# BANC OF CALIFORNIA, INC. (BANC) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from BANC OF CALIFORNIA, INC.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1169770/000162828024007933/banc-20231231.htm
Accession: 0001628280-24-007933
Filing date: 2024-02-29
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/BANC/
All MD&A years: /company/BANC/mda/
Previous year: /company/BANC/mda/fy2022/ (FY 2022)
Next year: /company/BANC/mda/fy2024/ (FY 2024)

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. 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.

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.

Presentation of Results – PacWest Bancorp Merger

On November 30, 2023, PacWest Bancorp merged with and into Banc of California, Inc. (the “Merger” or "PACW Merger"), with Banc of California, Inc. continuing as the surviving legal corporation and Banc of California, Inc. concurrently closed a $400 million equity capital raise. The Merger was accounted for as a reverse merger using the acquisition method of accounting, therefore, PacWest Bancorp was deemed the acquirer for financial reporting purposes, even though Banc of California, Inc. was the legal acquirer. The Merger was an all-stock transaction and has been accounted for as a business combination. Banc of California, Inc.'s financial results for all periods ended prior to November 30, 2023 reflect PacWest Bancorp results only on a standalone basis. In addition, Banc of California, Inc.'s reported financial results for the year ended December 31, 2023 reflect PacWest Bancorp financial results only on a standalone basis until the closing of the Merger on November 30, 2023, and results of the combined company for the month of December 2023. The number of shares issued and outstanding, earnings per share, and all references to share quantities or metrics of Banc of California, Inc. have been retrospectively restated to reflect the equivalent number of shares issued in the Merger as the Merger was accounted for as a reverse merger. Under the reverse merger method of accounting, the assets and liabilities of legacy Banc of California, Inc. as of November 30, 2023 were recorded at their respective fair values.

The following table presents balance sheet data as of the dates indicated:

[[GREPCENT_TABLE]]
[["","December 31,"],["","2023","","2022","","2021"],["","(In thousands)"],["Balance Sheet Data:"],["Total assets","$","38,534,064","","","$","41,228,936","","","$","40,443,344"],["Interest-earning deposits in financial institutions","5,175,149","","","2,027,949","","","3,944,686"],["Securities available-for-sale","2,346,864","","","4,843,487","","","10,694,458"],["Securities held-to-maturity","2,287,291","","","2,269,135","","","\u2014"],["Loans and leases held for investment, net of deferred fees","25,612,444","","","28,674,205","","","22,941,548"],["Goodwill","198,627","","","1,376,736","","","1,405,736"],["Core deposit and customer relationship intangibles","165,477","","","31,381","","","44,957"],["Total liabilities","35,143,299","","","37,278,405","","","36,443,714"],["Noninterest-bearing deposits","7,774,254","","","11,212,357","","","14,543,133"],["Interest-bearing deposits","22,627,515","","","22,723,977","","","20,454,624"],["Total deposits","30,401,769","","","33,936,334","","","34,997,757"],["Borrowings","2,911,322","","","1,764,030","","","\u2014"],["Subordinated debt","936,599","","","867,087","","","863,283"],["Stockholders\u2019 equity","3,390,765","","","3,950,531","","","3,999,630"]]
[[/GREPCENT_TABLE]]

57

At December 31, 2023, the Company had total assets of $38.5 billion, including $25.6 billion of total loans and leases, net of deferred fees, and $2.3 billion of securities available-for-sale, $2.3 billion of securities held-to-maturity, and $5.2 billion of interest-earning deposits in financial institutions, compared to $41.2 billion of total assets, including $28.7 billion of total loans and leases, net of deferred fees, $4.8 billion of securities available-for-sale, $2.3 billion securities held-to-maturity, and $2.0 billion of interest-earning deposits in financial institutions at December 31, 2022. The $2.7 billion decrease in total assets since year-end 2022 was due primarily to a $3.1 billion decrease in loans and leases, net of deferred fees, and a $2.5 billion decrease in securities available-for-sale, offset partially by a $3.1 billion increase in interest-earning deposits in financial institutions. The decrease in loans and leases is mainly due to $5.2 billion of loan sales in the second quarter of 2023, partially offset by the loans acquired in the Company's merger with PacWest Bancorp (the "Merger"). The decrease in securities available-for-sale was due mainly to a $2.7 billion sale of securities in the fourth quarter of 2023 as part of our balance sheet repositioning strategy. Contributing to the increase in interest-earning deposits at financial institutions was the Company's desire to have more on-balance sheet liquidity in response to the deposit volatility caused by the failures of three regional banks in the first and second quarters of 2023.

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. The $2.1 billion decrease in total liabilities since year-end 2022 was due mainly to decreases of $3.5 billion in total deposits, offset partially by an increase of $1.1 billion in borrowings. The decrease in total deposits was due to the loss of deposits during the period of volatility after the failures of three regional banks in 2023. The increase in borrowings was due to the Company's desire to have more on-balance sheet liquidity in response to the deposit volatility caused by the failures of three regional banks in the first and second quarters of 2023.

At December 31, 2023, the Company had total stockholders' equity of $3.39 billion compared to $3.95 billion at December 31, 2022. The $559.8 million decrease in stockholders' equity since year-end 2022 was due mainly to the net loss of $1.9 billion in 2023 attributable primarily to a $1.38 billion goodwill impairment charge in the first quarter of 2023, partially offset by an increase in accumulated other comprehensive income (loss) of $358.8 million attributable to an increase in the fair value of the investment securities portfolio and the shares issued as consideration for the Merger and the related $400 million capital raise.

Recent Events

PacWest Bancorp Merger

On November 30, 2023, Banc of California, Inc. completed the Merger, pursuant to which PacWest Bancorp merged with and into    Banc of California, Inc., with Banc of California, Inc. continuing as the surviving legal corporation and, as of December 1, 2023, Banc of California, N.A. merged into Pacific Western Bank with Pacific Western Bank continuing under the Banc of California name and brand as the Bank. Concurrent with the completion of the Merger, Banc of California, Inc. also completed its $400 million equity raise from affiliates of funds managed by Warburg Pincus LLC and certain investment vehicles sponsored, managed, or advised by Centerbridge Partners, L.P. and its affiliates. The stock issued by Banc of California, Inc. as consideration in the Merger totaled approximately $663 million.

The Merger was accounted for as a reverse merger using the acquisition method of accounting, therefore, PacWest Bancorp was deemed the accounting acquirer, even though Banc of California, Inc. was the legal acquirer. We recorded the legacy Banc of California, Inc. acquired assets and assumed liabilities, both tangible and intangible, at their estimated fair values as of the acquisition date. The application of the acquisition method of accounting resulted in goodwill of $198.6 million. The Bank is headquartered in Los Angeles, California, and operates more than 90 branches in California, as well as branches in North Carolina and Colorado. 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. 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. The sold assets included $3.9 billion of securities from both the legacy Banc of California, Inc. and PacWest Bancorp portfolios, and $1.5 billion of single-family loans and $0.7 billion of multi-family loans from the legacy Banc of California, Inc. portfolios. The liabilities that were paid down included $4.7 billion of borrowings and $3.9 billion of brokered deposits from both legacy entities.

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. Net interest margin is net interest income (annualized if related to a quarterly period) expressed as a percentage of average interest-earning assets. Tax equivalent net interest income is net interest income increased by an adjustment for tax-exempt interest on certain loans and investment securities based on a 21% federal statutory tax rate. Tax equivalent net interest margin is calculated as tax equivalent net interest income divided by average interest-earning assets.

