%, and a minimum total risk-based capital ratio of 10.00%.
At December 31, 2023, the Company and Bank were in compliance with the capital conservation buffer requirements. The Company and Bank elected the CECL 5-year regulatory transition guidance for calculating regulatory capital ratios and the December 31, 2023 ratios include this election.
At December 31, 2024, the Company and Bank were in compliance with the capital conservation buffer requirements. The Company and Bank elected the CECL 5-year regulatory transition guidance for calculating regulatory capital ratios and the December 31, 2024 ratios include this election.
The cost of total funds is calculated as annualized total interest expense divided by average total funds. 68 Net interest income is affected by changes in both interest rates and the amounts of average interest‑earning assets and interest‑bearing liabilities.
The cost of total funds is calculated as annualized total interest expense divided by average total funds. 71 Net interest income is affected by changes in both interest rates and the amounts of average interest‑earning assets and interest‑bearing liabilities.
Thus, the CECL methodology incorporates a broad range of information in developing credit loss estimates . For further information reg arding the calculation of the allowance for credit losses on loans and leases held for investment using the CECL methodology, see Note 1(j).
Thus, the CECL methodology incorporates a broad range of information in developing credit loss estimates . For further information reg arding the calculation of the ACL on loans and leases held for investment using the CECL methodology, see Note 1(j).
(2) Tangible common equity divided by common and equivalent shares outstanding. (3) Common and equivalent shares outstanding include non-voting common stock equivalents that are participating securities.
(2) Total common equity divided by common and equivalent shares outstanding. (3) Tangible common equity divided by common and equivalent shares outstanding. (4) Common and equivalent shares outstanding include non-voting common stock equivalents that are participating securities.
In addition to its secured lines of credit with the FHLB and FRBSF, the Bank also maintains unsecured lines of credit for the purpose of borrowing overnight funds, subject to availability, of $290.0 million in the aggregate with several correspondent banks. As of December 31, 2023, there was no balance outstanding related to these unsecured lines of credit.
In addition to its secured lines of credit with the FHLB and FRBSF, the Bank also maintains unsecured lines of credit for the purpose of borrowing overnight funds, subject to availability, of $265.0 million in the aggregate with several correspondent banks. As of December 31, 2024, there was no balance outstanding related to these unsecured lines of credit.
If we were to experience either reduced profitability or operating losses in a future period, the realization of our deferred tax assets may no longer be considered more likely than not and, accordingly, we could be required to record a valuation allowance on our deferred tax assets by charging earnings. 62 Non-GAAP Financial Measures We use certain non‑GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance.
If we were to experience either reduced profitability or operating losses in a future period, the realization of our DTAs may no longer be considered more likely than not and, accordingly, we could be required to record a valuation allowance on our DTAs by charging earnings. 64 Non-GAAP Financial Measures We use certain non‑GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance.
We use the following non-GAAP measures in this Form 10-K: • Return on average tangible common equity, tangible common equity to tangible assets ratio, and tangible book value per common share: Given that the use of these measures is prevalent among banking regulators, investors and analysts, we disclose them in addition to the related GAAP measures of return on average equity, equity to assets ratio, and book value per share, respectively.
We use the following non-GAAP measures in this Annual Report on Form 10-K: • Return on average tangible common equity, tangible common equity ratio, tangible book value per common share, adjusted return on average tangible common equity, adjusted net earnings, and adjusted return on average assets: Given that the use of these measures is prevalent among banking regulators, investors and analysts, we disclose them in addition to the related GAAP measures of return on average equity, equity to assets ratio, and book value per share, respectively.
From a sensitivity analysis perspective, changing key assumptions such as the macro-economic variable inputs from the economic forecasts, the reasonable and supportable forecast period, prepayment rates, loan segmentation, historical loss factors and/or periods, among others, would all change the outcome of the quantitative components of the allowance for credit losses.
From a sensitivity analysis perspective, changing key assumptions such as the macro-economic variable inputs from the economic forecasts, the reasonable and supportable forecast period, prepayment rates, loan segmentation, historical loss factors and/or periods, among others, would all change the outcome of the quantitative components of the ACL.
Inc. that is fixed rate at 4.375% until October 30, 2025 when it changes to a floating rate equal to a benchmark rate, which is expected to be 3-month Term SOFR plus 419.5 basis points. The margins on the 3-month term SOFR and Prime debentures range from 1.55% to 3.40%, while the margin on the 3-month EURIBOR debenture is 2.05%.
Inc. that is fixed rate at 4.375% until October 30, 2025 when it changes to a floating rate equal to 3-month Term SOFR plus a spread of 419.5 basis points. The margins on the 3-month term SOFR and Prime debentures range from 1.55% to 3.40%, while the margin on the 3-month EURIBOR debenture is 2.05%.
We have a management Asset/Liability Management Committee ("MALCO") that is comprised of members of senior management and is responsible for managing commitments to meet the needs of customers while achieving our financial objectives. MALCO meets regularly to review funding capacities, current and forecasted loan demand, and investment opportunities.
We have a Management Finance Committee ("MFC") that is comprised of members of senior management and is responsible for managing commitments to meet the needs of customers while achieving our financial objectives. MFC meets regularly to review funding capacities, current and forecasted loan demand, and investment opportunities.
This regulatory guidance allows an entity to add back to capital 100% of the capital impact from the day one CECL transition adjustment and 25% of subsequent increases to the allowance for credit losses through December 31, 2021. This cumulative amount will then be phased out of regulatory capital over the next three years from 2022 to 2024.
This regulatory guidance allows an entity to add back to capital 100% of the capital impact from the day one CECL transition adjustment and 25% of subsequent increases to the allowance for credit losses through December 31, 2021. This cumulative amount was phased out of regulatory capital evenly over the three years from 2022 to 2024.
The allowance for credit losses involves significant judgment on a number of matters including assessment of key credit risk characteristics, assignment of risk ratings, valuation of collateral, the determination of remaining expected life, incorporation of historical loss experience, and development and weighting of macroeconomic forecasts.
The ACL involves significant judgment on a number of matters including assessment of key credit risk characteristics, assignment of risk ratings, valuation of collateral, the determination of remaining expected life, incorporation of historical default and loss experience, and development and weighting of macroeconomic forecasts.
The use of different economic forecasts, whether based on different scenarios, the use of multiple or single scenarios, or updated economic forecasts and scenarios, can change the outcome of the calculations. In addition to the economic forecasts, there are numerous components and assumptions that are integral to the overall estimation of allowance for credit losses.
The use of different economic forecasts, whether based on different scenarios, the use of multiple or single scenarios, or updated economic forecasts and scenarios, can change the outcome of the calculations. In addition to the economic forecasts, there are numerous components and assumptions that are integral to the overall estimation of ACL.
These include the ability to borrow funds from time to time on a long‑term, short‑term, or overnight basis from the FHLB, the FRBSF, or other financial institutions. The maximum amount that the Bank could borrow under its secured credit line with the FHLB at December 31, 2023 was $5.3 billion, of which $5.1 billion was available on that date.
These include the ability to borrow funds from time to time on a long‑term, short‑term, or overnight basis from the FHLB, the FRBSF, or other financial institutions. The maximum amount that the Bank could borrow under its secured credit line with the FHLB at December 31, 2024 was $6.9 billion, of which $5.2 billion was available on that date.
Our liquidity policy includes guidelines, which are governed by the Company's Risk Appetite Statement, include the following metrics: Balance Sheet Liquidity Ratio (unencumbered liquid assets divided by the sum of deposits and borrowings), Brokered Deposits to Total Funding Ratio (wholesale deposits to total deposits plus borrowings), Total Borrowings to Total Funding Ratio (borrowings to total deposits and borrowings), Short-Term Non-Core Funding Ratio (retail time deposits of $250,000 or more that mature within one year, brokered deposits that mature within one year, listing service deposits that mature within one year, official checks, escrow and title company deposits, 1031 exchange accommodator deposits, Federal Funds purchased, and borrowings that mature within one year as a percentage of total assets) and the Wholesale Funding Ratio (wholesale deposits to total deposits and borrowings).
Our liquidity policy includes guidelines, which are governed by the Company's Risk Appetite Statement, which include the following metrics: Primary Liquidity Ratio (unencumbered liquid assets and the market value of unpledged AFS securities, net of a haircut, divided by total assets), Brokered Deposits to Total Funding Ratio (wholesale deposits to total deposits plus borrowings), Total Borrowings to Total Funding Ratio (borrowings to total deposits and borrowings), Short-Term Non-Core Funding Ratio (retail time deposits of $250,000 or more that mature within one year, brokered deposits that mature within one year, listing service deposits that mature within one year, official checks, escrow and title company deposits, 1031 exchange accommodator deposits, Federal Funds purchased, and borrowings that mature within one year as a percentage of total assets) and the Wholesale Funding Ratio (wholesale deposits and borrowings to total assets).
The maximum amount that the Bank could borrow under its secured credit line with the FRBSF at December 31, 2023 was $6.9 billion, all of which was available on that date. The FHLB secured credit line was collateralized by a blanket lien on $9.5 billion of certain qualifying loans and $20.3 million of securities.
The maximum amount that the Bank could borrow under its secured credit line with the FRBSF at December 31, 2024 was $6.3 billion, all of which was available on that date. The FHLB secured credit line was collateralized by a blanket lien on $10.5 billion of certain qualifying loans and $19.8 million of securities.
Our commercial loans and leases portfolio is diverse and generally includes various asset-secured loans, equipment-secured loans and leases, venture capital loans to support venture capital firms’ operations and the operations of entrepreneurial and venture-backed companies during the various phases of their early life cycles, warehouse loans and secured business loans.
Our commercial loans and leases portfolio is diverse and generally includes various asset-secured loans, equipment-secured loans and leases, venture capital loans to support venture capital firms’ operations and the operations of entrepreneurial and venture-backed companies during the various phases of their early life cycles, warehouse loans and secured business loans. Our loan origination process emphasizes credit quality.
The FRBSF secured credit line was collateralized by liens on $7.7 billion of qualifying loans $1.3 billion of securities. In addition to its secured lines of credit, the Bank also maintains unsecured lines of credit for the borrowing of overnight funds, subject to availability of $290.0 million in the aggregate with several correspondent banks.
The FRBSF secured credit line was collateralized by liens on $5.9 billion of qualifying loans and $1.5 billion of securities. In addition to its secured lines of credit, the Bank also maintains unsecured lines of credit for the borrowing of overnight funds, subject to availability of $265.0 million in the aggregate with several correspondent banks.
Treasury securities 4,968 — % 0.1 670,070 14 % 4.9 966,898 9 % 6.6 Total securities available-for-sale $ 2,346,864 100 % 5.9 $ 4,843,487 100 % 5.9 $ 10,694,458 100 % 4.8 Effective June 1, 2022, the Company transferred $2.3 billion in fair value of municipal securities, agency commercial MBS, private label commercial MBS, U.S.
Treasury securities — — % — 4,968 — % 0.1 670,070 14 % 4.9 Total securities available-for-sale $ 2,246,839 100 % 4.4 $ 2,346,864 100 % 5.9 $ 4,843,487 100 % 5.9 Effective June 1, 2022, the Company transferred $2.3 billion in fair value of municipal securities, agency commercial MBS, private label commercial MBS, U.S.
The add-back as of December 31, 2023 ranged from 0 basis points to 5 basis points for the capital ratios below.
The add-back as of December 31, 2024 ranged from 0 basis points to 3 basis points for the capital ratios below.
