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Banc of California Reports Third Quarter 2019 Earnings

SANTA ANA, Calif.--(BUSINESS WIRE)--

Banc of California, Inc. (BANC) today reported a net loss for the third quarter of $22.7 million, resulting in a diluted loss per common share of $0.45.

Highlights for the third quarter (as compared to second quarter 2019) included:

  • Noninterest-bearing deposits increased $114 million
  • Cost of deposits decreased by 14 basis points to 1.48%
  • Noninterest expense was $43.3 million
  • Executed on the sale of $371 million of low-yielding and long duration mortgage-backed securities, furthering the ability to remix the investment portfolio
  • Completed tender offer for $46 million of preferred stock, inclusive of premium and accrued dividends
  • The total risk–based capital ratio was 14.31% and the tier 1 leverage ratio was 9.84% at the end of the quarter
  • The net loss available to common stockholders for this quarter is largely the result of a $35 million charge-off, or $0.60 per diluted common share, related to a loan originated in November 2017 to a borrower that has been the purported subject of a fraudulent scheme, as previously reported by the Company on Form 8-K.

“The third quarter results reflect the continued progress and execution on our strategy to improve the foundation and earnings power of the Company for the long term, lowering deposit costs, reducing our expenses and eliminating non–core assets,” said Jared Wolff, President and Chief Executive Officer of Banc of California. “The deposit initiative we began in May has brought in over $100 million of low cost deposits. We are seeing expenses stabilize at a significantly reduced level, and have made considerable progress in right sizing our balance sheet.”

Mr. Wolff continued, “During the quarter, we also executed on specific initiatives to simplify and optimize our balance sheet and create flexibility. As a result of these efforts, we are well positioned to consider additional capital management strategies in the coming quarters. Despite the significant loss we reported during the quarter from the borrower fraud that resulted in a charge–off of the loan originated in 2017, we continue to maintain strict credit quality standards which are in line with our relationship-lending focus. Overall, we remain well positioned on both sides of the balance sheet in the current environment, with opportunity to further reduce our cost of deposits and to remix our loan portfolio to protect yield as we build out our focused business banking and bridge lending platforms. I’m pleased to see the progress the bank made during this past quarter and look forward to continued execution as we close out 2019.”

Speaking specifically about balance sheet activity for the quarter, John Bogler, Chief Financial Officer of Banc of California, said, “We continue to make great strides in building a core balance sheet that will allow us to be high performing. During the quarter, we sold $574 million of low coupon multifamily loans, repaid high cost brokered deposits, tendered for $46 million of high cost preferred equity and we took the opportunity to sell longer duration, low yielding mortgage–backed securities at the end of the quarter. This will allow us to start the process of remaking the securities portfolio. All of these actions will begin to translate into a higher performing balance sheet as we head into next year.”

Business Results - Income Statement Highlights

 

Three Months Ended

 

Nine Months Ended

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

September 30,
2018

 

September 30,
2019

 

September 30,
2018

Total interest and dividend income

$

92,657

 

 

$

104,040

 

 

$

110,712

 

 

$

111,130

 

 

$

107,774

 

 

$

307,409

 

 

$

311,666

 

Total interest expense

33,742

 

 

39,260

 

 

42,904

 

 

40,448

 

 

36,582

 

 

115,906

 

 

96,272

 

Net interest income

58,915

 

 

64,780

 

 

67,808

 

 

70,682

 

 

71,192

 

 

191,503

 

 

215,394

 

Provision for (reversal of) loan and lease losses

38,540

 

 

(1,987

)

 

2,512

 

 

6,653

 

 

1,410

 

 

39,065

 

 

23,562

 

Net interest income after provision for loan and lease losses

20,375

 

 

66,767

 

 

65,296

 

 

64,029

 

 

69,782

 

 

152,438

 

 

191,832

 

Total noninterest income (loss)

3,181

 

 

(2,290

)

 

6,295

 

 

2,448

 

 

4,824

 

 

7,186

 

 

21,467

 