Net interest income is affected by changes in both interest rates and the volume of average interest-earning assets and interest-bearing liabilities. Our primary interest-earning assets are loans and investment securities, and our primary interest-bearing liabilities are deposits and borrowings. Contributing to our positive net interest margin is our healthy yield on loans and leases in excess of our core deposit costs. While our deposit balances will fluctuate depending on our customers’ liquidity and cash flow, market conditions, and competitive pressures, we seek to minimize the impact of these variances by attracting a high percentage of noninterest-bearing deposits. During 2023, our net interest margin was negatively impacted because we accessed the wholesale funding market to replace outflows of core deposits.

Loan and Lease Growth

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. 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. During 2023, loan production slowed significantly compared to the prior year mainly due to the negative impact from the three regional bank failures and the need to accelerate the Company’s execution of its strategy to increase on-balance sheet liquidity and preserve capital.

Our loan origination process emphasizes credit quality. Historically, to augment our internal loan production, we have purchased loans such as multi-family loans from other banks, private student loans from third-party lenders, and in recent years , single-family residential mortgage loans. Prior to our acquisition of Civic in February 2021, we also purchased loans from Civic. These loan purchases help us manage the concentrations in our portfolio as they diversify the geographic risk, interest-rate risk, credit risk, and product composition of our loan portfolio. Achieving net loan growth is subject to many factors, including maintaining strict credit standards, competition from other lenders, and borrowers that opt to prepay loans.

59

The Magnitude of Credit Losses

We emphasize credit quality in originating and monitoring our loans and leases, and we measure our success by the levels of our classified loans and leases, nonaccrual loans and leases, and net charge-offs. We maintain an allowance for credit losses on loans and leases, which is the sum of the allowance for loan and lease losses and the reserve for unfunded loan commitments. Provisions for credit losses are charged to operations as and when needed for both on and off-balance sheet credit exposures. Loans and leases that are deemed uncollectable are charged off and deducted from the allowance for loan and lease losses. Recoveries on loans and leases previously charged off are added to the allowance for loan and lease losses. The provision for credit losses on the loan and lease portfolio is based on our allowance methodology, which considers the impact of assumptions and is reflective of historical experience, economic forecasts viewed to be reasonable and supportable by management, the current loan and lease composition, and relative credit risks known as of the balance sheet date. 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.

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. Changes in economic conditions, such as the rate of economic growth, the unemployment rate, rate of inflation, increases in the general level of interest rates, declines in real estate values, changes in commodity prices, and adverse conditions in borrowers’ businesses, could negatively impact our borrowers and cause us to adversely classify loans and leases. An increase in classified loans and leases generally results in increased provisions for credit losses and an increased allowance for credit losses. Any deterioration in the real estate market may lead to increased provisions for credit losses because our loans are concentrated in real estate loans.

The Level of Noninterest Expense

Our noninterest expense includes fixed and controllable overhead, and typically the largest components of which are compensation and occupancy expense. It also includes costs that tend to vary based on the volume of activity, such as loan and lease production and the number and complexity of foreclosed assets. We measure success in controlling both fixed and variable costs through monitoring of the efficiency ratio, which is calculated by dividing noninterest expense (less intangible asset amortization, net foreclosed assets expense (income), goodwill impairment, and acquisition, integration and reorganization costs) by net revenues (the sum of net interest income plus noninterest income, less gain (loss) on sale of securities and gain (loss) on sales of assets other than loans and leases).

The following table presents the calculation of our efficiency ratio for the years indicated:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["Efficiency Ratio","2023","","2022","","2021"],["","","(Dollars in thousands)"],["Noninterest expense","$","2,458,181","","","$","773,521","","","$","637,417"],["Less:","Intangible asset amortization","11,419","","","13,576","","","12,734"],["","Foreclosed assets expense (income), net","1,520","","","(3,737)","","","(213)"],["","Goodwill impairment","1,376,736","","","29,000","","","\u2014"],["","Acquisition, integration and reorganization costs","142,633","","","5,703","","","9,415"],["Noninterest expense used for efficiency ratio","$","925,873","","","$","728,979","","","$","615,481"],["Net interest income","$","747,128","","","$","1,290,762","","","$","1,103,824"],["Noninterest (loss) income","(448,285)","","","74,827","","","193,927"],["Total revenue","298,843","","","1,365,589","","","1,297,751"],["Less:","(Loss) gain on sale of securities","(442,413)","","","(50,321)","","","1,615"],["Total revenue used for efficiency ratio","$","741,256","","","$","1,415,910","","","$","1,296,136"],["Efficiency ratio","124.91","%","","51.48","%","","47.49","%"]]
[[/GREPCENT_TABLE]]

60

Critical Accounting Policies and Estimates

The following discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements and the notes thereto, which have been prepared in accordance with U.S. GAAP. The preparation of the consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. On an ongoing basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. We believe that our estimates and assumptions are reasonable; however, actual results may ultimately differ significantly from these estimates and assumptions, which could have a material adverse effect on the carrying value of assets and liabilities at the balance sheet dates and on our results of operations for the reporting periods.

Our significant accounting policies and practices are described in 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." 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. These policies relate to the allowance for credit losses on loans and leases held for investment, business combinations, the carrying value of goodwill and other intangible assets, and the realization of deferred tax assets and liabilities.

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. 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. For information regarding the calculation and policies of the ACL on loans and leases held for investment, see " - Balance Sheet Analysis - Allowance for Credit Losses on Loans and Leases Held for Investment" and Note 1(j). Nature of Operations and Summary of Significant Accounting Policies - Allowance for Credit Losses on Loans and Leases Held for Investment, of the Notes to Consolidated Financial Statements contained in "Item 8. Financial Statements and Supplementary Data."

A critical judgment in the process is estimating the Company's ACL related to macroeconomic forecasts that are incorporated into quantitative methods. As any one economic outlook is inherently uncertain, the Company utilizes a baseline and upside or downside scenarios which are applied based on a probability weighting, to better reflect management's expectation of expected credit losses given changes in the economic environment and existing market conditions. Changes in the Company's assumptions and economic forecasts could significantly affect its estimate of expected credit losses, which could potentially lead to significant changes in the estimate from one reporting period to the next. The ACL is also sensitive to changes in macroeconomic forecast assumptions. Given the dynamic relationship between macroeconomic variables within the Company's models, it is difficult to estimate the impact of a change in any one factor or input on the ACL. Management performs sensitivity analysis on the ACL quarterly both in terms of individual inputs being changed and the weighting of macroeconomic forecast scenarios being changed. 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. Under the acquisition method, we measure the identifiable assets acquired, including identifiable intangible assets, and liabilities assumed in a business combination at their estimated fair values on the acquisition date. Goodwill is generally determined as the excess of the fair value of the consideration transferred, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. The fair value of other intangibles are determined utilizing information available near the acquisition date based on expectations and assumptions that are deemed reasonable by management. The estimates and assumptions used to determine the fair values of assets and liabilities acquired or assumed in a business combination can be complex and require judgment, as such, we typically engage third-party valuation specialists for significant items. Acquisition-related costs including severance, conversion and other restructuring charges, such as contract termination charges and abandoned space accruals, are expensed as period costs.