The "Provision for credit losses" on the consolidated statements of earnings (loss) is a combination of the provision for loan and lease losses, the provision for unfunded loan commitments, and the provision for held-to-maturity debt securities.
The "Provision for credit losses" on the consolidated statements of earnings (loss) is a combination of the provision for loan and lease losses, the provision for unfunded loan commitments, the provision for AFS debt securities, and the provision for HTM debt securities.
We use brokered deposits, the availability of which is uncertain and subject to competitive market forces and regulation, for liquidity management purposes. At December 31, 2023, brokered deposits totaled $4.6 billion, consisting of $1.1 billion of non-maturity brokered accounts and $3.5 billion of brokered time deposits.
We use brokered deposits, the availability of which is uncertain and subject to competitive market forces and regulation, for liquidity management purposes. At December 31, 2024, brokered deposits totaled $2.7 billion, consisting of $0.6 billion of non-maturity brokered accounts and $2.1 billion of brokered time deposits.
BAM provides customized investment advisory and asset management solutions. At December 31, 2023, total off-balance sheet client investment funds we re $0.6 billion of which $0.2 billion was man aged by BAM.
BAM provides customized investment advisory and asset management solutions. At December 31, 2024, total off-balance sheet client investment funds we re $1.5 billion of which $0.7 billion was man aged by BAM.
Our operating lease obligation for leased faci lities totaled $180.4 million, of which $39.8 million was due within one year. For further information regarding these items, see Note 10. Deposits , Note 11. Borrowings and Subordinated Debt, Note 8. Other Assets, Note 13 . Commitments and Contingencies, and Note 9.
Our operating lease obligation for leased facilities totaled $138.7 million, of which $31.9 million was due within one year. For further information regarding these items, see Note 10. Deposits , Note 11. Borrowings and Subordinated Debt, Note 8. Other Assets, Note 13 . Commitments and Contingencies, and Note 9.
The following table presents information on our borrowings as of the dates indicated: December 31, 2023 2022 2021 Weighted Weighted Weighted Average Average Average Borrowings Balance Rate Balance Rate Balance Rate (Dollars in thousands) Bank Term Funding Program $ 2,618,300 4.37 % $ — — % $ — — % Senior Notes 174,000 5.25 % — — % — — % Credit-linked notes 123,116 16.02 % 132,030 14.56 % — — % FHLB secured short-term advances — — % 1,270,000 4.62 % — — % AFX short-term borrowings — — % 250,000 4.68 % — — % FHLB unsecured overnight advance — — % 112,000 4.37 % — — % Total borrowings $ 2,915,416 4.92 % $ 1,764,030 5.36 % $ — — % Averages for the year: Total borrowings $ 7,068,826 5.90 % $ 961,601 2.67 % $ 231,099 0.27 % 91 The following table presents summary information on our subordinated debt as of the dates indicated: December 31, 2023 2022 2021 Weighted Weighted Weighted Average Average Average Subordinated Debt Balance Rate Balance Rate Balance Rate (Dollars in thousands) Gross subordinated debt: With no unamortized acquisition discount or unamortized issuance costs $ 152,582 8.08 % $ 135,055 7.01 % $ 135,055 2.58 % With unamortized acquisition discount or unamortized issuance costs 865,186 5.56 % 804,325 4.76 % 806,039 2.65 % Total gross subordinated debt 1,017,768 5.93 % 939,380 5.08 % 941,094 2.65 % Unamortized issuance costs (4,349) (4,866) — Unamortized acquisition discount (76,820) (67,427) (72,445) Net subordinated debt $ 936,599 $ 867,087 $ 868,649 Averages for the year: Net subordinated debt $ 875,621 6.70 % $ 863,883 4.59 % $ 733,163 3.61 % The subordinated debt is variable rate and based on 3-month Term SOFR or Prime plus a margin, except for: (a) one which is based on 3-month EURIBOR plus a margin, (b) $400 million of subordinated notes issued on April 30, 2021 that is fixed rate at 3.25% until May 1, 2026 when it changes to floating rate and resets quarterly at a benchmark rate plus 252 basis points, and (c) $75 million of subordinated notes from legacy Banc of California, Inc.
The following table presents information on our borrowings as of the dates indicated: December 31, 2024 2023 2022 Weighted Weighted Weighted Average Average Average Borrowings Balance Rate Balance Rate Balance Rate (Dollars in thousands) FHLB secured term advances $ 1,100,000 3.93 % $ — — % $ 1,270,000 4.62 % Senior Notes 174,000 5.25 % 174,000 5.25 % — — % Credit-linked notes 118,838 15.29 % 123,116 16.02 % 132,030 14.56 % Bank Term Funding Program — — % 2,618,300 4.37 % — — % AFX short-term borrowings — — % — — % 250,000 4.68 % FHLB unsecured overnight advance — — % — — % 112,000 4.37 % Total borrowings 1,392,838 5.06 % 2,915,416 4.92 % 1,764,030 5.36 % Acquisition discount on senior notes (1,024) (4,094) — Total borrowings, net $ 1,391,814 $ 2,911,322 $ 1,764,030 Averages for the year: Total borrowings, net $ 1,838,819 5.68 % $ 7,068,826 5.90 % $ 961,601 2.67 % 94 The following table presents summary information on our subordinated debt as of the dates indicated: December 31, 2024 2023 2022 Weighted Weighted Weighted Average Average Average Subordinated Debt Balance Rate Balance Rate Balance Rate (Dollars in thousands) Subordinated debt: With no unamortized acquisition discount or unamortized issuance costs $ 152,582 7.16 % $ 152,582 8.08 % $ 135,055 7.01 % With unamortized acquisition discount or unamortized issuance costs 863,420 5.18 % 865,186 5.56 % 804,325 4.76 % Total subordinated debt 1,016,002 5.48 % 1,017,768 5.93 % 939,380 5.08 % Unamortized issuance costs (3,815) (4,349) (4,866) Unamortized acquisition discount (70,264) (76,820) (67,427) Total subordinated debt, net $ 941,923 $ 936,599 $ 867,087 Averages for the year: Total subordinated debt, net $ 939,528 7.05 % $ 875,621 6.70 % $ 863,883 4.59 % The subordinated debt is variable rate and based on 3-month Term SOFR or Prime plus a margin, except for: (a) one which is based on 3-month EURIBOR plus a margin, (b) $400 million of subordinated notes issued on April 30, 2021 that is fixed rate at 3.25% until May 1, 2026 when it changes to floating rate and resets quarterly equal to 3-month Term SOFR plus a spread of 252 basis points, and (c) $75 million of subordinated notes from legacy Banc of California, Inc.
We completed the Merger to, among other things, enhance our scale and presence in California and augment and diversify our sources of revenue. For further information, see Note 2. Business Combinations. 58 Balance Sheet Repositioning In connection with the Merger, we also implemented our previously announced balance sheet repositioning strategy.
Final goodwill recognized relating to the Merger totaled $214.5 million. We completed the Merger to, among other things, enhance our scale and presence in California and augment and diversify our sources of revenue. For further information, see Note 2. Business Combinations. Balance Sheet Repositioning In connection with the Merger, we implemented our previously announced balance sheet repositioning strategy.
Dividends on the Series F preferred stock will not be declared, paid, or set aside for payment to the extent such act would cause us to fail to comply with applicable laws and regulations, including applicable FRB capital adequacy regulations and policies. Stock Repurchase Program On February 9, 2023, the legacy Banc of California, Inc.
Dividends on the Series F preferred stock will not be declared, paid, or set aside for payment to the extent such act would cause us to fail to comply with applicable laws and regulations, including applicable FRB capital adequacy regulations and policies.
Our obligations also include off-balance sheet arrangements consisting of loan commitments, of which only a portion is expected to be funded, and standby letters of credit. At December 31, 2023, our loan commitments and standby letters of credit were $5.6 billion and $252.6 million, respectively.
Our obligations also include off-balance sheet arrangements consisting of loan commitments, of which only a portion is expected to be funded, and standby letters of credit. At December 31, 2024, our loan commitments and standby letters of credit were $4.9 billion and $201.8 million, respectively.
The allowance for loan and lease losses attributable to real estate construction and land loans was $33.8 million and $52.3 million at December 31, 2023 and 2022. As ratios to real estate construction and land loans at those dates, these percentages were 1.07% and 1.26%.
The allowance for loan and lease losses attributable to real estate construction and land loans was $10.9 million and $33.8 million at December 31, 2024 and 2023. As ratios to real estate construction and land loans at those dates, these percentages were 0.34% and 1.07%.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Banc of California, Inc., a Maryland corporation, was incorporated in March 2002 and serves as the holding company for its wholly owned subsidiary, Banc of California (the “Bank”), a California state-chartered bank and member of the FRB.
Overview Banc of California, Inc., a Maryland corporation, was incorporated in March 2002 and serves as the holding company for its wholly owned subsidiary, Banc of California (the “Bank”), a California state-chartered bank and member of the FRB.
The Bank is a relationship-based community bank focused on providing business banking and treasury management services to small, middle-market, and venture-backed businesses. The Bank offers a broad range of loan and lease and deposit products and services through full-service branches throughout California and in Durham, North Carolina and Denver, Colorado, and loan production offices around the country.
The Bank is a premier relationship-based business bank, providing banking and treasury management services to small-, middle-market, and venture-backed businesses. The Bank offers a broad range of loan and deposit products and services through full-service branches throughout California and in Denver, Colorado, and Durham, North Carolina, as well as through regional offices nationwide.
At December 31, 2022, total off-balance sheet client investment funds were $1.4 billion, of which $0.9 billion was managed by BAM. 90 Borrowings and Subordinated Debt The Bank has various available lines of credit.
At December 31, 2023, total off-balance sheet client investment funds were $0.6 billion, of which $0.2 billion was managed by BAM. 93 Borrowings and Subordinated Debt The Bank has various available lines of credit.
Securities Held-to-Maturity The following table presents the composition and durations of our securities held-to-maturity as of the dates indicated: December 31, 2023 December 31, 2022 Amortized % of Duration Amortized % of Duration Security Type Cost Total (in years) Cost Total (in years) (Dollars in thousands) Municipal securities $ 1,247,310 55 % 8.1 1,243,443 55 % 9.0 Agency commercial MBS 433,827 19 % 6.8 427,411 19 % 7.5 Private label commercial MBS 350,493 15 % 6.3 345,825 15 % 7.1 U.S.
Securities Held-to-Maturity The following table presents the composition and durations of our HTM securities as of the dates indicated: December 31, 2024 December 31, 2023 Amortized % of Duration Amortized % of Duration Security Type Cost Total (in years) Cost Total (in years) (Dollars in thousands) Municipal securities $ 1,251,364 55 % 8.0 1,247,310 55 % 8.1 Agency commercial MBS 440,476 19 % 5.9 433,827 19 % 6.8 Private label commercial MBS 355,342 15 % 5.6 350,493 15 % 6.3 U.S.
(2) See "- Non-GAAP Financial Measures." 66 2023 Compared to 2022 Net loss available to common and equivalent stockholders for the year ended December 31, 2023 was $1.9 billion , or $22.71 per diluted share , compared to net earnings available to common stockholders for the year ended December 31, 2022 of $404.3 million , or $5.14 per diluted share.
(2) See "- Non-GAAP Financial Measures." 69 2024 Compared to 2023 Net earnings available to common and equivalent stockholders for the year ended December 31, 2024 was $87.1 million , or $0.52 per diluted share , compared to net loss available to common stockholders for the year ended December 31, 2023 of $1.9 billion , or $22.71 per diluted share.