Total noninterest expense

43,307

 

 

43,587

 

 

61,835

 

 

49,569

 

 

60,877

 

 

148,729

 

 

183,216

 

Income tax (benefit) expense

(5,619

)

 

4,308

 

 

2,719

 

 

6,117

 

 

3,301

 

 

1,408

 

 

(1,273

)

(Loss) income from continuing operations

(14,132

)

 

16,582

 

 

7,037

 

 

10,791

 

 

10,428

 

 

9,487

 

 

31,356

 

Income from discontinued operations

 

 

 

 

 

 

247

 

 

668

 

 

 

 

3,078

 

Net (loss) income

$

(14,132

)

 

$

16,582

 

 

$

7,037

 

 

$

11,038

 

 

$

11,096

 

 

$

9,487

 

 

$

34,434

 

Net interest income

Q3 2019 vs Q2 2019.

Net interest income for the third quarter decreased to $58.9 million as we sold non-core assets and repaid high cost funding liabilities during the quarter. For the third quarter, average interest-earning assets declined from the prior quarter by $926 million to $8.2 billion, while the net interest margin remained flat at 2.86% between quarters. We continue to execute on our strategy of disposing of lower yielding, non-core assets and rebalancing our portfolio.

Our average yield on interest-earning assets declined to 4.50% for the third quarter as compared to 4.59% for the second quarter of 2019, primarily attributable to a decrease in our average yield on loans and securities. Our average yield on loans came in at 4.75% for the third quarter which decreased by 5 basis points from the prior quarter, primarily attributable to variable rate loans repricing and lower average balance of higher yielding commercial and industrial loans, partially offset by the settlement of the Freddie Mac multifamily securitization which consisted of lower yielding loans. Our average yield on securities decreased 23 basis points primarily as a result of the quarterly interest rate resets on our collateralized loan obligations (“CLO”) and the sales of CLOs that occurred during the second quarter of 2019. We sold a significant amount of CLOs during the second quarter, with the full impact of the second quarter sales reflected in the third quarter.

Our average cost of interest-bearing liabilities decreased to 2.03% for the third quarter from 2.09% for the second quarter, primarily resulting from a 14 basis point decrease in our average cost of total deposits from the prior quarter to 1.48%. Non-interest bearing deposits increased by $114 million in the third quarter. The decrease in our cost of deposits from the prior quarter primarily resulted from the continued execution of our deposit strategy to focus on relationship-based clients and de-emphasize high-rate transactional customers and brokered certificates of deposit.

YTD 2019 vs YTD 2018.

Net interest income for the nine months ended September 30, 2019 decreased to $191.5 million as compared to $215.4 million for the same period in 2018 primarily as a result of the sale of CLOs in 2019 and the overall higher cost of funding, both mostly offset by higher yields on assets driven by the higher interest rate environment and loan growth in almost all loan categories. For the nine months ended September 30, 2019, average interest-earning assets declined $699 million from the prior period to $9.01 billion, while the net interest margin decreased to 2.84% from 2.97% for the comparable 2018 period.

Our average yield on interest-earning assets increased 26 basis points to 4.56% for the nine months ended September 30, 2019 as compared to 4.30% for the comparable 2018 period, due to increased yields in the loan and securities portfolios as well as an increased mix of loans versus securities. Our average yield on loans came in at 4.77% for the nine months ended September 30, 2019, compared to 4.61% during the comparable 2018 period, primarily attributable to overall increases in market rates between periods. Our average yield on securities increased 22 basis points primarily as a result of an interest rate reset on our CLOs, partially offset by a decrease in our average balance attributable to the sale and calls of $682.6 million of our higher yielding CLOs between periods.

Provision for loan losses

Q3 2019 vs Q2 2019.

During the third quarter, we recognized a loan loss provision of $38.5 million. As previously reported, the loan loss provision was primarily attributable to a $35 million charge-off of a line of credit originated in November 2017 to a borrower purportedly the subject of a fraudulent scheme. In addition, the charge-off increased the loss factor used in our allowance for loan loss methodology for commercial and industrial loans, resulting in an additional loan loss provision of $3.0 million. We are actively evaluating all available sources of recovery, although no assurance can be given that we will be successful in that regard.