61

Goodwill and Other Intangible Assets

Goodwill and other intangible assets arise from the acquisition method of accounting for business combinations. For acquisitions, we are required to record the assets acquired, including identified intangible assets such as goodwill, and the liabilities assumed at their estimated fair value. These fair values often involve estimates based on third party valuations, such as appraisals, based on discounted cash flow analyses or other valuation techniques that may include estimates of attrition, discount rates, future growth rates, multiples of earnings or other relevant factors. Goodwill and other intangible assets generated from business combinations and deemed to have indefinite lives are not subject to amortization and instead are tested for impairment annually unless a triggering event occurs thereby requiring an updated assessment. Our regular annual impairment assessment occurs in the fourth quarter. Impairment exists when the carrying value of the goodwill exceeds its fair value. The determination of whether impairment has occurred is based on an assessment of several factors including operating results, business plans, economic projections, anticipated future cash flows, and current market data. Analyzing goodwill for impairment also includes consideration of various factors that continue to evolve and for which significant uncertainty remains, including estimates of the profitability of the Company's reporting units, long-term growth rates and the estimated market cost of equity, such as the discount rate and price multiples of comparable companies. Imprecision in estimating these factors can affect the estimated fair value of the reporting units. 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.

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. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant governing taxing authorities. Our tax returns are subject to audit by taxing authorities, which may result in the taxing authority disputing a tax position taken by the Company. Significant judgment is required in determining the tax accruals and in evaluating the tax positions, including evaluating uncertain tax positions. Changes in the estimate of accrued taxes occur periodically due to changes in tax rates, tax credits, interpretations of tax laws, the status of examinations by the taxing authorities, and newly enacted statutory, judicial, and regulatory guidance that could impact the relative merits and risks of tax positions. These changes, when they occur, impact tax expense and can materially affect our operating results and financial condition. We review income tax expense and the carrying value of deferred tax assets and liabilities quarterly, and as new information becomes available, the balances are adjusted as appropriate. In establishing a provision for income tax expense, we must make judgments and interpretations about the application of these inherently complex tax laws. We must also make estimates about when in the future certain tax items will affect taxable income in the various tax jurisdictions.

Our deferred tax assets and liabilities arise from differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. 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. 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. The methodology for determining these non-GAAP measures may differ among companies. 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. The reconciliations of these non-GAAP measures to the GAAP measures are presented in the following tables for and as of the years presented. Such disclosures should not be viewed as substitutes for results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["Return on Average Tangible Common Equity","2023","","2022","","2021"],["","","(Dollars in thousands)"],["Net (loss) earnings","$","(1,899,137)","","","$","423,613","","","$","606,959"],["(Loss) earnings before income taxes","$","(2,211,338)","","","$","567,568","","","$","822,334"],["Add:","Goodwill impairment","1,376,736","","","29,000","","","\u2014"],["Add:","Intangible asset amortization","11,419","","","13,576","","","12,734"],["","Adjusted (loss) earnings before income taxes","(823,183)","","","610,144","","","835,068"],["Adjusted income tax (benefit) expense (1)","(214,028)","","","154,977","","","218,788"],["","Adjusted net (loss) earnings","(609,155)","","","455,167","","","616,280"],["Less:","Preferred stock dividends","39,788","","","19,339","","","\u2014"],["","Adjusted net (loss) earnings available to"],["","common and equivalent stockholders","$","(648,943)","","","$","435,828","","","$","616,280"],["Average stockholders' equity","$","2,994,428","","","$","3,853,033","","","$","3,808,019"],["Less:","Average intangible assets","379,005","","","1,443,528","","","1,269,546"],["Less:","Average preferred stock","498,516","","","285,488","","","\u2014"],["Average tangible common equity","$","2,116,907","","","$","2,124,017","","","$","2,538,473"],["Return on average equity (2)","(63.42)","%","","10.99","%","","15.94","%"],["Return on average tangible common equity (3)","(30.66)","%","","20.52","%","","24.48","%"]]
[[/GREPCENT_TABLE]]

____________________________________________________

(1)     Adjusted estimated effective tax rate of 26.0% used to normalize the effect of goodwill impairment for the year ended December 31, 2023;

effective tax rate of 25.4% and 26.2% for the year ended December 31, 2022 and December 31, 2021.

(2)     Adjusted net (loss) earnings divided by average stockholders' equity.

(3)     Annualized adjusted net (loss) earnings available to common and equivalent stockholders divided by average tangible common equity.

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[[GREPCENT_TABLE]]
[["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\u2019 equity","$","3,390,765","","","$","3,950,531","","","$","3,999,630"],["Less: Preferred stock","498,516","","","498,516","","","\u2014"],["Total common equity","2,892,249","","","3,452,015","","","3,999,630"],["Less: Intangible assets","364,104","","","1,408,117","","","1,450,693"],["Tangible common equity","$","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"]]
[[/GREPCENT_TABLE]]

_________________________________________________________________ 

(1)    Total common equity divided by common and equivalent shares outstanding.

(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.

(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.

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[[GREPCENT_TABLE]]
[["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","","","$","193,927"],["Add:","Loss (gain) on sale of securities","442,413","","","50,321","","","(1,615)"],["Less:","Legal recoveries","(22,087)","","","\u2014","","","\u2014"],["Add:","Loan fair value loss adjustments","170,971","","","\u2014","","","\u2014"],["Adjusted noninterest income","143,012","","","125,148","","","192,312"],["Net interest income","747,128","","","1,290,762","","","1,103,824"],["Adjusted total revenue","$","890,140","","","$","1,415,910","","","$","1,296,136"],["Noninterest expense","$","2,458,181","","","$","773,521","","","$","637,417"],["Less:","Goodwill impairment","(1,376,736)","","","(29,000)","","","\u2014"],["Less:","Acquisition, integration, and"],["","reorganization costs","(142,633)","","","(5,703)","","","(9,415)"],["Less:","Unfunded commitments fair value"],["","loss adjustments","(106,767)","","","\u2014","","","\u2014"],["Adjusted noninterest expense","$","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","%"]]
[[/GREPCENT_TABLE]]

65

Results of Operations

Earnings Performance

The following table presents performance metrics for the years indicated:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2023","","2022","","2021"],["Earnings Summary:"],["Interest income","$","1,971,000","","","$","1,556,489","","","$","1,158,729"],["Interest expense","(1,223,872)","","","(265,727)","","","(54,905)"],["Net interest income","747,128","","","1,290,762","","","1,103,824"],["Provision for credit losses","(52,000)","","","(24,500)","","","162,000"],["Noninterest (loss) income","(448,285)","","","74,827","","","193,927"],["Operating expense","(938,812)","","","(738,818)","","","(628,002)"],["Acquisition, integration and reorganization costs","(142,633)","","","(5,703)","","","(9,415)"],["Goodwill impairment","(1,376,736)","","","(29,000)","","","\u2014"],["(Loss) earnings before income taxes","(2,211,338)","","","567,568","","","822,334"],["Income tax benefit (expense)","312,201","","","(143,955)","","","(215,375)"],["Net (loss) earnings","(1,899,137)","","","423,613","","","606,959"],["Preferred stock dividends","(39,788)","","","(19,339)","","","\u2014"],["Net (loss) earnings available to common and equivalent stockholders","$","(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"]]
[[/GREPCENT_TABLE]]

_____________________________

(1)    Shares include non-voting common stock equivalents that are participating securities.