The changes during 2023 in the portfolio classes comprising these portfolio segments reflected the following: • Commercial real estate mortgage loans increased by 31% to $5.0 billion or 20% of total loans and leases held for investment at December 31, 2023 from $3.8 billion or 13% at December 31, 2022.
The changes during 2024 in the portfolio classes comprising these portfolio segments reflected the following: • Commercial real estate mortgage loans decreased by 9% to $4.6 billion or 19% of total loans and leases held for investment at December 31, 2024 from $5.0 billion or 20% at December 31, 2023.
At December 31, 2023, after completion of the Merger and balance sheet repositioning strategy, the Bank was in compliance with all of its funding concentration liquidity guidelines. Holding Company Liquidity Banc of California, Inc. acts as a source of financial strength for the Bank which can also include being a source of liquidity.
At December 31, 2024, the Bank was in compliance with all of its funding concentration liquidity guidelines. 101 Holding Company Liquidity Banc of California, Inc. acts as a source of financial strength for the Bank which can also include being a source of liquidity.
At December 31, 2023, the Company had total liabilities of $35.1 billion , including total deposits of $30.4 billion and borrowings of $2.9 billion , compared to $37.3 billion of total liabilities, including $33.9 billion of total deposits and $1.8 billion borrowings at December 31, 2022.
At December 31, 2024, the Company had total liabilities of $30.0 billion, including total deposits of $27.2 billion and borrowings of $1.4 billion, compared to $35.1 billion of total liabilities, including $30.4 billion of total deposits and $2.9 billion borrowings at December 31, 2023.
This assists management with better understanding changes in the calculated ACL from period to period and helps us to conclude that the estimated ACL is reasonable and appropriate at each reporting date. Business Combinations Business combinations are accounted for using the acquisition method of accounting under ASC Topic 805, Business Combinations.
This assists management with better understanding changes in the calculated ACL from period to period and helps us to conclude that the estimated ACL is reasonable and appropriate at each reporting date. Goodwill and Other Intangible Assets Goodwill and other intangible assets arise from the acquisition method of accounting for business combinations.
At December 31, 2022, brokered deposits totaled $4.9 billion, consisting of $2.6 billion of non-maturity brokered accounts and $2.3 billion of brokered time deposits.
At December 31, 2023, brokered deposits totaled $4.6 billion, consisting of $1.1 billion of non-maturity brokered accounts and $3.5 billion of brokered time deposits.
At December 31, 2023, noninterest-bearing deposits totaled $7.8 billion, or 26% of total deposits and interest-bearing deposits totaled $22.6 billion, or 74% of total deposits. Our deposit base is also diversified by client type. As of December 31, 2023, no individual deposit relationship represented more than 10% of our total deposits .
At December 31, 2024, noninterest-bearing deposits totaled $7.7 billion, or 28% of total deposits and interest-bearing deposits totaled $19.5 billion, or 72% of total deposits. Our deposit base is also diversified by client type. As of December 31, 2024, no individual deposit relationship represented more than 10% of our total deposits.
At December 31, 2023, $131.0 million of the trust preferred securities were included in the Company's Tier I capital and $790.8 million were included in Tier II capital. For a more detailed discussion of our subordinated debt, see "Item 1.
As of December 31, 2024, the carrying value of subordinated debt totaled $941.9 million. At December 31, 2024, $131.0 million of the trust preferred securities were included in the Company's Tier I capital and $796.0 million were included in Tier II capital. For a more detailed discussion of our subordinated debt, see "Item 1.
Certain events and circumstances could have a negative effect on the estimated fair value of the reporting units, including declines in business performance, increases in credit losses, as well as deterioration in economic or market conditions and adverse regulatory or legislative changes, which could result in a material impairment charge to earnings in a future period.
Certain events and circumstances could have a negative effect on the estimated fair value of the reporting units, including declines in business performance, increases in credit losses, as well as deterioration in economic or market conditions and adverse regulatory or legislative changes, which could result in a material impairment charge to earnings in a future period. 63 Deferred Tax Assets and Liabilities We are subject to the income tax laws of the U.S., its states, and the municipalities in which we operate.
The subordinated debt is all long-term, with maturities ranging from October 2030 to July 2037. 92 Credit Quality Nonperforming Assets, Classified Loans and Leases, and Special Mention Loans and Leases The following table presents information on our nonperforming assets, classified loans and leases, and special mention loans and leases as of the dates indicated: December 31, 2023 2022 2021 (Dollars in thousands) Nonaccrual loans and leases held for investment $ 62,527 $ 103,778 $ 61,174 Accruing loans contractually past due 90 days or more 11,750 — — Foreclosed assets, net 7,394 5,022 12,843 Total nonperforming assets $ 81,671 $ 108,800 $ 74,017 Classified loans and leases held for investment $ 228,417 $ 118,271 $ 116,104 Special mention loans and leases held for investment $ 513,312 $ 566,259 $ 391,611 Nonaccrual loans and leases held for investment to loans and leases held for investment 0.29 % 0.36 % 0.27 % Nonperforming assets to loans and leases held for investment and foreclosed assets, net 0.32 % 0.38 % 0.32 % Allowance for credit losses to nonaccrual loans and leases held for investment 497.80 % 281.18 % 447.31 % Classified loans and leases held for investment to loans and leases held for investment 0.90 % 0.41 % 0.51 % Special mention loans and leases held for investment to loans and leases held for investment 2.01 % 1.98 % 1.71 % Nonaccrual Loans and Leases Held for Investment During 2023, nonaccrual loans and leases held for investment decreased by $41.3 million to $62.5 million at December 31, 2023 due mainly to transfers to loans held for sale of $44.0 million, principal payments and other reductions of $98.2 million, charge-offs of $25.6 million, and transfers to accrual status of $5.0 million, offset partially by $131.6 million in additions.
The subordinated debt is all long-term, with maturities ranging from October 2030 to July 2037. 95 Credit Quality Nonperforming Assets, Classified Loans and Leases, and Special Mention Loans and Leases The following table presents information on our nonperforming assets, classified loans and leases, and special mention loans and leases as of the dates indicated: December 31, 2024 2023 2022 (Dollars in thousands) Nonaccrual loans and leases held for investment $ 189,605 $ 62,527 $ 103,778 Accruing loans contractually past due 90 days or more — 11,750 — Total nonperforming loans and leases 189,605 74,277 103,778 Foreclosed assets, net 9,734 7,394 5,022 Total nonperforming assets $ 199,339 $ 81,671 $ 108,800 Classified loans and leases held for investment $ 563,502 $ 228,417 $ 118,271 Special mention loans and leases held for investment $ 1,097,315 $ 513,312 $ 566,259 Nonaccrual loans and leases held for investment to loans and leases held for investment 0.80 % 0.29 % 0.36 % Nonperforming assets to loans and leases held for investment and foreclosed assets, net 0.84 % 0.32 % 0.38 % Allowance for credit losses to nonaccrual loans and leases held for investment 141.57 % 497.80 % 281.18 % Classified loans and leases held for investment to loans and leases held for investment 2.37 % 0.90 % 0.41 % Special mention loans and leases held for investment to loans and leases held for investment 4.61 % 2.01 % 1.98 % Nonaccrual Loans and Leases Held for Investment During 2024, nonperforming loans and leases held for investment increased by $115.3 million to $189.6 million at December 31, 2024 due mainly to $245.5 million in additions, offset partially by charge-offs of $36.7 million, transfers to loans held for sale of $19.6 million , transfers to accrual status of $15.3 million, and principal payments and other reductions of $58.5 million.
Allowance for Credit Losses on Loans and Leases Held for Investment The ACL is estimated on a quarterly basis and represents management's estimate of current expected credit losses over the remaining expected life of the Company's financial assets measured at amortized cost, including loans and leases and certain lending-related commitments.
These policies relate to the allowance for credit losses on loans and leases held for investment, the carrying value of goodwill and other intangible assets, and the realization of deferred tax assets and liabilities. 62 Allowance for Credit Losses on Loans and Leases Held for Investment The ACL is estimated on a quarterly basis and represents management's estimate of current expected credit losses over the remaining expected life of the Company's financial assets measured at amortized cost, including loans and leases and certain lending-related commitments.
Allowance for Credit Losses on Loans and Leases Held for Investment The allowance for credit losses on loans and leases held for investment is the combination of the allowance for loan and lease losses and the reserve for unfunded loan commitments.
Quantitative and Qualitative Disclosures About Market Risk." Allowance for Credit Losses on Loans and Leases Held for Investment The ACL on loans and leases held for investment is the combination of the allowance for loan and lease losses and the reserve for unfunded loan commitments.
Excluding non-deductible goodwill impairment, the effective income tax rate was 26.2% fo r the year ended December 31, 2023. The lower e ffective tax rate in 2023 was due mainly to the effect of the non-deductible goodwill impairment.
Income Taxes The effective tax rates were 24.8% and 14.1% for the years ended December 31, 2024 and 2023. The lower e ffective tax rate in 2023 was due mainly to the effect of the non-deductible goodwill impairment. Excluding non-deductible goodwill impairment, the effective income tax rate was 26.2% fo r the year ended December 31, 2023.
Financial Statements and Supplementary Data.” 74 Balance Sheet Analysis Securities Available-for-Sale The following table presents the composition and durations of our securities available-for-sale as of the dates indicated: December 31, 2023 2022 2021 Fair % of Duration Fair % of Duration Fair % of Duration Security Type Value Total (in years) Value Total (in years) Value Total (in years) (Dollars in thousands) Agency residential MBS $ 1,187,609 51 % 8.2 $ 2,242,042 46 % 7.6 $ 2,898,210 27 % 2.9 Agency residential CMOs 284,334 12 % 4.4 457,063 9 % 4.4 1,038,134 10 % 3.2 Corporate debt securities 267,232 11 % 1.9 311,905 7 % 2.7 527,094 5 % 4.2 Agency commercial MBS 253,306 11 % 3.4 487,606 10 % 4.7 1,688,967 16 % 5.2 Private label residential CMOs 158,412 7 % 7.7 166,724 4 % 5.6 264,417 2 % 3.9 Collateralized loan obligations 108,416 5 % 0.1 102,261 2 % — 385,362 4 % 0.1 Municipal securities 28,083 1 % 4.5 339,326 7 % 5.6 2,315,968 22 % 7.7 Private label commercial MBS 20,813 1 % 2.1 26,827 1 % 2.3 450,217 4 % 7.5 Asset-backed securities 19,952 1 % — 22,413 — % — 129,547 1 % 0.1 SBA securities 13,739 — % 3.2 17,250 — % 2.5 29,644 — % 3.7 U.S.
Financial Statements and Supplementary Data.” 76 Balance Sheet Analysis Securities Available-for-Sale The following table presents the composition and durations of our AFS securities as of the dates indicated: December 31, 2024 2023 2022 Fair % of Duration Fair % of Duration Fair % of Duration Security Type Value Total (in years) Value Total (in years) Value Total (in years) (Dollars in thousands) Agency residential MBS $ 861,840 38 % 7.6 $ 1,187,609 51 % 8.2 $ 2,242,042 46 % 7.6 Agency residential CMOs 446,631 20 % 3.2 284,334 12 % 4.4 457,063 9 % 4.4 Private label residential CMOs 316,910 14 % 3.9 158,412 7 % 7.7 166,724 4 % 5.6 Collateralized loan obligations 279,416 12 % 0.3 108,416 5 % 0.1 102,261 2 % — Corporate debt securities 257,712 12 % 1.4 267,232 11 % 1.9 311,905 7 % 2.7 Agency commercial MBS 51,564 2 % 1.9 253,306 11 % 3.4 487,606 10 % 4.7 Asset-backed securities 15,600 1 % 0.1 19,952 1 % — 22,413 — % — Private label commercial MBS 12,372 1 % 3.6 20,813 1 % 2.1 26,827 1 % 2.3 SBA securities 4,200 — % 3.2 13,739 — % 3.2 17,250 — % 2.5 Municipal securities 594 — % 3.7 28,083 1 % 4.5 339,326 7 % 5.6 U.S.