During the third quarter of 2019, the Company undertook an extensive collateral review of all lending relationships $5 million and above not secured by real estate, consisting of 53 loans representing $536 million in commitments. The collateral review focused on security and collateral documentation and confirmation of the bank's collateral interest. The review was performed within the bank's Internal Audit division and the work was validated by an independent third party. While the review and outside validation is not yet complete, to date, we have not identified any other instances of apparent fraud for the credits reviewed or concerns over the existence of collateral held by the bank or on our behalf at third parties; however, there are no assurances that our internal review and third party validation will be sufficient to identify all such issues.

YTD 2019 vs YTD 2018.

During the nine months ended September 30, 2019 we recognized a loan loss provision of $39.1 million, primarily attributable to the aforementioned $35 million charge-off of a line of credit. For the comparable prior year period, $23.6 million of loan loss provisions were recorded, inclusive of a $14 million charge-off related to borrower fraud, as well as $594 million of growth in the loan portfolio.

Noninterest income

Q3 2019 vs Q2 2019.

Noninterest income for the third quarter was $3.2 million, which represented an increase of $5.5 million, or 239% from the prior quarter. The increase was primarily due to (1) $9.6 million primarily resulting from the net impact of the hedge associated with the Freddie Mac multifamily securitization, (2) a $5.1 million realized net loss on the sale of mortgage backed securities (“MBS”), (3) a $1.5 million increase in gain on sale of loans and (4) a $731 thousand other-than-temporary impairment on the remaining MBS portfolio.

In August 2019, the Company completed the previously announced Freddie Mac securitization of $574 million multifamily loans that were held for sale as of June 30, 2019 and sold the associated mortgage servicing rights. The Company realized a gain in fair value of the loans sold into the securitization of $9.0 million, offset by a $9.6 million loss from interest rate swap agreements entered into in order to offset variability in the fair value of the securitized loans as a result of changes in market interest rates. The $9.0 million gain in fair value on the securitization was recognized during the three months ended September 30, 2019 when the securitization settled, while the corresponding loss, as previously disclosed, was recognized during the three months ended June 30, 2019 because the interest rate swap agreements were entered into during May 2019 in preparation for the securitization.

During the third quarter, the Company partially hedged the fair value of the MBS portfolio using interest rate swaps. At the end of the quarter, the Company took advantage of the decline in long-term interest rates and sold the majority of the MBS portfolio and unwound the majority of the interest rate swaps. The remaining balance of the MBS portfolio and the related interest rate swap is expected to be sold and unwound early in the fourth quarter 2019. The unsold portion of the MBS portfolio has been deemed other–than–temporarily impaired and, along with the fair value adjustment on the swap, has been recorded in noninterest income with a net impact of $731 thousand.

YTD 2019 vs YTD 2018.

Noninterest income for the nine months ended September 30, 2019 was $7.2 million, which represented a decrease of $14.3 million, or 66.5% from the comparable period in the prior year. The decrease was primarily attributable to a $10.4 million decrease in net gain on sale of investment securities as a result of decreased favorable sale activity in 2019 and a realized loss of $5.1 million on the sale of our MBS portfolio in the third quarter of 2019 and a decrease of $3.3 million in loan servicing income as a result of the sale of mortgage servicing rights in 2018.

Noninterest expense

Q3 2019 vs Q2 2019.

Noninterest expense for the third quarter was $43.3 million, which was comparable to the prior quarter. Noninterest expense included: (1) a $4.4 million increase in our professional fees, primarily attributable to $6.2 million of insurance recoveries net of expenses related to securities litigation, indemnification, investigation and other legal expenses in the second quarter as compared to $2.6 million of insurance recoveries net of expenses in the third quarter, (2) a $1.6 million decrease in our compensation expense resulting from lower headcount and lower consulting fees, (3) a $897 thousand decrease in regulatory assessments, and (4) a $585 thousand increase in gain on investments in alternative energy partnerships.