(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. 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 goodwill impairment charge was due to a decline in our stock price as a result of the market volatility caused by three bank failures in the first half of 2023. Net interest income decreased due mainly to higher interest expense on deposits and borrowings attributable primarily to higher market interest rates, offset partially by higher interest income on interest-earning assets due mostly to higher market rates. Noninterest income decreased due primarily to an increase of $392.1 million in loss on sale of securities and a $161.9 million increase in the loss on sale of loans and leases. The decrease in gain on sales of securities was due mainly to sales of $2.7 billion in the fourth quarter of 2023 for a net loss of $442.4 million. Such sales were done strategically with proceeds used to pay down FHLB borrowings and other high-cost fundings to improve the mix of interest-earning assets and interest-bearing liabilities of the Bank going forward. Operating expense increased due primarily to an increase of $110.2 million in insurance and assessments expense due to higher FDIC assessments, an increase of $68.8 million in customer related expense attributable mainly to higher customer analysis expenses related to higher earnings credit rates due to higher market interest rates, and a $136.9 million increase in acquisition and reorganization expense due to costs related to the Merger. The increase in the provision for credit losses was due to a $52.0 million provision for 2023 compared to a provision of $24.5 million for 2022. The increase in the provision for credit losses in 2023 was due primarily to the growth in loans and leases resulting from the Merger, an increase in net charge-offs, and management's expectation of a less favorable economic forecast. The increase in preferred stock dividends was due to a full year of dividends in 2023 compared to a partial year in 2022 following the legacy PacWest Bancorp preferred stock issuance on June 6, 2022. The decrease in income tax expense was due primarily to pre-tax losses incurred in 2023 compared to pre-tax earnings in 2022.

2022 Compared to 2021

Net earnings available for common stockholders for the year ended December 31, 2022 was $404.3 million, or $5.14 per diluted share, compared to net earnings available to common stockholders for the year ended December 31, 2021 of $607.0 million, or $7.76 per diluted share. The $202.7 million decrease in net earnings available to common stockholders was due mainly to a higher provision for credit losses of $186.5 million, lower noninterest income of $119.1 million, higher operating expense of $110.8 million, a goodwill impairment charge of $29.0 million in the fourth quarter of 2022, and higher preferred stock dividends of $19.3 million, offset partially by higher net interest income of $186.9 million and lower income tax expense of $71.4 million. The increase in the provision for credit losses was due to a $24.5 million provision for 2022 compared to a provision benefit of $162.0 million for 2021. The increase in the provision for credit losses in 2022 was due primarily to the growth in loans and leases and unfunded loan commitments and a less favorable economic forecast, offset partially by a decrease in qualitative reserves. The provision benefit in 2021 was due mainly to improvement in both macroeconomic forecast variables and loan portfolio credit quality metrics. Noninterest income decreased due primarily to reductions of $51.9 million in gain on sale of securities, $46.9 million in warrant income, and $26.5 million in dividends and gains (losses) on equity investments, with the latter two attributable mostly to a decrease in capital markets activity in 2022. The decrease in gain on sale of securities was due mainly to sales of $1.0 billion in the fourth quarter of 2022 for a net loss of $49.3 million. Such sales were done strategically with proceeds used to pay down FHLB borrowings and to improve the capital and liquidity position of the Bank going forward. Operating expense increased due primarily to an increase of $38.4 million in compensation expense and an increase of $34.8 million in customer related expense attributable mainly to higher customer analysis expenses. The increase in compensation expense was due mostly to the incremental expense of the higher headcount in 2022 from the acquired operations of Civic and the HOA Business in 2021, incremental additions to staff in certain business lines, and staff added to support our digital and innovation initiatives. The goodwill impairment charge related to Civic was the result of a strategy to restructure this lending subsidiary. The increase in preferred stock dividends was due to the legacy PacWest Bancorp preferred stock issuance on June 6, 2022. Net interest income increased due mainly to higher interest income on loans and leases and investment securities attributable primarily to higher average balances, offset partially by higher interest expense on interest-bearing liabilities due to higher rates and average balances. 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:

[[GREPCENT_TABLE]]
[["","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\u2011earning 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","","","","","","","$","35,518,488"],["LIABILITIES AND"],["STOCKHOLDERS\u2019 EQUITY:"],["Interest checking","$","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\u2011bearing liabilities","29,553,668","","","1,223,872","","","4.14","%","","22,458,489","","","265,727","","","1.18","%","","19,084,734","","","54,905","","","0.29","%"],["Noninterest\u2011bearing 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\u2019 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","%"]]
[[/GREPCENT_TABLE]]

_____________________

(1)    Tax equivalent.

(2)    Includes net loan discount accretion of $9.7 million for 2023 and net loan premium amortization of $17.9 million and $11.4 million for 2022 and 2021, respectively.

(3)    Includes tax-equivalent adjustments of $2.3 million, $7.9 million, $6.6 million for the years ended 2023, 2022, and 2021, respectively, related to tax-exempt income on loans. Includes tax-equivalent adjustments of $0.0 million, $5.9 million, and $8.6 million for 2023, 2022, and 2021, respectively, related to tax-exempt income on investment securities. The federal statutory rate utilized was 21%.

(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. 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 changes in the yields earned on average interest‑earning assets and rates paid on average interest‑bearing liabilities are referred to as changes in “rate.” The changes in the amounts of average interest‑earning assets and interest‑bearing liabilities are referred to as changes in “volume.” The change in interest income/expense attributable to rate reflects the change in rate multiplied by the prior year’s volume. The change in interest income/expense attributable to volume reflects the change in volume multiplied by the prior year’s rate. The change in interest income/expense not attributable specifically to either rate or volume is allocated ratably between the two categories.

The following table presents changes in interest income (tax equivalent) and interest expense and related changes in rate and volume for the years indicated:

[[GREPCENT_TABLE]]
[["","2023 Compared to 2022","","2022 Compared to 2021"],["","Total","","Increase (Decrease)","","Total","","Increase (Decrease)"],["","Increase","","Due to","","Increase","","Due to"],["","(Decrease)","","Rate","","Volume","","(Decrease)","","Rate","","Volume"],["","(In thousands)"],["Interest Income:"],["Loans and leases (1)","$","178,252","","","$","215,431","","","$","(37,179)","","","$","317,422","","","$","(1,975)","","","$","319,397"],["Investment securities (1)","(40,628)","","","17,047","","","(57,675)","","","53,522","","","15,318","","","38,204"],["Deposits in financial institutions","265,489","","","156,500","","","108,989","","","25,354","","","33,668","","","(8,314)"],["Total interest income (1)","403,113","","","388,978","","","14,135","","","396,298","","","47,011","","","349,287"],["Interest Expense:"],["Interest checking deposits","154,241","","","152,848","","","1,393","","","57,785","","","58,222","","","(437)"],["Money market deposits","94,651","","","140,477","","","(45,826)","","","82,383","","","79,233","","","3,150"],["Savings deposits","30,790","","","30,588","","","202","","","40","","","36","","","4"],["Time deposits","268,292","","","144,192","","","124,100","","","32,433","","","25,708","","","6,725"],["Total interest-bearing deposits","547,974","","","468,105","","","79,869","","","172,641","","","163,199","","","9,442"],["Borrowings","391,099","","","62,576","","","328,523","","","25,022","","","18,458","","","6,564"],["Subordinated debt","19,072","","","18,524","","","548","","","13,159","","","7,942","","","5,217"],["Total interest expense","958,145","","","549,205","","","408,940","","","210,822","","","189,599","","","21,223"],["Net interest income (1)","$","(555,032)","","","$","(160,227)","","","$","(394,805)","","","$","185,476","","","$","(142,588)","","","$","328,064"]]
[[/GREPCENT_TABLE]]

_____________________

(1)    Tax equivalent.