As of December 31, 2023 , FDIC-insured deposits represented approximately 76% of total deposits, up from 48% as of December 31, 2022. The Bank’s spot deposit rates were 2.69% at December 31, 2023 , up from 1.71% at December 31, 2022.
As of December 31, 2024 , FDIC-insured deposits represented approximately 72% of total deposits, down from 76% as of December 31, 2023. The Bank’s spot deposit rates were 2.13% at December 31, 2024 , down from 2.69% at December 31, 2023.
The lower balance was attributable primarily to lower equity fund loans, which decreased by $693.7 million to $662.7 million at December 31, 2023 from $1.4 billion at December 31, 2022 attributable to less venture capital activity during 2023 than 2022. • Other commercial loans increased by 92% to $2.1 billion or 8% of total loans and leases held for investment at December 31, 2023 from $1.1 billion or 4% at December 31, 2022.
The increased balance was attributable primarily to higher equity fund loans, which increased by $83.9 million to $746.7 million at December 31, 2024 from $662.7 million at December 31, 2023 attributable to more venture capital activity during 2024 than 2023. • Other commercial loans increased by 48% to $3.2 billion or 13% of total loans and leases held for investment at December 31, 2024 from $2.1 billion or 8% at December 31, 2023.
Foreclosed Assets The following table presents foreclosed assets (primarily OREO) by property type as of the dates indicated: December 31, Property Type 2023 2022 2021 (In thousands) Commercial real estate $ — $ — $ 12,594 Single-family residential 7,394 5,022 — Total OREO, net 7,394 5,022 12,594 Other foreclosed assets — — 249 Total foreclosed assets $ 7,394 $ 5,022 $ 12,843 During 2023, foreclosed assets increased by $2.4 million to $7.4 million at December 31, 2023 due to sales of $16.6 million , offset partially by additions of $20.9 million . 94 Classified and Special Mention Loans and Leases Held for Investment The following table presents the credit risk ratings of our loans and leases held for investment, net of deferred fees, as of the dates indicated: December 31, Loan and Lease Credit Risk Ratings 2023 2022 2021 (In thousands) Pass $ 24,747,958 $ 27,924,599 $ 22,433,833 Special mention 513,312 566,259 391,611 Classified 228,417 118,271 116,104 Total loans and leases held for investment, net of deferred fees $ 25,489,687 $ 28,609,129 $ 22,941,548 Classified and special mention loans and leases fluctuate from period to period as a result of loan repayments and downgrades or upgrades from our ongoing active portfolio management.
Foreclosed Assets The following table presents foreclosed assets (primarily OREO) by property type as of the dates indicated: December 31, Property Type 2024 2023 2022 (In thousands) Single-family residential $ 9,714 $ 7,394 $ 5,022 Total OREO, net 9,714 7,394 5,022 Other foreclosed assets 20 — — Total foreclosed assets $ 9,734 $ 7,394 $ 5,022 During 2024, foreclosed assets increased by $2.3 million to $9.7 million at December 31, 2024 due mainly to transfers from loans of $20.0 million, offset partially by sales of $16.1 million. 97 Classified and Special Mention Loans and Leases Held for Investment The following table presents the credit risk ratings of our loans and leases held for investment as of the dates indicated: December 31, Loan and Lease Credit Risk Ratings 2024 2023 2022 (In thousands) Pass $ 22,120,846 $ 24,747,958 $ 27,924,599 Special mention 1,097,315 513,312 566,259 Classified 563,502 228,417 118,271 Total loans and leases held for investment $ 23,781,663 $ 25,489,687 $ 28,609,129 Classified and special mention loans and leases fluctuate from period to period as a result of loan repayments and downgrades or upgrades from our ongoing active portfolio management.
The $2.3 billion decrease in net earnings available to common and equivalent stockholders was due mainly to a goodwill impairment charge of $1.38 billion in the first quarter of 2023, lower net interest income of $543.6 million attributable to a lower NIM, lower noninterest income of $523.1 million, higher operating expense of $200.0 million, a higher provision for credit losses of $27.5 million, and higher preferred stock dividends of $20.4 million, offset partially by lower income tax expense of $456.2 million.
The $2.0 billion increase in net earnings available to common and equivalent stockholders was due mainly to a goodwill impairment charge of $1.4 billion in the first quarter of 2023, higher net interest income of $178.9 million attributable to a higher NIM, higher noninterest income of $525.4 million, lower operating expense of $132.9 million, a lower provision for credit losses of $9.2 million, offset partially by higher income tax expense of $354.0 million.
The notes are linked to the credit risk of an approximately $2.48 billion reference pool of previously purchased single-family residential mortgage loans. The notes were issued in five classes with a blended rate on the notes of SOFR plus 11%. The transaction results in a lower risk-weighting on the reference pool of loans for regulatory capital purposes.
The notes are linked to the credit risk of a reference pool of previously purchased single-family residential mortgage loans, which had an approximate balance of $2.66 billion at the transaction date. The notes were issued in five classes with a blended rate on the notes of SOFR plus 11%.
(3) Annualized adjusted net (loss) earnings available to common and equivalent stockholders divided by average tangible common equity. 63 Tangible Common Equity to Tangible Assets and December 31, Tangible Book Value Per Common Share 2023 2022 2021 (Dollars in thousands, except per share data) Stockholders’ equity $ 3,390,765 $ 3,950,531 $ 3,999,630 Less: Preferred stock 498,516 498,516 — Total common equity 2,892,249 3,452,015 3,999,630 Less: Intangible assets 364,104 1,408,117 1,450,693 Tangible common equity $ 2,528,145 $ 2,043,898 $ 2,548,937 Total assets $ 38,534,064 $ 41,228,936 $ 40,443,344 Less: Intangible assets 364,104 1,408,117 1,450,693 Tangible assets $ 38,169,960 $ 39,820,819 $ 38,992,651 Total stockholders' equity to total assets ratio 8.80 % 9.58 % 9.89 % Tangible common equity to tangible assets ratio 6.62 % 5.13 % 6.54 % Book value per common share (1)(4) $ 17.12 $ 43.71 $ 50.91 Tangible book value per common share (2)(4) $ 14.96 $ 25.88 $ 32.45 Common and equivalent shares outstanding (3)(4) 168,959,063 78,973,869 78,555,291 _________________________________________________________________ (1) Total common equity divided by common and equivalent shares outstanding.
(3) Adjusted net earnings (loss) available to common and equivalent stockholders divided by average tangible common equity. 65 Tangible Common Equity Ratio and December 31, Tangible Book Value Per Common Share 2024 2023 2022 (Dollars in thousands, except per share data) Stockholders’ equity $ 3,499,949 $ 3,390,765 $ 3,950,531 Less: Preferred stock 498,516 498,516 498,516 Total common equity 3,001,433 2,892,249 3,452,015 Less: Goodwill and intangible assets 347,465 364,104 1,408,117 Tangible common equity $ 2,653,968 $ 2,528,145 $ 2,043,898 Total assets $ 33,542,864 $ 38,534,064 $ 41,228,936 Less: Goodwill and intangible assets 347,465 364,104 1,408,117 Tangible assets $ 33,195,399 $ 38,169,960 $ 39,820,819 Total stockholders' equity to total assets ratio 10.43 % 8.80 % 9.58 % Tangible common equity ratio (1) 7.99 % 6.62 % 5.13 % Book value per common share (2)(5) $ 17.78 $ 17.12 $ 43.71 Tangible book value per common share (3)(5) $ 15.72 $ 14.96 $ 25.88 Common and equivalent shares outstanding (4)(5) 168,825,656 168,959,063 78,973,869 _________________________________________________________________ (1) Tangible common equity divided by tangible assets.
Our lending activities include real estate mortgage loans, real estate construction and land loans, commercial loans and leases, and a small amount of consumer lending. Our commercial real estate loans and real estate construction loans are secured by a range of property types.
Loan and Lease Production We actively seek new lending opportunities under an array of lending products. Our lending activities include real estate mortgage loans, real estate construction and land loans, commercial loans and leases, and a small amount of consumer lending. Our commercial real estate loans and real estate construction loans are secured by a range of property types.
Average wholesale and brokered time deposits increased by $1.5 billion to $2.8 billion for 2022 from $1.3 billion for 2021. 70 Provision for Credit Losses The following table sets forth the details of the provision for credit losses on loans and leases held for investment and held-to-maturity debt securities as well as information regarding credit quality metrics for the years indicated: Year Ended December 31, Increase Increase 2023 (Decrease) 2022 (Decrease) 2021 (Dollars in thousands) Provision For Credit Losses: Addition to (reduction in) allowance for loan and lease losses $ 113,500 $ 108,500 $ 5,000 $ 154,500 $ (149,500) Addition to (reduction in) reserve for unfunded loan commitments (61,500) (79,500) 18,000 30,500 (12,500) Total loan-related provision 52,000 29,000 23,000 185,000 (162,000) Addition to allowance for held-to-maturity securities — (1,500) 1,500 1,500 — Total provision for credit losses $ 52,000 $ 27,500 $ 24,500 $ 186,500 $ (162,000) Credit Quality Metrics: Net charge-offs (recoveries) on loans and leases held for investment (1) $ 58,168 $ 53,336 $ 4,832 $ 6,715 $ (1,883) Net charge-offs (recoveries) to average loans and leases 0.23 % 0.02 % (0.01) % At year-end: Allowance for credit losses $ 311,258 $ 19,455 $ 291,803 $ 18,168 $ 273,635 Allowance for credit losses to loans and leases held for investment 1.22 % 1.02 % 1.19 % Allowance for credit losses to nonaccrual loans and leases held for investment 497.80 % 281.18 % 447.31 % Nonaccrual loans and leases held for investment $ 62,527 $ (41,251) $ 103,778 $ 42,604 $ 61,174 Nonaccrual loans and leases held for investment to loans and leases held for investment 0.25 % 0.36 % 0.27 % ______________________ (1) See "- Balance Sheet Analysis - Allowance for Credit Losses on Loans and Leases Held for Investment " for detail of charge-offs and recoveries by loan portfolio segment, class, and subclass for the years presented.
Average borrowings decreased by $5.2 billion for the year ended December 31, 2024 compared to 2023 due to paydown of borrowings in connection with the balance sheet repositioning completed due to the Merger. 73 Provision for Credit Losses The following table sets forth the details of the provision for credit losses on loans and leases held for investment, AFS debt securities, and held-to-maturity debt securities as well as information regarding credit quality metrics for the years indicated: Year Ended December 31, Increase Increase 2024 (Decrease) 2023 (Decrease) 2022 (Dollars in thousands) Provision For Credit Losses: Addition to allowance for loan and lease losses $ 43,500 $ (70,000) $ 113,500 $ 108,500 $ 5,000 (Reduction in) addition to reserve for unfunded loan commitments (500) 61,000 (61,500) (79,500) 18,000 Total loan-related provision 43,000 (9,000) 52,000 29,000 23,000 Reduction in allowance for available-for-sale securities (199) (199) — — — Addition to allowance for held-to-maturity securities — — — (1,500) 1,500 Total provision for credit losses $ 42,801 $ (9,199) $ 52,000 $ 27,500 $ 24,500 Credit Quality Metrics: Net charge-offs on loans and leases held for investment (1) $ 85,827 $ 27,659 $ 58,168 $ 53,336 $ 4,832 Net charge-offs to average loans and leases 0.35 % 0.23 % 0.02 % At year-end: Allowance for credit losses $ 268,431 $ (42,827) $ 311,258 $ 19,455 $ 291,803 Allowance for credit losses to loans and leases held for investment 1.13 % 1.22 % 1.02 % Allowance for credit losses to nonaccrual loans and leases held for investment 141.57 % 497.80 % 281.18 % Nonaccrual loans and leases held for investment $ 189,605 $ 127,078 $ 62,527 $ (41,251) $ 103,778 Nonaccrual loans and leases held for investment to loans and leases held for investment 0.80 % 0.25 % 0.36 % ______________________ (1) See "- Balance Sheet Analysis - Allowance for Credit Losses on Loans and Leases Held for Investment " for detail of charge-offs and recoveries by loan portfolio segment, class, and subclass for the years presented.