Noninterest expense for the second quarter of 2019 was $43.6 million, which included non-core adjustments of (1) $6.2 million of insurance recoveries net of expenses related to securities litigation, indemnification, investigation and other legal expenses, (2) $797 thousand of project charge-offs related to data processing, and (3) a $158 thousand reversal of restructuring expenses recognized in the first quarter of 2019.

YTD 2019 vs YTD 2018.

Noninterest expense for the nine months ended September 30, 2019 was $148.7 million, which represented a decrease of $34.5 million, or 18.8% from the comparable period in the prior year. The decrease in noninterest expense consisted of: (1) a decrease of $17.8 million in professional fees, primarily attributable to $6.1 million of insurance recoveries net of expenses related to securities litigation, indemnification, investigation and other legal expenses, (2) a $3.5 million decrease in our compensation expense resulting from lower headcount and lower consulting fees, (3) a $3.1 million decrease in advertising costs, and (4) a $3.6 million decrease in loss on investments in alternative energy partnerships.

Income taxes

Q3 2019 vs Q2 2019.

Income tax benefit totaled $5.6 million for the quarter, representing a decrease of 230% from the prior quarter, and an effective tax rate of 28.45%. During the third quarter of 2019, we had a pre-tax net loss of $19.8 million, resulting in approximately 13% reduction in the projected annual effective tax rate. For the full year, we expect our tax rate to normalize closer to 11%. The lower effective tax rate of 11% is primarily driven by the loss the Company incurred and we expect the rate to normalize closer to 20% in 2020.

YTD 2019 vs YTD 2018.

Income tax expense totaled $1.4 million for the nine months ended September 30, 2019, representing an increase of $1.5 million from the same period in 2018, and an effective tax rate of 11.91%. The increase in income tax expense and effective tax rate for the nine months ended September 30, 2019, primarily relates to the significant reduction in tax credits received by the Company on investments in alternative energy partnerships.

Balance Sheet

The following table shows selected balance sheet line items as of September 30, 2019 and for the previous four quarters. As indicated in the table below, at September 30, 2019, total assets were approximately $8.6 billion, which represented a linked quarter decrease of $735 million, consistent with our strategic shift towards reducing our balance sheet and focusing on relationship lending.

 

As of and for the Three Months Ended

 

Amount Change

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

September 30,
2018

 

Q3-19 vs. Q2-
19

 

Q3-19 vs. Q3-
18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

$

8,625,337

 

 

$

9,359,931

 

 

$

9,886,525

 

 

$

10,630,067

 

 

$

10,260,822

 

 

$

(734,594

)

 

$

(1,635,485

)

Securities available-for-sale

$

775,662

 

 

$

1,167,687

 

 

$

1,471,303

 

 

$

1,992,500

 

 

$

2,059,832

 

 

$

(392,025

)

 

$

(1,284,170

)

Loans held-for-investment

$

6,383,259

 

 

$

6,719,570

 

 

$

7,557,200

 

 

$

7,700,873

 

 

$

7,253,293

 

 

$

(336,311

)

 

$

(870,034

)

Loans held-for-sale

$

23,936

 

 

$

597,720

 

 

$

25,191

 

 

$

8,116

 

 

$

9,382

 

 

$

(573,784

)

 

$

14,554

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

$

2,602,011

 

 

$

2,510,233

 

 

$

2,690,738

 

 

$

2,579,770

 

 

$

2,775,347

 

 

$

91,778

 

 

$

(173,336

)

Other core deposits

3,074,936

 

 

3,301,080

 

 

3,575,140

 

 

3,793,605

 

 

3,638,624

 

 

(226,144

)

 

(563,688

)

Brokered deposits

93,111

 

 

480,977

 

 

1,459,054

 

 

1,543,269

 

 

987,771

 

 

(387,866

)

 

(894,660

)