2023 Compared to 2022

Net interest income decreased by $543.6 million to $747.1 million for the year ended December 31, 2023 compared to $1.3 billion for the year ended December 31, 2022 due mainly to higher funding costs from higher market interest rates, changes in the balance sheet mix, and the enhanced liquidity management strategies in the first half of 2023 due to the operating environment. The net interest margin decreased by 151 basis points to 1.98% as the cost of average total funds increased by 260 basis points, while the yield on average interest-earning assets increased by 101 basis points. The yield on average interest-earning assets increased by 101 basis points to 5.21% for the year ended December 31, 2023 from 4.20% for the same period in 2022 due mainly to higher market interest rates, partially offset by the changes in the mix of average interest-earning assets. The yield on average loans and leases increased by 85 basis points to 5.92% for 2023 from 5.07% for 2022. The yield on average investment securities increased by 20 basis points to 2.56% for the same period. Average loans and leases represented 67% of average interest-earning assets for the year ended December 31, 2023 compared to 70% for the year ended December 31, 2022. Average loans and leases decreased by $714.1 million due mainly to loan sales during the year to increase liquidity to fund potential deposit outflows.

69

The cost of average total funds increased by 260 basis points to 3.34% for the year ended December 31, 2023 from 0.74% for year ended December 31, 2022 due mainly to higher market rates and changes in the balance sheet mix. The cost of average total deposits increased by 202 basis points to 2.61% for the year ended December 31, 2023 compared to the same period in 2022. The cost of average interest-bearing liabilities increased by 296 basis points to 4.14% for the year ended December 31, 2023 compared to 1.18% for the same period in 2022, driven primarily by a 249 basis point increase in the cost of average interest-bearing deposits to 3.46% from 0.97% for the same period in 2022. The increase in the cost of these funding sources was due mainly to the impact of higher market interest rates. Average noninterest-bearing deposits decreased by $6.5 billion for the year ended December 31, 2023 compared to the same period in 2022 and average total deposits decreased by $5.6 billion. Average noninterest-bearing deposits represented 25% of total average deposits for the year ended December 31, 2023 compared to 40% for the same period in 2022.

2022 Compared to 2021

Net interest income increased by $186.9 million to $1.3 billion for the year ended December 31, 2022 compared to $1.1 billion for the year ended December 31, 2021 due mainly to higher interest income on loans and leases and investment securities, offset partially by higher interest expense. The increase in interest income on loans and leases was attributable to a higher average balance, offset partially by a lower yield on average loans and leases. The tax equivalent yield on average loans and leases decreased slightly to 5.07% for 2022 from 5.08% for 2021 due mainly to higher amortized fees in 2021 resulting from the significant fees from PPP loans in 2021, offset partially by higher market rates in 2022. Amortized fees added approximately 21 basis points to loan yields in 2022 and 38 basis points to loan yields in 2021. The increase in interest income on investment securities was due to a higher average balance and higher yield on average investment securities. The increase in interest expense was due to a higher cost and balance of average interest-bearing liabilities.

The tax equivalent NIM for the year ended December 31, 2022 was 3.49% compared to 3.40% for the year ended December 31, 2021. The increase in the tax equivalent NIM was due mostly to the change in the mix of average interest-earning assets. The change in the mix of average interest-earning assets was due to the increase in the balance of average loans and leases as a percentage of average interest-earning assets from 60% to 70%, the increase in the balance of average investment securities as a percentage of average interest-earning assets from 23% to 24%, and the decrease in the balance of average deposits in financial institutions as a percentage of average interest-earning assets from 17% to 6%. The balance of average loans and leases increased by $6.3 billion, the balance of average investment securities increased by $1.6 billion, and the balance of average deposits in financial institutions declined by $3.5 billion.

The cost of average total deposits increased to 0.59% for the year ended December 31, 2022 from 0.09% for the year ended December 31, 2021 due mainly to higher market rates on our deposit products and higher average balances and rates on higher-cost wholesale and brokered time deposits. 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:

[[GREPCENT_TABLE]]
[["","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","","","$","(149,500)"],["Addition to (reduction in) reserve for"],["unfunded loan commitments","(61,500)","","","(79,500)","","","18,000","","","30,500","","","(12,500)"],["Total loan-related provision","52,000","","","29,000","","","23,000","","","185,000","","","(162,000)"],["Addition to allowance for held-to-maturity securities","\u2014","","","(1,500)","","","1,500","","","1,500","","","\u2014"],["Total provision for credit losses","$","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","%"]]
[[/GREPCENT_TABLE]]

______________________

(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.

Provisions for credit losses are charged to earnings for both on and off‑balance sheet credit exposures. 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. During 2023, the $52.0 million loan-related provision included a $113.5 million provision for loan losses due primarily to the growth in loans and leases resulting from the Merger, an increase in net charge-offs, and management's expectation of a less favorable economic forecast, offset partially by a $61.5 million reversal of the provision for credit losses related to lower unfunded loan commitments. The provision for loan losses in 2023 included an initial provision of $22.2 million for acquired legacy Banc of California non-PCD loans. The provision for credit losses on loans was $23.0 million during the year ended December 31, 2022, and included a $5.0 million provision for loan losses due primarily to the growth in loans and leases and a less favorable economic forecast, offset partially by a decrease in qualitative reserves, and an $18.0 million provision related to higher unfunded loan commitments.

71

2022 Compared to 2021

The provision for credit losses increased by $186.5 million to a provision of $24.5 million for the year ended December 31, 2022 compared to a provision benefit of $162.0 million for the year ended December 31, 2021. During 2022, the $23.0 million loan-related provision was due primarily to the growth in loans and leases and unfunded loan commitments and a less favorable economic forecast, offset partially by a decrease in qualitative reserves. We also recorded a $1.5 million provision on held-to-maturity securities related to the $2.3 billion transfer from available-for-sale securities during the second quarter of 2022 and the estimated current expected credit loss on those held-to-maturity securities. During 2021, a provision benefit was recorded as a result of improvement in both macro-economic forecast variables and loan portfolio credit quality metrics offset partially by increased provisions for unfunded loan commitments and loan growth.

Certain circumstances may lead to increased provisions for credit losses on loans and leases in the future. Examples of such circumstances are an increased amount of classified and/or nonaccrual loans and leases, net loan and lease and unfunded commitment growth, and changes in economic conditions and forecasts. Changes in economic conditions and forecasts include the rate of economic growth, the unemployment rate, the rate of inflation, changes in the general level of interest rates, changes in real estate values, and adverse conditions in borrowers’ businesses.

For information regarding the allowance for credit losses on loans and leases held for investment, see - “Balance Sheet Analysis - Allowance for Credit Losses on Loans and Leases Held for Investment,” Note 1(j). Nature of Operations and Summary of Significant Accounting Policies - Allowance for Credit Losses on Loans and Leases Held for Investment, and Note 5. 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. Investment Securities of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data.”