We regularly review loans and leases to determine whether there has been any deterioration in credit quality resulting from borrower operations or changes in collateral value or other factors which may affect collectability of our loans and leases.
For originated and acquired credit-deteriorated loans, a provision for credit losses may be recorded to reflect credit deterioration after the origination date or after the acquisition date, respectively. 61 We regularly review loans and leases to determine whether there has been any deterioration in credit quality resulting from borrower operations or changes in collateral value or other factors which may affect collectability of our loans and leases.
Financial Statements and Supplementary Data." In calculating our allowance for credit losses, we continued to consider: (a) inflation rates, higher interest rates, the risk of a recession, technical or otherwise, and global conflicts as well as any trailing impact of the COVID-19 pandemic in our process for estimating expected credit losses given the changes in economic forecasts and assumptions along with (b) the uncertainty related to the severity and duration of the economic consequences resulting from such events.
Financial Statements and Supplementary Data." In calculating our ACL, we continued to consider higher inflation rates, the Federal Reserve's monetary policy, the risk of a recession, technical or otherwise, extreme weather events, and the impact of various geopolitical risks on the economy in our process for estimating expected credit losses given the changes in economic forecasts and assumptions along with the uncertainty related to the severity and duration of the economic consequences resulting from such events.
The decrease in income tax expense was due primarily to lower pre-tax earnings in 2022 compared to 2021. 67 Net Interest Income The following table summarizes the distribution of average assets, liabilities, and stockholders’ equity, as well as interest income and yields earned on average interest‑earning assets and interest expense and rates paid on average interest‑bearing liabilities, presented on a tax equivalent basis, for the years indicated: Year Ended December 31, 2023 2022 2021 Interest Yields Interest Yields Interest Yields Average Income/ and Average Income/ and Average Income/ and Balance Expense Rates Balance Expense Rates Balance Expense Rates (Dollars in thousands) ASSETS: Loans and leases (1)(2)(3) $ 25,330,351 $ 1,498,701 5.92 % $ 26,044,463 $ 1,320,449 5.07 % $ 19,762,220 $ 1,003,027 5.08 % Investment securities (3) 6,827,059 174,996 2.56 % 9,120,717 215,624 2.36 % 7,486,009 162,102 2.17 % Deposits in financial institutions 5,746,858 299,647 5.21 % 2,185,585 34,158 1.56 % 5,692,338 8,804 0.15 % Total interest‑earning assets (1) 37,904,268 1,973,344 5.21 % 37,350,765 1,570,231 4.20 % 32,940,567 1,173,933 3.56 % Other assets 2,389,112 3,130,816 2,577,921 Total assets $ 40,293,380 $ 40,481,581 $ 35,518,488 LIABILITIES AND STOCKHOLDERS’ EQUITY: Interest checking $ 6,992,888 220,735 3.16 % $ 6,851,831 66,494 0.97 % $ 7,198,646 8,709 0.12 % Money market 6,724,296 190,027 2.83 % 10,601,028 95,376 0.90 % 8,843,122 12,993 0.15 % Savings 1,051,117 30,978 2.95 % 639,720 188 0.03 % 606,741 148 0.02 % Time 6,840,920 306,683 4.48 % 2,540,426 38,391 1.51 % 1,471,963 5,958 0.40 % Total interest-bearing deposits 21,609,221 748,423 3.46 % 20,633,005 200,449 0.97 % 18,120,472 27,808 0.15 % Borrowings 7,068,826 416,744 5.90 % 961,601 25,645 2.67 % 231,099 623 0.27 % Subordinated debt 875,621 58,705 6.70 % 863,883 39,633 4.59 % 733,163 26,474 3.61 % Total interest‑bearing liabilities 29,553,668 1,223,872 4.14 % 22,458,489 265,727 1.18 % 19,084,734 54,905 0.29 % Noninterest‑bearing demand deposits 7,072,334 13,601,766 12,110,193 Other liabilities 672,950 568,293 515,542 Total liabilities 37,298,952 36,628,548 31,710,469 Stockholders’ equity 2,994,428 3,853,033 3,808,019 Total liabilities and stockholders' equity $ 40,293,380 $ 40,481,581 $ 35,518,488 Net interest income (1) $ 749,472 $ 1,304,504 $ 1,119,028 Net interest rate spread (1) 1.07 % 3.02 % 3.27 % Net interest margin (1) 1.98 % 3.49 % 3.40 % Total deposits (4) $ 28,681,555 $ 748,423 2.61 % $ 34,234,771 $ 200,449 0.59 % $ 30,230,665 $ 27,808 0.09 % Total funds (5) $ 36,626,002 $ 1,223,872 3.34 % $ 36,060,255 $ 265,727 0.74 % $ 31,194,927 $ 54,905 0.18 % _____________________ (1) Tax equivalent.
The increase in income tax expense was due primarily to higher pre-tax earnings incurred in 2024 compared to pre-tax loss in 2023. 70 Net Interest Income The following table summarizes the distribution of average assets, liabilities, and stockholders’ equity, as well as interest income and yields earned on average interest‑earning assets and interest expense and rates paid on average interest‑bearing liabilities, presented on a tax equivalent basis, for the years indicated: Year Ended December 31, 2024 2023 2022 Interest Yields Interest Yields Interest Yields Average Income/ and Average Income/ and Average Income/ and Balance Expense Rates Balance Expense Rates Balance Expense Rates (Dollars in thousands) ASSETS: Loans and leases (1)(2)(3) $ 24,569,650 $ 1,501,534 6.11 % $ 25,330,351 $ 1,498,701 5.92 % $ 26,044,463 $ 1,320,449 5.07 % Investment securities (3) 4,686,615 140,794 3.00 % 6,827,059 174,996 2.56 % 9,120,717 215,624 2.36 % Deposits in financial institutions 3,226,658 170,377 5.28 % 5,746,858 299,647 5.21 % 2,185,585 34,158 1.56 % Total interest‑earning assets (1) 32,482,923 1,812,705 5.58 % 37,904,268 1,973,344 5.21 % 37,350,765 1,570,231 4.20 % Other assets 2,850,565 2,389,112 3,130,816 Total assets $ 35,333,488 $ 40,293,380 $ 40,481,581 LIABILITIES AND STOCKHOLDERS’ EQUITY: Interest checking $ 7,714,920 240,913 3.12 % $ 6,992,888 220,735 3.16 % $ 6,851,831 66,494 0.97 % Money market 5,164,566 138,176 2.68 % 6,724,296 190,027 2.83 % 10,601,028 95,376 0.90 % Savings 2,005,513 66,421 3.31 % 1,051,117 30,978 2.95 % 639,720 188 0.03 % Time 5,714,821 270,474 4.73 % 6,840,920 306,683 4.48 % 2,540,426 38,391 1.51 % Total interest-bearing deposits 20,599,820 715,984 3.48 % 21,609,221 748,423 3.46 % 20,633,005 200,449 0.97 % Borrowings 1,838,819 104,398 5.68 % 7,068,826 416,744 5.90 % 961,601 25,645 2.67 % Subordinated debt 939,528 66,273 7.05 % 875,621 58,705 6.70 % 863,883 39,633 4.59 % Total interest‑bearing liabilities 23,378,167 886,655 3.79 % 29,553,668 1,223,872 4.14 % 22,458,489 265,727 1.18 % Noninterest‑bearing demand deposits 7,829,976 7,072,334 13,601,766 Other liabilities 693,981 672,950 568,293 Total liabilities 31,902,124 37,298,952 36,628,548 Stockholders’ equity 3,431,364 2,994,428 3,853,033 Total liabilities and stockholders' equity $ 35,333,488 $ 40,293,380 $ 40,481,581 Net interest income (1) $ 926,050 $ 749,472 $ 1,304,504 Net interest rate spread (1) 1.79 % 1.07 % 3.02 % Net interest margin (1) 2.85 % 1.98 % 3.49 % Total deposits (4) $ 28,429,796 $ 715,984 2.52 % $ 28,681,555 $ 748,423 2.61 % $ 34,234,771 $ 200,449 0.59 % Total funds (5) $ 31,208,143 $ 886,655 2.84 % $ 36,626,002 $ 1,223,872 3.34 % $ 36,060,255 $ 265,727 0.74 % _____________________ (1) Tax equivalent.
The provisions for credit losses on our loans and leases held for investment and held-to-maturity debt securities are based on our allowance methodologies and are expenses that, in our judgment, are required to maintain an adequate allowance for credit losses for both assets held at amortized cost. 2023 Compared to 2022 The provision for credit losses increased by $27.5 million to a provision of $52.0 million for the year ended December 31, 2023 compared to a provision of $24.5 million for the year ended December 31, 2022.
The provisions for credit losses on our loans and leases held for investment, AFS debt securities, and HTM debt securities are based on our allowance methodologies and are expenses that, in our judgment, are required to maintain an appropriate ACL for these assets. 2024 Compared to 2023 The provision for credit losses decreased by $9.2 million to a provision of $42.8 million for the year ended December 31, 2024 compared to a provision of $52.0 million for the year ended December 31, 2023.