Total Deposits

$

5,770,058

 

 

$

6,292,290

 

 

$

7,724,932

 

 

$

7,916,644

 

 

$

7,401,742

 

 

$

(522,232

)

 

$

(1,631,684

)

As percentage of total deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

45.10

%

 

39.89

%

 

34.83

%

 

32.59

%

 

37.50

%

 

5.21

%

 

7.60

%

Other core deposits

53.29

%

 

52.46

%

 

46.28

%

 

47.92

%

 

49.16

%

 

0.83

%

 

4.13

%

Brokered deposits

1.61

%

 

7.64

%

 

18.89

%

 

19.49

%

 

13.35

%

 

(6.03

)%

 

(11.74

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Loan Yield

4.75

%

 

4.80

%

 

4.76

%

 

4.74

%

 

4.70

%

 

(0.05

)%

 

0.05

%

Average Cost of Interest-Bearing Deposits

1.78

%

 

1.89

%

 

1.92

%

 

1.77

%

 

1.58

%

 

(0.11

)%

 

0.20

%

Investments

Securities available-for-sale declined to $775.7 million, a decrease of 33.6% from the previous quarter, primarily due to the sale of $371 million of our MBS portfolio (resulting in a $5.1 million realized loss). In addition, $731 thousand of other-than-temporary impairment was recognized on the remaining $40 million MBS portfolio. As of September 30, 2019, our securities balance included $735 million of CLOs, $40 million of agency residential MBS and $277 thousand of non-agency residential MBS. The remaining balance of MBS are expected to be sold in the fourth quarter with all of the MBS sale proceeds expected to be reinvested into a mix of security classes, resulting in an overall shorter duration for the portfolio.

Loans

The following table sets forth the composition, by loan category, of our loan portfolio at September 30, 2019 and the previous four quarters.

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

September 30,
2018

Composition of held-for-investment loans

 

 

 

 

 

 

 

 

 

Commercial real estate

$

891,029

 

 

$

856,497

 

 

$

865,521

 

 

$

867,013

 

 

$

823,193

 

Multifamily

1,563,757

 

 

1,598,978

 

 

2,332,527

 

 

2,241,246

 

 

2,112,190

 

Construction

228,561

 

 

209,029

 

 

211,549

 

 

203,976

 

 

200,294

 

Commercial and industrial

1,789,478

 

 

1,951,707

 

 

1,907,102

 

 

1,944,142

 

 

1,673,055

 

SBA

75,359

 

 

80,929

 

 

74,998

 

 

68,741

 

 

71,494

 

Total commercial loans

4,548,184

 

 

4,697,140

 

 

5,391,697

 

 

5,325,118

 

 

4,880,226

 

Single family residential mortgage

1,775,953

 

 

1,961,065

 

 

2,102,694

 

 

2,305,490

 

 

2,300,069

 

Other consumer

59,122

 

 

61,365

 

 

62,809

 

 

70,265

 

 

72,998

 

Total consumer loans

1,835,075

 

 

2,022,430

 

 

2,165,503

 

 

2,375,755

 

 

2,373,067

 

Total gross loans

$

6,383,259

 

 

$

6,719,570

 

 

$

7,557,200

 

 

$

7,700,873

 

 

$

7,253,293

 

Composition percentage of held-for-investment loans

 

 

 

 

 

 

 

 

 

Commercial real estate

14.0

%

 

12.7

%

 

11.5

%

 

11.3

%

 

11.3

%

Multifamily

24.5

%

 

23.8

%

 

30.9

%

 

29.2

%

 

29.1

%

Construction

3.6

%

 

3.1

%

 

2.8

%

 

2.6

%

 

2.8

%

Commercial and industrial

28.0

%

 

29.1

%

 

25.2

%

 

25.2

%

 

23.1

%

SBA

1.2

%

 

1.2

%

 

1.0

%

 

0.9

%

 

1.0

%

Total commercial loans

71.3

%

 

69.9

%

 

71.4

%

 

69.2

%

 