Rates on tax-exempt securities are contractual rates and are not presented on a tax-equivalent basis. 77 Loans and Leases Held for Investment The following table presents the composition of our total loans and leases held for investment, net of deferred fees, by loan portfolio segment, class, and subclass as of the dates indicated: December 31, 2023 2022 2021 % of % of % of Balance Total Balance Total Balance Total (Dollars in thousands) Real Estate Mortgage: Commercial real estate $ 3,874,804 15 % $ 2,537,629 9 % $ 2,545,517 11 % SBA program 632,110 3 % 621,187 2 % 623,579 3 % Hotel 519,583 2 % 688,015 2 % 593,203 3 % Total commercial real estate mortgage 5,026,497 20 % 3,846,831 13 % 3,762,299 17 % Multi-family 6,025,179 23 % 5,607,865 20 % 3,916,317 17 % Residential mortgage 2,754,176 11 % 2,902,088 10 % 2,449,693 11 % Investor-owned residential 2,234,531 9 % 2,886,828 10 % 1,050,411 4 % Residential renovation 71,602 — % 486,712 2 % 422,445 2 % Total other residential real estate 5,060,309 20 % 6,275,628 22 % 3,922,549 17 % Total real estate mortgage 16,111,985 63 % 15,730,324 55 % 11,601,165 51 % Real Estate Construction and Land: Commercial 759,585 3 % 898,592 3 % 832,591 4 % Residential 2,399,684 9 % 3,253,580 11 % 2,182,091 9 % Total real estate construction and land (1) 3,159,269 12 % 4,152,172 14 % 3,014,682 13 % Total real estate 19,271,254 75 % 19,882,496 69 % 14,615,847 64 % Commercial: Lender finance 486,966 2 % 3,172,814 11 % 2,617,712 11 % Equipment finance 736,275 3 % 908,141 3 % 681,266 3 % Premium finance 732,162 3 % 861,006 3 % 586,267 3 % Other asset-based 233,682 1 % 198,248 1 % 190,232 1 % Total asset-based 2,189,085 9 % 5,140,209 18 % 4,075,477 18 % Equity fund loans 662,732 3 % 1,356,428 5 % 1,707,143 7 % Venture lending 783,630 3 % 676,874 2 % 613,450 3 % Total venture capital 1,446,362 6 % 2,033,302 7 % 2,320,593 10 % Secured business loans 614,120 2 % 347,660 1 % 486,088 2 % Warehouse lending 554,940 2 % — — % — — % Paycheck Protection Program 8,183 — % 10,192 — % 156,699 1 % Other lending 952,617 4 % 750,599 3 % 829,194 3 % Total other commercial 2,129,860 8 % 1,108,451 4 % 1,471,981 6 % Total commercial 5,765,307 23 % 8,281,962 29 % 7,868,051 34 % Consumer 453,126 2 % 444,671 2 % 457,650 2 % Total loans and leases held for investment, net of deferred fees $ 25,489,687 100 % $ 28,609,129 100 % $ 22,941,548 100 % Total unfunded loan commitments $ 5,578,907 $ 11,110,264 $ 9,006,350 ________________________________ (1) Includes $228.9 million, $153.5 million, and $151.8 million, at December 31, 2023, 2022, and 2021 of land acquisition and development loans. 78 Our loan portfolio segments of real estate mortgage loans, real estate construction and land loans, and commercial loans comprised 63%, 12%, and 23% of our total loans and leases held for investment at December 31, 2023, compared to 55%, 14%, and 29% at December 31, 2022, respectively.
Rates on tax-exempt securities are contractual rates and are not presented on a tax-equivalent basis. 79 Loans and Leases Held for Investment The following table presents the composition of our total loans and leases held for investment by loan portfolio segment, class, and subclass as of the dates indicated: December 31, 2024 2023 2022 % of % of % of Balance Total Balance Total Balance Total (Dollars in thousands) Real Estate Mortgage: Commercial real estate $ 3,540,612 15 % $ 3,874,804 15 % $ 2,537,629 9 % SBA program 630,412 2 % 632,110 3 % 621,187 2 % Hotel 407,748 2 % 519,583 2 % 688,015 2 % Total commercial real estate mortgage 4,578,772 19 % 5,026,497 20 % 3,846,831 13 % Multi-family 6,041,713 26 % 6,025,179 23 % 5,607,865 20 % Residential mortgage 2,682,667 11 % 2,754,176 11 % 2,902,088 10 % Investor-owned residential 102,778 1 % 2,234,531 9 % 2,886,828 10 % Residential renovation 21,729 — % 71,602 — % 486,712 2 % Total other residential real estate mortgage 2,807,174 12 % 5,060,309 20 % 6,275,628 22 % Total real estate mortgage 13,427,659 57 % 16,111,985 63 % 15,730,324 55 % Real Estate Construction and Land: Commercial 799,131 3 % 759,585 3 % 898,592 3 % Residential 2,373,162 10 % 2,399,684 9 % 3,253,580 11 % Total real estate construction and land (1) 3,172,293 13 % 3,159,269 12 % 4,152,172 14 % Total real estate 16,599,952 70 % 19,271,254 75 % 19,882,496 69 % Commercial: Lender finance 727,913 3 % 486,966 2 % 3,172,814 11 % Equipment finance 621,888 3 % 736,275 3 % 908,141 3 % Premium finance 546,393 2 % 732,162 3 % 861,006 3 % Other asset-based 191,775 1 % 233,682 1 % 198,248 1 % Total asset-based 2,087,969 9 % 2,189,085 9 % 5,140,209 18 % Equity fund loans 746,655 3 % 662,732 3 % 1,356,428 5 % Venture lending 791,121 3 % 783,630 3 % 676,874 2 % Total venture capital 1,537,776 6 % 1,446,362 6 % 2,033,302 7 % Warehouse lending 1,473,074 6 % 554,940 2 % — — % Secured business loans 756,612 3 % 614,120 2 % 347,660 1 % Other lending 923,398 4 % 960,800 4 % 760,791 3 % Total other commercial 3,153,084 13 % 2,129,860 8 % 1,108,451 4 % Total commercial 6,778,829 28 % 5,765,307 23 % 8,281,962 29 % Consumer 402,882 2 % 453,126 2 % 444,671 2 % Total loans and leases held for investment $ 23,781,663 100 % $ 25,489,687 100 % $ 28,609,129 100 % Total unfunded loan commitments $ 4,887,690 $ 5,578,907 $ 11,110,264 ________________________________ (1) Includes $223.9 million, $228.9 million, and $153.5 million, at December 31, 2024, 2023, and 2022 of land acquisition and development loans. 80 Our loan portfolio segments of real estate mortgage loans, real estate construction and land loans, and commercial loans comprised 57%, 13%, and 28% of our total loans and leases held for investment at December 31, 2024, compared to 63%, 12%, and 23% at December 31, 2023, respectively.
During the year ended December 31, 2023, the Company's secondary liquidity increased by $5.0 billion to $12.0 billion at December 31, 2023 due mainly to an increase in available secured borrowing capacity with the FRBSF of $4.5 billion and an increase in available secured borrowing capacity with the FHLB of $555.7 million.
During the year ended December 31, 2024, the Company's secondary liquidity decreased by $453.3 million to $11.5 billion at December 31, 2024 due mainly to a decrease in available secured borrowing capacity with the FRBSF of $620.7 million, offset partially by an increase in available secured borrowing capacity with the FHLB of $167.4 million.
This change was due primarily to the real estate mortgage portfolio segment going from net recoveries of $5.6 million in 2021 to net charge-offs of $3.3 million in 2022. 85 The following table presents charge-offs by loan portfolio segment, class, and subclass for the years indicated: Year Ended December 31, Allowance for Credit Losses Charge-offs 2023 2022 2021 (In thousands) Real Estate Mortgage: Commercial real estate $ 13,956 $ 2,258 $ — SBA program 339 417 622 Hotel — 55 343 Total commercial real estate mortgage 14,295 2,730 965 Multi-family — — 56 Residential mortgage — 81 — Investor-owned residential 21,844 814 114 Residential renovation 11,231 1,431 — Total other residential real estate 33,075 2,326 114 Total real estate mortgage 47,370 5,056 1,135 Real Estate Construction and Land: Commercial — — 775 Residential — — — Total real estate construction and land — — 775 Total real estate 47,370 5,056 1,910 Commercial: Lender finance 150 — 232 Equipment finance — — — Other asset-based — 750 — Premium finance 60 — — Total asset-based 210 750 232 Equity fund loans — — — Venture lending 5,013 940 620 Total venture capital 5,013 940 620 Secured business loans 658 479 210 Warehouse lending — — — Paycheck Protection Program — — — Other lending 7,780 4,648 6,236 Total other commercial 8,438 5,127 6,446 Total commercial 13,661 6,817 7,298 Consumer 2,397 2,164 1,507 Total charge-offs $ 63,428 $ 14,037 $ 10,715 Commercial real estate gross charge-offs increased due to charge-offs related to loans secured by office buildings and investor-owned residential and residential renovation gross charge-offs increased in 2023 due to charge-offs related to Civic loans as this portfolio becomes more seasoned and a portion of the current year charge-offs relate to the transfer of nonaccrual loans to held for sale. 86 The following table presents recoveries by loan portfolio segment, class, and subclass for the years indicated: Year Ended December 31, Allowance for Credit Losses Recoveries 2023 2022 2021 (In thousands) Real Estate Mortgage: Commercial real estate $ — $ 1,204 $ 5,384 SBA program 281 281 697 Hotel — — — Total commercial real estate mortgage 281 1,485 6,081 Multi-family — 4 — Residential mortgage 20 234 658 Investor-owned residential 175 25 28 Residential renovation 409 — — Total other residential real estate 604 259 686 Total real estate mortgage 885 1,748 6,767 Real Estate Construction and Land: Commercial — 178 — Residential — — — Total real estate construction and land — 178 — Total real estate 885 1,926 6,767 Commercial: Lender finance 324 — 3 Equipment finance — 163 263 Other asset-based 279 539 453 Premium finance 1 — — Total asset-based 604 702 719 Equity fund loans — — — Venture lending 2,073 923 404 Total venture capital 2,073 923 404 Secured business loans 30 178 2,402 Warehouse lending — — — Paycheck Protection Program — — — Other lending 1,418 5,360 2,186 Total other commercial 1,448 5,538 4,588 Total commercial 4,125 7,163 5,711 Consumer 250 116 120 Total recoveries $ 5,260 $ 9,205 $ 12,598 87 The following table presents the allowance for loan and lease losses on loans and leases held for investment by loan portfolio segment as of the dates indicated: Allocation of the Allowance for Loan and Lease Losses by Portfolio Segment Real Estate Real Estate Construction Mortgage and Land Commercial Consumer Total (Dollars in thousands) December 31, 2023 Allowance for loan and lease losses $ 186,827 $ 33,830 $ 45,156 $ 15,874 $ 281,687 % of loans to total loans 63 % 12 % 23 % 2 % 100 % December 31, 2022 Allowance for loan and lease losses $ 87,309 $ 52,320 $ 52,849 $ 8,254 $ 200,732 % of loans to total loans 55 % 14 % 29 % 2 % 100 % December 31, 2021 Allowance for loan and lease losses $ 98,053 $ 45,079 $ 48,718 $ 8,714 $ 200,564 % of loans to total loans 51 % 13 % 34 % 2 % 100 % The allowance for loan and lease losses attributable to real estate mortgage loans was $186.8 million and $87.3 million at December 31, 2023 and 2022.