67.3

%

Single family residential mortgage

27.8

%

 

29.2

%

 

27.8

%

 

29.9

%

 

31.7

%

Other consumer

0.9

%

 

0.9

%

 

0.8

%

 

0.9

%

 

1.0

%

Total consumer loans

28.7

%

 

30.1

%

 

28.6

%

 

30.8

%

 

32.7

%

Total gross loans

100.0

%

 

100.0

%

 

100.0

%

 

100.0

%

 

100.0

%

Held-for-investment loans decreased to $6.4 billion driven mostly by a reduction of $220 million related to the payoff of single family residential mortgage loans and multifamily loans while simultaneously reducing new commitments and a $162 million decrease in commercial and industrial loans due primarily to credit-related exits and charge-offs and a decrease in the warehouse lending balance, partially offset by a net increase of $54 million in commercial real estate and construction loans.

Single family residential mortgage and multifamily loans now comprise 52.3% of the total held-for-investment loan portfolio as compared to 60.8% one year ago. The loan portfolio concentration of single family residential mortgage and multifamily is expected to decline over the coming quarters as part of our strategy to deemphasize transaction lending and focus on relationship based clients. Commercial real estate loans comprised 14.0% of the loan portfolio and commercial and industrial loans constituted 28.0%, with yields of 4.87% and 5.38%, respectively.

Held-for-sale loans decreased by $574 million primarily resulting from the completion of the Freddie Mac multifamily securitization during the third quarter of 2019. The loans sold had a weighted average coupon of 3.79% and the proceeds were used to repay overnight Federal Home Loan Bank (“FHLB”) advances, which at the time had an advance rate of 2.53%.

During the third quarter of 2019, our commercial and industrial loan new commitments were $239 million, which represented an increase of 28.5% over the prior quarter. The following table sets forth our new commitments by loan category (in millions), and the related weighted average coupon, during the third quarter of 2019.

 

Three Months Ended

 

September 30, 2019

 

June 30, 2019

 

New Loan Commitments

 

Weighted Average Coupon

 

New Loan Commitments

 

Weighted Average Coupon

Commercial real estate

$

64.0

 

4.61%

 

$

72.6

 

4.79%

Multifamily

86.8

 

4.30%

 

172.3

 

4.62%

Construction

29.0

 

6.54%

 

21.0

 

6.49%

Commercial and industrial

239.0

 

5.36%

 

185.7

 

6.07%

SBA

3.4

 

4.74%

 

18.6

 

5.13%

Single family residential mortgage

2.4

 

4.30%

 

128.4

 

4.95%

Other consumer

1.7

 

5.99%

 

0.4

 

6.65%

Total

$

426.3

 

5.10%

 

$

599.0

 

5.25%

Deposits

The following table sets forth the composition of our deposits at September 30, 2019 and the previous four quarters.

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

September 30,
2018

Composition of deposits

 

 

 

 

 

 

 

 

 

Noninterest-bearing checking

$

1,107,442

 

 

$

993,745

 

 

$

1,120,700

 

 

$

1,023,360

 

 

$

1,061,557

 

Interest-bearing checking

1,503,208

 

 

1,577,901

 

 

1,573,499

 

 

1,556,410

 

 

1,713,790

 

Money market

695,530

 

 

800,898

 

 

899,330

 

 

873,153

 

 

856,886

 

Savings

1,042,162

 

 

1,061,115

 

 

1,151,442

 

 

1,265,847

 

 

1,269,489

 

Non-brokered certificates of deposit

1,367,284

 

 

1,479,137

 

 

1,684,895

 

 

1,654,605

 

 

1,512,249

 

Brokered certificates of deposit

54,432

 

 

379,494

 

 

1,295,066

 

 

1,543,269

 

 

987,771

 

Total deposits

$

5,770,058

 

 

$

6,292,290

 

 

$

7,724,932

 

 

$

7,916,644

 

 

$

7,401,742

 

Composition percentage of deposits

 

 

 

 

 

 

 