This change was due primarily to net charge-offs in the real estate mortgage portfolio segment increasing to $46.5 million in 2023 from $3.3 million in 2022. 88 The following table presents charge-offs by loan portfolio segment, class, and subclass for the years indicated: Year Ended December 31, Allowance for Credit Losses Charge-offs 2024 2023 2022 (In thousands) Real Estate Mortgage: Commercial real estate $ 22,433 $ 13,956 $ 2,258 SBA program 1,154 339 417 Hotel — — 55 Total commercial real estate mortgage 23,587 14,295 2,730 Multi-family — — — Residential mortgage 242 — 81 Investor-owned residential 38,064 21,844 814 Residential renovation 1,224 11,231 1,431 Total other residential real estate mortgage 39,530 33,075 2,326 Total real estate mortgage 63,117 47,370 5,056 Real Estate Construction and Land: Commercial — — — Residential — — — Total real estate construction and land — — — Total real estate 63,117 47,370 5,056 Commercial: Lender finance — 150 — Equipment finance — — — Premium finance — 60 — Other asset-based 92 — 750 Total asset-based 92 210 750 Equity fund loans — — — Venture lending 16,414 5,013 940 Total venture capital 16,414 5,013 940 Secured business loans 4,490 658 479 Warehouse lending — — — Other lending 5,326 7,780 4,648 Total other commercial 9,816 8,438 5,127 Total commercial 26,322 13,661 6,817 Consumer 5,504 2,397 2,164 Total charge-offs $ 94,943 $ 63,428 $ 14,037 Charge-offs increased by $31.5 million to $94.9 million in 2024 from $63.4 million in 2023 due mainly to increases of $16.2 million in the investor-owned residential real estate mortgage subclass, $11.4 million in the venture lending subclass, and $8.5 million in the commercial real estate mortgage subclass, offset partially by a decrease of $10.0 million in the residential renovation real estate mortgage subclass. 89 The following table presents recoveries by loan portfolio segment, class, and subclass for the years indicated: Year Ended December 31, Allowance for Credit Losses Recoveries 2024 2023 2022 (In thousands) Real Estate Mortgage: Commercial real estate $ 389 $ — $ 1,204 SBA program 480 281 281 Hotel — — — Total commercial real estate mortgage 869 281 1,485 Multi-family 500 — 4 Residential mortgage 8 20 234 Investor-owned residential 724 175 25 Residential renovation 665 409 — Total other residential real estate mortgage 1,397 604 259 Total real estate mortgage 2,766 885 1,748 Real Estate Construction and Land: Commercial — — 178 Residential — — — Total real estate construction and land — — 178 Total real estate 2,766 885 1,926 Commercial: Lender finance — 324 — Equipment finance — — 163 Premium finance — 1 — Other asset-based 113 279 539 Total asset-based 113 604 702 Equity fund loans — — — Venture lending 1,500 2,073 923 Total venture capital 1,500 2,073 923 Secured business loans 504 30 178 Warehouse lending — — — Other lending 3,594 1,418 5,360 Total other commercial 4,098 1,448 5,538 Total commercial 5,711 4,125 7,163 Consumer 639 250 116 Total recoveries $ 9,116 $ 5,260 $ 9,205 90 The following table presents the allowance for loan and lease losses on loans and leases held for investment by loan portfolio segment as of the dates indicated: Allocation of the Allowance for Loan and Lease Losses by Portfolio Segment Real Estate Real Estate Construction Mortgage and Land Commercial Consumer Total (Dollars in thousands) December 31, 2024 Allowance for loan and lease losses $ 145,754 $ 10,940 $ 67,833 $ 14,833 $ 239,360 % of loans to total loans 57 % 13 % 28 % 2 % 100 % December 31, 2023 Allowance for loan and lease losses $ 186,827 $ 33,830 $ 45,156 $ 15,874 $ 281,687 % of loans to total loans 63 % 12 % 23 % 2 % 100 % December 31, 2022 Allowance for loan and lease losses $ 87,309 $ 52,320 $ 52,849 $ 8,254 $ 200,732 % of loans to total loans 55 % 14 % 29 % 2 % 100 % The allowance for loan and lease losses attributable to real estate mortgage loans was $145.8 million and $186.8 million at December 31, 2024 and 2023.
Key Performance Indicators Among other factors, our operating results generally depend on the following key performance indicators: The Level of Net Interest Income Net interest income is the excess of interest earned on our interest-earning assets over the interest paid on our interest-bearing liabilities.
As of December 31, 2024, the balance sheet repositioning contemplated as a result of the Merger has been largely completed. 60 Key Performance Indicators Among other factors, our operating results generally depend on the following key performance indicators: The Level of Net Interest Income Net interest income is the excess of interest earned on our interest-earning assets over the interest paid on our interest-bearing liabilities.
It is possible that others, given the same information, may at any point in time reach different conclusions that could result in a significant impact to the Company's financial statements. 83 The following table presents information regarding the allowance for credit losses on loans and leases held for investment as of the dates indicated: December 31, Allowance for Credit Losses Data 2023 2022 2021 (Dollars in thousands) Allowance for loan and lease losses $ 281,687 $ 200,732 $ 200,564 Reserve for unfunded loan commitments 29,571 91,071 73,071 Total allowance for credit losses $ 311,258 $ 291,803 $ 273,635 Allowance for credit losses to loans and leases held for investment 1.22 % 1.02 % 1.19 % Allowance for credit losses to nonaccrual loans and leases held for investment 497.8 % 281.2 % 447.3 % The following table presents the changes in our allowance for credit losses on loans and leases held for investment for the years indicated: Year Ended December 31, Allowance for Credit Losses Roll Forward 2023 2022 2021 (Dollars in thousands) Balance, beginning of year $ 291,803 $ 273,635 $ 433,752 Initial allowance on acquired PCD loans 25,623 — — Provision for credit losses: Addition to (reduction in) allowance for loan and lease losses 113,500 5,000 (149,500) Addition to (reduction in) addition to reserve for unfunded loan commitments (61,500) 18,000 (12,500) Total provision for credit losses 52,000 23,000 (162,000) Loans and leases charged off: Real estate mortgage (47,370) (5,056) (1,135) Real estate construction and land — — (775) Commercial (13,661) (6,817) (7,298) Consumer (2,397) (2,164) (1,507) Total loans and leases charged off (63,428) (14,037) (10,715) Recoveries on loans charged off: Real estate mortgage 885 1,748 6,767 Real estate construction and land — 178 — Commercial 4,125 7,163 5,711 Consumer 250 116 120 Total recoveries on loans charged off 5,260 9,205 12,598 Net (charge-offs) recoveries (58,168) (4,832) 1,883 Balance, end of year $ 311,258 $ 291,803 $ 273,635 Net charge-offs (recoveries) to average loans and leases 0.23 % 0.02 % (0.01) % 84 The following table presents net charge-offs, average loan balance, and ratio of net charge-offs to average loans by loan portfolio segment for the years indicated: Year Ended December 31, Ratio of Net Charge-offs to Average Loans 2023 2022 2021 (Dollars in thousands) Real Estate Mortgage: Net charge-offs (recoveries) $ 46,485 $ 3,308 $ (5,632) Average loan balance $ 14,723,618 $ 13,811,880 $ 9,119,963 Ratio of net charge-offs (recoveries) to average loans 0.32 % 0.02 % (0.06) % Real Estate Construction and Land: Net charge-offs (recoveries) $ — $ (178) $ 775 Average loan balance $ 3,677,785 $ 3,527,334 $ 3,396,145 Ratio of net charge-offs to average loans — % (0.01) % 0.02 % Commercial: Net (recoveries) charge-offs $ 9,536 $ (346) $ 1,587 Average loan balance $ 5,717,669 $ 8,202,539 $ 7,310,253 Ratio of net charge-offs to average loans 0.17 % — % 0.02 % Consumer: Net charge-offs $ 2,147 $ 2,048 $ 1,387 Average loan balance $ 416,797 $ 471,032 $ 377,927 Ratio of net charge-offs to average loans 0.52 % 0.43 % 0.37 % Net charge-offs in 2023 were $58.2 million compared to net charge-offs of $4.8 million in 2022.
The following table presents information regarding the allowance for credit losses on loans and leases held for investment as of the dates indicated: December 31, Allowance for Credit Losses Data 2024 2023 2022 (Dollars in thousands) Allowance for loan and lease losses $ 239,360 $ 281,687 $ 200,732 Reserve for unfunded loan commitments 29,071 29,571 91,071 Total allowance for credit losses $ 268,431 $ 311,258 $ 291,803 Allowance for credit losses to loans and leases held for investment 1.13 % 1.22 % 1.02 % Allowance for credit losses to nonaccrual loans and leases held for investment 141.6 % 497.8 % 281.2 % 86 The following table presents the changes in our allowance for credit losses on loans and leases held for investment for the years indicated: Year Ended December 31, Allowance for Credit Losses Roll Forward 2024 2023 2022 (Dollars in thousands) Balance, beginning of year $ 311,258 $ 291,803 $ 273,635 Initial allowance on acquired PCD loans — 25,623 — Provision for credit losses: Addition to allowance for loan and lease losses 43,500 113,500 5,000 (Reduction in) addition to reserve for unfunded loan commitments (500) (61,500) 18,000 Total provision for credit losses 43,000 52,000 23,000 Loans and leases charged off: Real estate mortgage (63,117) (47,370) (5,056) Real estate construction and land — — — Commercial (26,322) (13,661) (6,817) Consumer (5,504) (2,397) (2,164) Total loans and leases charged off (94,943) (63,428) (14,037) Recoveries on loans charged off: Real estate mortgage 2,766 885 1,748 Real estate construction and land — — 178 Commercial 5,711 4,125 7,163 Consumer 639 250 116 Total recoveries on loans charged off 9,116 5,260 9,205 Net charge-offs (85,827) (58,168) (4,832) Balance, end of year $ 268,431 $ 311,258 $ 291,803 Net charge-offs to average loans and leases 0.35 % 0.23 % 0.02 % 87 The following table presents net charge-offs, average loan balance, and ratio of net charge-offs to average loans by loan portfolio segment for the years indicated: Year Ended December 31, Ratio of Net Charge-offs to Average Loans 2024 2023 2022 (Dollars in thousands) Real Estate Mortgage: Net charge-offs $ 60,351 $ 46,485 $ 3,308 Average loan balance $ 14,483,010 $ 14,723,618 $ 13,811,880 Ratio of net charge-offs to average loans 0.42 % 0.32 % 0.02 % Real Estate Construction and Land: Net recoveries $ — $ — $ (178) Average loan balance $ 3,278,784 $ 3,677,785 $ 3,527,334 Ratio of net recoveries to average loans — % — % (0.01) % Commercial: Net charge-offs (recoveries) $ 20,611 $ 9,536 $ (346) Average loan balance $ 6,111,197 $ 5,717,669 $ 8,202,539 Ratio of net charge-offs to average loans 0.34 % 0.17 % — % Consumer: Net charge-offs $ 4,865 $ 2,147 $ 2,048 Average loan balance $ 427,221 $ 416,797 $ 471,032 Ratio of net charge-offs to average loans 1.14 % 0.52 % 0.43 % Net charge-offs in 2024 were $85.8 million compared to net charge-offs of $58.2 million in 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe following table presents the projected change in the Company’s economic value of equity at December 31, 2023 and net interest income over the next twelve months, that would occur upon an immediate change in interest rates, but without giving effect to any steps that management might take to counteract that change: Change in Interest Rates in Basis Points (bps) (1) Economic Value of Equity Net Interest Income Amount Percentage Amount Percentage December 31, 2023 Amount Change Change Amount Change Change (Dollars in millions) +200 bps $ 5,588 $ (468) (7.7) % $ 991 $ (47) (4.5) % +100 bps $ 5,826 $ (230) (3.8) % $ 1,009 $ (29) (2.8) % 0 bps $ 6,056 $ 1,038 -100 bps $ 6,281 $ 225 3.7 % $ 1,064 $ 26 2.5 % -200 bps $ 6,491 $ 435 7.2 % $ 1,099 $ 61 5.9 % ____________________ (1) Assumes an instantaneous uniform change in interest rates at all maturities and no rate shock has a rate lower than zero percent. 104
Biggest changeThe following table presents the projected change in the Company’s economic value of equity at December 31, 2024 and net interest income over the next twelve months, that would occur upon an immediate change in interest rates, but without giving effect to any steps that management might take to counteract that change: Change in Interest Rates in Basis Points (bps) (1) Economic Value of Equity Net Interest Income Amount Percentage Amount Percentage December 31, 2024 Amount Change Change Amount Change Change (Dollars in millions) +100 bps $ 5,550 $ 35 0.6 % $ 1,090 $ 6 0.6 % 0 bps $ 5,515 $ 1,084 -100 bps $ 5,809 $ 294 5.3 % $ 1,075 $ (9) (0.8) % ____________________ (1) Assumes an instantaneous uniform change in interest rates at all maturities and no rate shock has a rate lower than zero percent. 105
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk - Foreign Currency Exchange We enter into foreign exchange contracts with our clients and counterparty banks primarily for the purpose of offsetting or hedging clients' foreign currency exposures arising out of commercial transactions, and we enter into cross currency swaps and foreign exchange forward contracts to hedge exposures to loans and debt instruments denominated in foreign currencies.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk - Foreign Currency Exposure We enter into foreign exchange contracts with our clients and counterparty banks primarily for the purpose of offsetting or hedging clients' foreign currency exposures arising out of commercial transactions, and we enter into cross currency swaps and foreign exchange forward contracts to hedge exposures to loans and debt instruments denominated in foreign currencies.