 

 

Noninterest-bearing checking

19.2

%

 

15.8

%

 

14.5

%

 

12.9

%

 

14.3

%

Interest-bearing checking

26.1

%

 

25.1

%

 

20.4

%

 

19.7

%

 

23.2

%

Money market

12.0

%

 

12.7

%

 

11.6

%

 

11.0

%

 

11.6

%

Savings

18.1

%

 

16.9

%

 

14.9

%

 

16.0

%

 

17.2

%

Non-brokered certificates of deposit

23.7

%

 

23.5

%

 

21.8

%

 

20.9

%

 

20.4

%

Brokered certificates of deposit

0.9

%

 

6.0

%

 

16.8

%

 

19.5

%

 

13.3

%

Total deposits

100.0

%

 

100.0

%

 

100.0

%

 

100.0

%

 

100.0

%

Deposits finished the third quarter at $5.8 billion, with noninterest-bearing deposits increasing $114 million from the prior quarter. For the third quarter, the average balance of noninterest-bearing deposits was $1.048 billion, up from the second quarter average balance of $1.034 billion and noninterest-bearing deposits now comprise 19.2% of total deposits, up from 14.3% from the comparable period in the prior year. Total deposits decreased by $522 million, of which $325 million was as a result of maturities on our brokered certificates of deposit and no new brokered certificates of deposit were acquired during the quarter. Non–brokered certificates of deposit declined by $112 million from the prior quarter and are expected to continue to decline as offered rates on maturing certificates are reset lower. Money market balances decreased by $105 million versus the prior quarter, while savings account balances decreased by $19 million during this same time period. We continue to price down higher costing savings and money market accounts as we focus on building relationship based deposits.

Debt

Advances from the FHLB decreased $175 million, or 10%, to $1.65 billion as of September 30, 2019, as a result of the paydown of overnight advances with the FHLB using the proceeds from the sale of loans sold into the Freddie Mac multifamily securitization. At the end of the quarter, the maturity dates of FHLB advances consisted of $670 million of overnight, $300 million maturing in 3 months or less, and $680 million maturing beyond 3 months. As of the end of the quarter, the overnight advance interest rate was 2.08%.

Equity

At September 30, 2019, total stockholders’ equity decreased by $62.6 million to $901.0 million on a linked-quarter basis, while tangible common equity decreased by $20.8 million to $669.4 million. The decrease in total stockholders’ equity partially related to our net loss of $14.1 million, partially offset by the improvement within our accumulated other comprehensive income as a result of other comprehensive income of $3.1 million. During the quarter, the Company completed a tender offer for depositary shares representing shares of its Series D and Series E preferred stock. The total consideration for each Series E Depositary Share tendered and accepted for purchase pursuant to the offer equaled $27.13. The total consideration for each Series D Depositary Share tendered and accepted for purchase pursuant to the offer equaled $26.39. The aggregate total consideration payable by the Company for the preferred stock accepted for purchase was $46.0 million inclusive of premium to par and accrued dividends ($19.4 million of series D and $26.6 million series E depository shares). The tender resulted in a $5.1 million reduction to net income available to common shareholders.

Capital ratios remain strong with total risk based capital at 14.31% and a tier 1 leverage ratio of 9.84%. The following table sets forth our regulatory capital ratios at September 30, 2019 and the previous four quarters.

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

September 30,
2018

Capital Ratios

 

 

 

 

 

 

 

 

 

Banc of California, Inc.