In addition to our annual review of our asset liability management policy, our Board of Directors periodically reviews the interest rate risk policy limits. 103 Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities.
In addition to our annual review of our asset liability management policy, our Board of Directors periodically reviews the interest rate risk policy limits. Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities.
Treasuries, U.S. Prime Rate, SOFR, and LIBOR. Since our earnings are primarily dependent on our ability to generate net interest income, we focus on actively monitoring and managing the effects of adverse changes in interest rates on our net interest income.
Treasuries, U.S. Prime Rate, and SOFR. Since our earnings are primarily dependent on our ability to generate net interest income, we focus on actively monitoring and managing the effects of adverse changes in interest rates on our net interest income.
We have experienced and will continue to experience fluctuations in our net earnings as a result of transaction gains or losses related to revaluing certain asset and liability balances that are denominated in currencies other than the U.S. Dollar and the derivatives that hedge those exposures. As of December 31, 2023, the U.S.
We have experienced and will continue to experience fluctuations in our net earnings as a result of transaction gains or losses related to revaluing certain asset and liability balances that are denominated in currencies other than the U.S. Dollar and the derivatives that hedge those exposures. As of December 31, 2024, the U.S.
This IRR Model assesses the changes in NII and MVE that would occur in response to an instantaneous and sustained increase and decrease in market interest rates of +-100, +-200, +-300, and +400 basis points. This model is an IRR management tool, and the results are not necessarily an indication of our future net interest income.
This IRR Model assesses the changes in NII and EVE that would occur in response to an instantaneous and sustained increase and decrease in market interest rates of +-100, +-200, +-300, and +400 basis points. This model is an IRR management tool, and the results are not necessarily an indication of our future net interest income.
We believe our ALCO Policy IRR Limits are consistent with prevailing practice in the regional banking industry. We use a balance sheet simulation model (the "IRR Model") to estimate changes in NII and MVE that would result from immediate and sustained changes in interest rates as of the measurement date.
We believe our ALCO Policy IRR Limits are consistent with prevailing practice in the regional banking industry. We use a balance sheet simulation model (the "IRR Model") to estimate changes in NII and EVE that would result from immediate and sustained changes in interest rates as of the measurement date.
The IRR Model has inherent limitations and the model's results are based on a given set of rate changes and assumptions at a single point in time. The IRR Model is updated monthly and the IRR Model results are reported to MALCO and the Finance Committee of the Company's Board of Directors at each monthly or quarterly meeting, as applicable.
The IRR Model has inherent limitations and the model's results are based on a given set of rate changes and assumptions at a single point in time. The IRR Model is updated monthly, and the IRR Model results are reported to MFC and the Finance Committee of the Company's Board of Directors at each monthly or quarterly meeting, as applicable.
The pre-established IRR Limits are recommended by management, determined based on analytical review and available peer data published by regulatory agencies about the IRR Limits utilized by other regional banks, and documented in the Company's ALCO Policy. The ALCO Policy is approved by MALCO and the Finance Committee of the Board of Directors annually.
The pre-established IRR Limits are recommended by management, determined based on analytical review and available peer data published by regulatory agencies about the IRR Limits utilized by other regional banks, and documented in the Company's ALCO Policy. The ALCO Policy is approved by MFC and the Finance Committee of the Board of Directors annually.
As part of our attempt to manage our exposure to changes in interest rates and comply with applicable regulations, we have established asset/liability committees to monitor our interest rate risk.
How We Measure Our Risk of Interest Rate Changes. As part of our attempt to manage our exposure to changes in interest rates and comply with applicable regulations, we have established asset/liability committees to monitor our interest rate risk.
In monitoring interest rate risk we continually analyze and manage assets and liabilities based on their payment streams and interest rates, the timing of their maturities and/or prepayments, and their sensitivity to actual or potential changes in market interest rates. MALCO is comprised of select members of senior management.
In monitoring interest rate risk, we continually analyze and manage assets and liabilities based on their payment streams and interest rates, the timing of their maturities and/or prepayments, and their sensitivity to actual or potential changes in market interest rates. 103 The MFC is comprised of select members of senior management.
At December 31, 2023, our interest rate risk profile is slightly “liability sensitive”, as compared to a “neutral” interest rate risk profile position as of December 31, 2022.
At December 31, 2024, our interest rate risk profile is “neutral”, as compared to a slightly “liability sensitive” interest rate risk profile position as of December 31, 2023.
The Company also has a Finance Committee of the Boards of Directors of the Company and the Bank (together with MALCO, the “ALCOs”).
The Company also has a Finance Committee of the Boards of Directors of the Company and the Bank (together with MFC, the “ALCOs”).
On a monthly basis, we measure our IRR position using two methods: (i) Net Interest Income ("NII") simulation analysis and (ii) Market Value of Equity ("MVE") modeling. MALCO and the Finance Committee of the Company's Board of Directors review the results of these analyses at least quarterly.
On a monthly basis, we measure our IRR position using two methods: (i) Net Interest Income simulation analysis and (ii) Economic Value of Equity modeling. The Management Finance Committee and the Finance Committee of the Company's Board of Directors review the results of these analyses at least quarterly.
The Finance Committee of the Board reviews the results of our interest rate risk modeling quarterly to ensure that we have appropriately measured our interest rate risk, mitigated our exposures appropriately and any residual risk is acceptable.
The Finance Committee of the Boards of Directors of the Company and the Bank reviews the results of our interest rate risk modeling quarterly to ensure that we have appropriately measured our interest rate risk, mitigated our exposures appropriately and any residual risk is acceptable.
Management of our interest rate risk is overseen by the Finance Committee of the Board, which delegates the day to day management of interest rate risk to the MALCO. MALCO ensures that the Bank is following the appropriate and current regulatory guidance in the formulation and implementation of our interest rate risk program.
Management of our interest rate risk is overseen by the Finance Committee of the Boards of Directors of the Company and Bank, which delegates the day-to-day management of interest rate risk to the MFC. MFC ensures that the Bank is following the appropriate and current regulatory guidance in the formulation and implementation of our interest rate risk program.
Dollar notional amounts of loans receivable and subordinated debt payable denominated in a foreign currency were $8.8 million and $28.5 million, and the U.S. Dollar notional amounts of derivatives outstanding to hedge this foreign currency exposures were $8.8 million and $28.5 million.
Dollar notional amounts of loans receivable and subordinated debt payable denominated in a foreign currency were $7.2 million and $26.7 million, and the U.S. Dollar notional amounts of derivatives outstanding to hedge these foreign currency exposures were $7.7 million and $28.5 million.
We recognized a foreign currency translation net loss of $0.3 million for the year ended December 31, 2023 and net gains of $2.0 million, and $0.3 million for the years ended December 31, 2022 and 2021, respectively. Asset/Liability Management and Interest Rate Sensitivity Interest Rate Risk - Company Governance.
We recognized foreign currency translation net losses of $1.0 million for the year ended December 31, 2024 and $0.3 million for the year ended December 31, 2023, and a net gain of $2.0 million for the year ended December 31, 2022. Asset/Liability Management and Interest Rate Sensitivity Interest Rate Risk - Company Governance.
Under NII at Risk, the impact on net interest income from changes in interest rates on interest-earning assets and interest-bearing liabilities is modeled utilizing various assumptions for assets, liabilities, and derivatives. EVE measures the period end present value of assets minus the present value of liabilities.
Under NII at Risk, the impact on net interest income from changes in interest rates on interest-earning assets and interest-bearing liabilities is modeled utilizing various assumptions for assets, liabilities, and derivatives.
The simulated interest rate scenarios include an instantaneous parallel shift in the yield curve (“Rate Shock”). We then evaluate the simulation results using two approaches: Net Interest Income at Risk (“NII at Risk”), and Economic Value of Equity (“EVE”).
The simulation model is based on the actual maturities and re-pricing characteristics of the Bank’s interest-rate sensitive assets and liabilities. The simulated interest rate scenarios include an instantaneous parallel shift in the yield curve (“Rate Shock”). We then evaluate the simulation results using two approaches: Net Interest Income at Risk (“NII at Risk”), and Economic Value of Equity (“EVE”).
Asset liability management uses this value to measure the changes in the economic value of the Company under various interest rate scenarios. In some ways, the economic value approach provides a broader scope than net income volatility approach since it captures all anticipated cash flows.
In some ways, the economic value approach provides a broader scope than net interest income volatility approach since it captures all anticipated cash flows.
Market interest rates change over time. Accordingly, our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our assets and liabilities.
Accordingly, our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our assets and liabilities. The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk and is our most significant market risk.
Effective management of interest rate risk begins with understanding the dynamic repricing characteristics of our assets and liabilities and determining the appropriate interest rate risk posture given business forecasts, management objectives, market expectations, and policy constraints.
Effective management of interest rate risk begins with understanding the dynamic repricing characteristics of our assets and liabilities and determining the appropriate interest rate risk posture given business forecasts, management objectives, market expectations, and policy constraints. 104 Our interest rate risk exposure is measured and monitored through various risk management tools, including a simulation model that performs interest rate sensitivity analysis under multiple scenarios.
The Merger has resulted in reduced interest rate risk of the Company by increasing capital, reducing the volume of fixed-rate assets, and paying down borrowings and brokered deposits. Our Risk When Interest Rates Change. The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time.
Our Risk When Interest Rates Change. The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time. Market interest rates change over time.
This shift is primarily due to the change in the mix of assets and funding sources during 2023 due to the Merger and the balance sheet repositioning completed in the fourth quarter of 2023.
This shift to neutral is primarily due to the change in the mix of loans related to fixed rate loan sales, variable rate loan growth, and the AFS securities portfolio repositioning during 2024.
Removed
During the banking stress event from March through May 2023, legacy PacWest management kept the legacy PacWest Executive ALM Committee and Finance Committee informed of the IRR and liquidity stresses legacy PacWest was facing.
Added
We used a NII simulation model to measure the estimated changes in NII that would result over the next twelve months from immediate and sustained changes in interest rates as of December 31, 2024.
Removed
As previously discussed in the "Liquidity Management" section, legacy PacWest management formulated a strategic plan to retain customers and attract new customer deposits and, consistent with its previously disclosed strategy, legacy PacWest began to reposition the balance sheet by selling certain large loan pools. These actions were designed to improve liquidity and the IRR profile of legacy PacWest over time.
Added
We have assumed no growth or changes in the product mix of either our total interest-sensitive assets or liabilities over the next twelve months, therefore the results reflect an interest rate shock to a static balance sheet. This model is an interest rate risk management tool, and the results are not necessarily an indication of our future net interest income.
Removed
The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk and is our most significant market risk. 102 How We Measure Our Risk of Interest Rate Changes.
Added
EVE measures the period end present value of assets minus the present value of liabilities. Asset liability management uses this value to measure the changes in the economic value of the Company under various interest rate scenarios.
Removed
Our interest rate risk exposure is measured and monitored through various risk management tools, including a simulation model that performs interest rate sensitivity analysis under multiple scenarios. The simulation model is based on the actual maturities and re-pricing characteristics of the Bank’s interest-rate sensitive assets and liabilities.

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