 

 

 

 

 

 

 

 

 

Total risk-based capital ratio

14.31

%

 

15.00

%

 

14.01

%

 

13.71

%

 

14.05

%

Tier 1 risk-based capital ratio

13.26

%

 

14.03

%

 

13.03

%

 

12.77

%

 

13.15

%

Common equity tier 1 capital ratio

10.30

%

 

10.50

%

 

9.72

%

 

9.53

%

 

9.80

%

Tier 1 leverage ratio

9.84

%

 

9.62

%

 

8.87

%

 

8.95

%

 

8.99

%

Banc of California, NA

 

 

 

 

 

 

 

 

 

Total risk-based capital ratio

15.59

%

 

16.70

%

 

15.79

%

 

15.71

%

 

15.94

%

Tier 1 risk-based capital ratio

14.53

%

 

15.73

%

 

14.81

%

 

14.77

%

 

15.04

%

Common equity tier 1 capital ratio

14.53

%

 

15.73

%

 

14.81

%

 

14.77

%

 

15.04

%

Tier 1 leverage ratio

10.75

%

 

10.80

%

 

10.07

%

 

10.36

%

 

10.29

%

Credit Quality

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

September 30,
2018

Asset quality information and ratios

($ in thousands)

Delinquent loans held-for-investment

 

 

 

 

 

 

 

 

 

30 to 89 days delinquent

$

39,122

 

 

$

34,938

 

 

$

44,840

 

 

$

26,684

 

 

$

20,265

 

90+ days delinquent

17,220

 

 

17,272

 

 

14,623

 

 

13,846

 

 

15,269

 

Total delinquent loans

$

56,342

 

 

$

52,210

 

 

$

59,463

 

 

$

40,530

 

 

$

35,534

 

Total delinquent loans to total loans

0.88

%

 

0.78

%

 

0.79

%

 

0.53

%

 

0.49

%

Non-performing assets, excluding loans held-for-sale

 

 

 

 

 

 

 

 

 

Non-performing loans

$

45,169

 

 

$

28,499

 

 

$

27,739

 

 

$

21,585

 

 

$

25,523

 

90+ days delinquent and still accruing loans

 

 

275

 

 

731

 

 

470

 

 

 

Other real estate owned

 

 

276

 

 

316

 

 

672

 

 

434

 

Non-performing assets

$

45,169

 

 

$

29,050

 

 

$

28,786

 

 

$

22,727

 

 

$

25,957

 

ALLL to non-performing loans

139.31

%

 

206.86

%

 

224.40

%

 

281.99

%

 

226.39

%

Non-performing loans to total loans held-for-investment

0.71

%

 

0.43

%

 

0.38

%

 

0.29

%

 

0.35

%

Non-performing assets to total assets

0.52

%

 

0.31

%

 

0.29

%

 

0.21

%

 

0.25

%

Troubled debt restructurings (TDRs)

 

 

 

 

 

 

 

 

 

Performing TDRs

$

6,800

 

 

$

20,245

 

 

$

5,574

 

 

$

5,745

 

 

$

5,580

 

Non-performing TDRs

14,605

 

 

2,428

 

 

1,943

 

 

2,276

 

 

2,684

 

Total TDRs

$

21,405

 

 

$

22,673

 

 

$

7,517

 

 

$

8,021

 

 

$

8,264

 

Loan delinquencies increased by 7.9% to $56.3 million at September 30, 2019, primarily related to the increase in our 30 to 89 days delinquent loans. The increase in our total delinquent loans resulted from $21.4 million of additions, partially offset by $11.4 million returning to current status and $5.8 million of principal payments or payoffs. Loans 90+ days delinquent includes single family mortgage residential loans, which accounts for 66% of the balance. Loan delinquencies as a percentage of total loans held-for-investment increased to 88 basis points for the quarter, almost exclusively due to single family residential mortgage loans, of which $8.7 million have cured since quarter end, and the reduction in our balance sheet over the same period.

Non-performing loans and non performing assets increased to $45.2 million as of September 30, 2019, primarily as a result of a $14.5 million, non-agented Shared National Credit moving from performing to non-performing during the quarter. The loan continues in a current payment status and subsequent payments will be recognized as a reduction of the loan balance. The Company currently has five Shared National Credits totaling $47.4 million. The increase in non-performing TDRs during the third quarter was primarily due to one loan relationship moving from performing to non-performing.

Allowance for Loan Losses

...

 

Three Months Ended

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

September 30,
2018

 

($ in thousands)

Allowance for loan losses (ALLL)