Noninterest (Loss) Income

The following table summarizes noninterest (loss) income by category for the years indicated:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","","","Increase","","","","Increase"],["Noninterest (Loss) Income","2023","","(Decrease)","","2022","","(Decrease)","","2021"],["","(In thousands)"],["Leased equipment income","$","63,167","","","$","12,581","","","$","50,586","","","$","4,840","","","$","45,746"],["Other commissions and fees","38,086","","","(5,549)","","","43,635","","","1,348","","","42,287"],["Service charges on deposit accounts","16,468","","","2,477","","","13,991","","","722","","","13,269"],["(Loss) gain on sale of loans and leases","(161,346)","","","(161,864)","","","518","","","(1,215)","","","1,733"],["(Loss) gain on sale of securities","(442,413)","","","(392,092)","","","(50,321)","","","(51,936)","","","1,615"],["Dividends and gains (losses) on equity investments","15,731","","","19,120","","","(3,389)","","","(26,504)","","","23,115"],["Warrant (loss) income","(718)","","","(3,208)","","","2,490","","","(46,851)","","","49,341"],["LOCOM HFS adjustment","(8,461)","","","(8,461)","","","\u2014","","","\u2014","","","\u2014"],["Other income","31,201","","","13,884","","","17,317","","","496","","","16,821"],["Total noninterest (loss) income","$","(448,285)","","","$","(523,112)","","","$","74,827","","","$","(119,100)","","","$","193,927"]]
[[/GREPCENT_TABLE]]

2023 Compared to 2022

Noninterest income decreased by $523.1 million to a loss of $448.3 million for the year ended December 31, 2023 compared to $74.8 million for the year ended December 31, 2022 due mainly to a $392.1 million increase in the loss on the sale of securities and a $161.9 million increase in the loss on the sale of loans, offset partially by higher dividends and gains from equity investments, higher leased equipment income, and higher other income primarily from legal settlements totaling $22.1 million.

72

2022 Compared to 2021

Noninterest income decreased by $119.1 million to $74.8 million for the year ended December 31, 2022 compared to $193.9 million for the year ended December 31, 2021 due mainly to decreases of $51.9 million in gain on sale of securities, $46.9 million in warrant income, and $26.5 million in dividends and gains on equity investments, with the declines in the latter two items due to decreased capital market activity in 2022 and volatility in equity markets resulting from geopolitical tensions and inflationary pressures. The decrease in gain on sale of securities was due mainly to sales of $1.0 billion in the fourth quarter of 2022 for a net loss of $49.3 million. Such sales were done strategically with proceeds used to pay down FHLB borrowings and to improve the capital and liquidity position of the Bank going forward. The decrease in dividends and gains on equity investments was due primarily to lower gains on sales of equity investments, offset partially by higher fair value gains on equity investments still held. Warrant income decreased due principally to fewer gains from exercised warrants, driven by less capital market activity in 2022.

Noninterest Expense

The following table summarizes noninterest expense by category for the years indicated:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","","","Increase","","","","Increase"],["Noninterest Expense","2023","","(Decrease)","","2022","","(Decrease)","","2021"],["","(In thousands)"],["Compensation","$","332,353","","","$","(74,486)","","","$","406,839","","","$","38,389","","","$","368,450"],["Insurance and assessments","135,666","","","110,180","","","25,486","","","8,121","","","17,365"],["Customer related expense","124,104","","","68,831","","","55,273","","","34,769","","","20,504"],["Occupancy","61,668","","","704","","","60,964","","","2,542","","","58,422"],["Data processing","44,252","","","6,075","","","38,177","","","7,900","","","30,277"],["Leased equipment depreciation","34,243","","","(1,415)","","","35,658","","","(97)","","","35,755"],["Other professional services","24,623","","","(5,655)","","","30,278","","","8,786","","","21,492"],["Loan expense","20,458","","","(4,114)","","","24,572","","","7,541","","","17,031"],["Intangible asset amortization","11,419","","","(2,157)","","","13,576","","","842","","","12,734"],["Other","150,026","","","102,031","","","47,995","","","2,023","","","45,972"],["Total operating expense","938,812","","","199,994","","","738,818","","","110,816","","","628,002"],["Acquisition, integration and reorganization costs","142,633","","","136,930","","","5,703","","","(3,712)","","","9,415"],["Goodwill impairment","1,376,736","","","1,347,736","","","29,000","","","29,000","","","\u2014"],["Total noninterest expense","$","2,458,181","","","$","1,684,660","","","$","773,521","","","$","136,104","","","$","637,417"]]
[[/GREPCENT_TABLE]]

2023 Compared to 2022

Noninterest expense increased by $1.7 billion to $2.5 billion for the year ended December 31, 2023 compared to $773.5 million for the year ended December 31, 2022. The increase was due mainly to higher (i) goodwill impairment of $1.35 billion, (ii) acquisition, integration and reorganization costs of $136.9 million, (iii) regulatory assessments of $110.2 million due to the special FDIC assessment of $32.7 million and the generally-applicable FDIC increased assessment rates in 2023, (iv) customer related expense of $68.8 million, and (v) other expenses of $102.0 million, including $106.8 million of unfunded commitments fair value loss adjustments related to loan sales, offset partially by lower compensation expense of $74.5 million.

73

2022 Compared to 2021

Noninterest expense increased by $136.1 million to $773.5 million for the year ended December 31, 2022 compared to $637.4 million for the year ended December 31, 2021 due in part to a goodwill impairment charge of $29.0 million incurred in the fourth quarter of 2022 related to Civic. Excluding the goodwill impairment charge and acquisition, integration and reorganization costs, noninterest expense increased by $110.8 million to $738.8 million in 2022. This increase was due mainly to increases of $38.4 million in compensation expense, $34.8 million in customer related expense, $8.8 million in other professional services, and $8.1 million in insurance and assessments. The increase in compensation was due mostly to the incremental expense of the higher headcount in 2022 from the acquired operations of Civic and the HOA Business in 2021, incremental additions to staff in certain business lines, and staff added to support our digital and innovation initiatives. The increase in customer related expense was attributable mainly to higher customer analysis expenses. The increase in other professional services was due mainly to issuance costs of the credit-linked notes transaction in September 2022. The increase in insurance and assessments expense was due to higher FDIC assessment expense attributable to downward trends in core deposits and capital levels in the first half of 2022 resulting in a higher assessment rate.

Income Taxes

The effective tax rates were 14.1%, 25.4%, and 26.2% for the years ended December 31, 2023, 2022, and 2021. Excluding non-deductible goodwill impairment, the effective income tax rate was 26.2% for the year ended December 31, 2023. The lower effective tax rate in 2023 was due mainly to the effect of the non-deductible goodwill impairment. The decrease in the effective tax rate for 2022 compared to the 26.2% rate for 2021 was due mainly to a change in the apportionment of taxable income for state taxes in 2022. The Company's 2023 blended statutory tax rate for federal and state was 28.1%. For further information on income taxes, see Note 16. Income Taxes of the Notes to Consolidated Financial Statements contained in “Item 8. 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:

[[GREPCENT_TABLE]]
[["","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","","","$","2,898,210","","","27","%","","2.9"],["Agency residential CMOs","284,334","","","12","%","","4.4","","","457,063","","","9","%","","4.4","","","1,038,134","","","10","%","","3.2"],["Corporate debt securities","267,232","","","11","%","","1.9","","","311,905","","","7","%","","2.7","","","527,094","","","5","%","","4.2"],["Agency commercial MBS","253,306","","","11","%","","3.4","","","487,606","","","10","%","","4.7","","","1,688,967","","","16","%","","5.2"],["Private label residential CMOs","158,412","","","7","%","","7.7","","","166,724","","","4","%","","5.6","","","264,417","","","2","%","","3.9"],["Collateralized loan obligations","108,416","","","5","%","","0.1","","","102,261","","","2","%","","\u2014","","","385,362","","","4","%","","0.1"],["Municipal securities","28,083","","","1","%","","4.5","","","339,326","","","7","%","","5.6","","","2,315,968","","","22","%","","7.7"],["Private label commercial MBS","20,813","","","1","%","","2.1","","","26,827","","","1","%","","2.3","","","450,217","","","4","%","","7.5"],["Asset-backed securities","19,952","","","1","%","","\u2014","","","22,413","","","\u2014","%","","\u2014","","","129,547","","","1","%","","0.1"],["SBA securities","13,739","","","\u2014","%","","3.2","","","17,250","","","\u2014","%","","2.5","","","29,644","","","\u2014","%","","3.7"],["U.S. Treasury securities","4,968","","","\u2014","%","","0.1","","","670,070","","","14","%","","4.9","","","966,898","","","9","%","","6.6"],["Total securities"],["available-for-sale","$","2,346,864","","","100","%","","5.9","","","$","4,843,487","","","100","%","","5.9","","","$","10,694,458","","","100","%","","4.8"]]
[[/GREPCENT_TABLE]]

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, and corporate debt securities from available-for-sale to held-to-maturity. The unrealized losses on the transferred securities are being amortized over the expected remaining life of the securities in a manner consistent with the amortization of a premium or discount.

75

The following table presents a summary of contractual rates and contractual maturities of our securities available‑for‑sale as of the date indicated:

[[GREPCENT_TABLE]]
[["","","","","","Due After","","Due After"],["","Due","","One Year","","Five Years"],["","Within","","Through","","Through","","Due After"],["","One Year","","Five Years","","Ten Years","","Ten Years","","Total"],["","Fair","","","","Fair","","","","Fair","","","","Fair","","","","Fair"],["December 31, 2023","Value","","Rate(1)","","Value","","Rate(1)","","Value","","Rate(1)","","Value","","Rate(1)","","Value","","Rate(1)"],["","(Dollars in thousands)"],["Agency residential MBS","$","\u2014","","","\u2014","%","","$","\u2014","","","\u2014","%","","$","\u2014","","","\u2014","%","","$","1,187,609","","","3.35","%","","$","1,187,609","","","3.35","%"],["Agency residential CMOs","\u2014","","","\u2014","%","","\u2014","","","\u2014","%","","33,480","","","3.75","%","","250,854","","","3.93","%","","284,334","","","3.91","%"],["Corporate debt securities","\u2014","","","\u2014","%","","4,850","","","7.22","%","","262,382","","","5.73","%","","\u2014","","","\u2014","%","","267,232","","","5.76","%"],["Agency commercial MBS","\u2014","","","\u2014","%","","157,087","","","3.15","%","","79,600","","","3.30","%","","16,619","","","3.69","%","","253,306","","","3.24","%"],["Private label residential CMOs","\u2014","","","\u2014","%","","\u2014","","","\u2014","%","","\u2014","","","\u2014","%","","158,412","","","3.13","%","","158,412","","","3.13","%"],["Collateralized loan obligations","\u2014","","","\u2014","%","","\u2014","","","\u2014","%","","79,867","","","7.68","%","","28,549","","","7.65","%","","108,416","","","7.67","%"],["Municipal securities","\u2014","","","\u2014","%","","6,991","","","3.62","%","","21,092","","","3.45","%","","\u2014","","","\u2014","%","","28,083","","","3.49","%"],["Private label commercial MBS","\u2014","","","\u2014","%","","\u2014","","","\u2014","%","","1,283","","","4.24","%","","19,530","","","2.98","%","","20,813","","","3.06","%"],["Asset-backed securities","\u2014","","","\u2014","%","","\u2014","","","\u2014","%","","\u2014","","","\u2014","%","","19,952","","","6.59","%","","19,952","","","6.59","%"],["SBA securities","\u2014","","","\u2014","%","","2,534","","","2.95","%","","\u2014","","","\u2014","%","","11,205","","","3.17","%","","13,739","","","3.13","%"],["U.S. Treasury securities","4,968","","","\u2014","%","","\u2014","","","\u2014","%","","\u2014","","","\u2014","%","","\u2014","","","\u2014","%","","4,968","","","\u2014","%"],["Total securities"],["available-for-sale","$","4,968","","","\u2014","%","","$","171,462","","","3.28","%","","$","477,704","","","5.41","%","","$","1,692,730","","","3.53","%","","$","2,346,864","","","3.88","%"]]
[[/GREPCENT_TABLE]]

_______________________________________

(1)    Rates presented are weighted average rates. Rates on tax-exempt securities are contractual rates and are not presented on a tax-equivalent basis.

Securities Held-to-Maturity

The following table presents the composition and durations of our securities held-to-maturity as of the dates indicated:

[[GREPCENT_TABLE]]
[["","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","$","1,247,310","","","55","%","","8.1","","","1,243,443","","","55","%","","9.0"],["Agency commercial MBS","433,827","","","19","%","","6.8","","","427,411","","","19","%","","7.5"],["Private label commercial MBS","350,493","","","15","%","","6.3","","","345,825","","","15","%","","7.1"],["U.S. Treasury securities","187,033","","","8","%","","6.7","","","184,162","","","8","%","","7.5"],["Corporate debt securities","70,128","","","3","%","","4.4","","","69,794","","","3","%","","5.8"],["Total securities held-to-maturity","$","2,288,791","","","100","%","","7.4","","","$","2,270,635","","","100","%","","8.2"]]
[[/GREPCENT_TABLE]]

76

The following table shows the geographic composition of the majority of our held-to-maturity municipal securities portfolio as of the date indicated:

[[GREPCENT_TABLE]]
[["","December 31, 2023"],["","Amortized","","% of"],["Municipal Securities by State","Cost","","Total"],["","(Dollars in thousands)"],["California","$","310,539","","","25","%"],["Texas","276,349","","","22","%"],["Washington","189,466","","","15","%"],["Oregon","78,937","","","6","%"],["Maryland","64,660","","","5","%"],["Georgia","55,362","","","4","%"],["Colorado","48,946","","","4","%"],["Minnesota","35,017","","","3","%"],["Tennessee","30,939","","","3","%"],["Florida","21,967","","","2","%"],["Total of ten largest states","1,112,182","","","89","%"],["All other states","135,128","","","11","%"],["Total municipal securities held-to-maturity","$","1,247,310","","","100","%"]]
[[/GREPCENT_TABLE]]

The following table presents a summary of contractual rates and contractual maturities of our securities held-to-maturity as of the date indicated:

[[GREPCENT_TABLE]]
[["","","","","","Due After","","Due After"],["","Due","","One Year","","Five Years"],["","Within","","Through","","Through","","Due After"],["","One Year","","Five Years","","Ten Years","","Ten Years","","Total"],["","Amortized","","","","Amortized","","","","Amortized","","","","Amortized","","","","Amortized"],["December 31, 2023","Cost","","Rate(1)","","Cost","","Rate(1)","","Cost","","Rate(1)","","Cost","","Rate(1)","","Cost","","Rate(1)"],["","(Dollars in thousands)"],["Municipal securities","$","\u2014","","","\u2014","%","","$","\u2014","","","\u2014","%","","$","390,724","","","2.14","%","","$","856,586","","","3.53","%","","$","1,247,310","","","3.10","%"],["Agency commercial MBS","\u2014","","","\u2014","%","","\u2014","","","\u2014","%","","433,827","","","2.04","%","","\u2014","","","\u2014","%","","433,827","","","2.04","%"],["Private label commercial MBS","\u2014","","","\u2014","%","","\u2014","","","\u2014","%","","36,407","","","3.00","%","","314,086","","","2.78","%","","350,493","","","2.80","%"],["U.S. Treasury securities","\u2014","","","\u2014","%","","\u2014","","","\u2014","%","","187,033","","","1.26","%","","\u2014","","","\u2014","%","","187,033","","","1.26","%"],["Corporate debt securities","\u2014","","","\u2014","%","","\u2014","","","\u2014","%","","10,191","","","6.28","%","","59,937","","","4.89","%","","70,128","","","5.10","%"],["Total securities"],["held-to-maturity","$","\u2014","","","\u2014","%","","$","\u2014","","","\u2014","%","","$","1,058,182","","","2.02","%","","$","1,230,609","","","3.41","%","","$","2,288,791","","","2.76","%"]]
[[/GREPCENT_TABLE]]

_______________________________________

(1)    Rates presented are weighted average rates. 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:

[[GREPCENT_TABLE]]
[["","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","","","\u2014","%","","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","%","","\u2014","","","\u2014","%","","\u2014","","","\u2014","%"],["Paycheck Protection Program","8,183","","","\u2014","%","","10,192","","","\u2014","%","","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"]]
[[/GREPCENT_TABLE]]

________________________________

(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.

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 higher balance was attributable primarily to the balances acquired in the Merger.

•Multi-family real estate mortgage loans increased by 7% to $6.0 billion or 23% of total loans and leases held for investment at December 31, 2023 from $5.6 billion or 20% at December 31, 2022. The higher balance was attributable primarily to the balances acquired in the Merger.

•Other residential real estate mortgage loans decreased by 19% to $5.1 billion or 20% of total loans and leases held for investment at December 31, 2023 from $6.3 billion or 22% at December 31, 2022. The decrease was attributable primarily to investor-owned residential loans (Civic) decreasing by $652.3 million or 23% and residential renovation loans (Civic) decreasing by $415.1 million or 85% due to loan sales and runoff during 2023.

•Commercial real estate construction and land loans decreased by 15% to $759.6 million or 3% of total loans and leases held for investment at December 31, 2023 from $898.6 million or 3% at December 31, 2022 due to the construction loan sale in June 2023.

•Residential real estate construction and land loans decreased by 26% to $2.4 billion or 9% of total loans and leases held for investment at December 31, 2023 from $3.3 billion or 11% at December 31, 2022 due to the construction loan sale in June 2023.

•Asset-based loans and leases decreased by 57% to $2.2 billion or 9% of total loans and leases held for investment at December 31, 2023 from $5.1 billion or 18% at December 31, 2022. The lower balance was attributable primarily to the balance of lender finance loans decreasing by 85% to $487.0 million at December 31, 2023 from $3.2 billion at December 31, 2022. This decrease was due mainly to sales in connection with the Company's strategic plan to divest this non-core loan portfolio.

•Venture capital loans decreased by 29% to $1.4 billion or 6% of total loans and leases held for investment at December 31, 2023 from $2.0 billion or 7% at December 31, 2022. 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 higher balance was attributable primarily to the warehouse lending portfolio added in connection with the Merger with a balance of $554.9 million at December 31, 2023, as well as other lending increasing by 27% to $1.0 billion at December 31, 2023 from $750.6 million at December 31, 2022, and secured business loans increasing by 77% to $614.1 million at December 31, 2023 from $347.7 million at December 31, 2022.

79

The following table presents the geographic composition of our real estate loans held for investment, net of deferred fees, by the top ten states and all other states combined (in the order presented for the current year-end) as of the dates indicated:

[[GREPCENT_TABLE]]
[["","December 31,"],["","2023","","2022"],["","","","% of","","","","% of"],["Real Estate Loans by State","Balance","","Total","","Balance","","Total"],["","(Dollars in thousands)"],["California","$","12,262,311","","","64","%","","$","10,832,550","","","55","%"],["Colorado","1,167,659","","","6","%","","1,029,284","","","5","%"],["Texas","878,538","","","5","%","","933,280","","","5","%"],["Florida","837,467","","","4","%","","1,360,163","","","7","%"],["Arizona","719,299","","","4","%","","572,951","","","3","%"],["Washington","533,931","","","3","%","","689,873","","","3","%"],["Nevada","411,020","","","2","%","","511,485","","","3","%"],["Oregon","348,166","","","2","%","","442,353","","","2","%"],["Georgia","257,763","","","1","%","","361,577","","","2","%"],["Tennessee","225,166","","","1","%","","247,926","","","\u2014","%"],["Total of 10 largest states","17,641,320","","","92","%","","16,981,442","","","85","%"],["All other states","1,629,934","","","8","%","","2,901,054","","","15","%"],["Total real estate loans held for investment, net of deferred fees","$","19,271,254","","","100","%","","$","19,882,496","","","100","%"]]
[[/GREPCENT_TABLE]]

At December 31, 2023 and 2022, 64% and 55% of our real estate loans were collateralized by property located in California because our full-service branches and our community banking activities are primarily located in California.

The following table presents a roll forward of loans and leases held for investment, net of deferred fees, for the years indicated:

[[GREPCENT_TABLE]]
[["Roll Forward of Loans and Leases Held for Investment,","Year Ended December 31,"],["Net of Deferred Fees (1)","2023","","2022","","2021"],["","(Dollars in thousands)"],["Balance, beginning of year","$","28,609,129","","","$","22,941,548","","","$","19,083,377"],["Additions:"],["Production","951,465","","","8,435,396","","","9,054,767"],["Disbursements","5,485,138","","","7,058,553","","","5,952,158"],["Total production and disbursements","6,436,603","","","15,493,949","","","15,006,925"],["Reductions:"],["Payoffs","(4,490,009)","","","(4,909,797)","","","(7,337,296)"],["Paydowns","(2,998,257)","","","(4,755,033)","","","(3,728,950)"],["Total payoffs and paydowns","(7,488,266)","","","(9,664,830)","","","(11,066,246)"],["Sales","(3,299,857)","","","(63,263)","","","(117,263)"],["Transfers to foreclosed assets","(20,915)","","","(7,985)","","","(1,062)"],["Charge-offs","(63,428)","","","(14,037)","","","(10,715)"],["Transfers to loans held for sale","(3,162,615)","","","(76,253)","","","(25,554)"],["Total reductions","(14,035,081)","","","(9,826,368)","","","(11,220,840)"],["Transfers from loans held for sale","513,914","","","\u2014","","","\u2014"],["Loans acquired through merger and acquisition","3,965,122","","","\u2014","","","72,086"],["Net (decrease) increase","(3,119,442)","","","5,667,581","","","3,858,171"],["Balance, end of year","$","25,489,687","","","$","28,609,129","","","$","22,941,548"]]
[[/GREPCENT_TABLE]]

80

Loan and Lease Interest Rate Sensitivity

The following table presents contractual maturity information for loans and leases held for investment, net of deferred fees, as of the date indicated:

[[GREPCENT_TABLE]]
[["","","","Due After"],["","Due","","One Year","","Due After"],["","Within","","Through","","Five to","","Due After"],["December 31, 2023","One Year","","Five Years","","15 Years","","15 Years","","Total"],["","(In thousands)"],["Real estate mortgage","$","1,428,103","","","$","2,527,795","","","$","3,842,822","","","$","8,313,265","","","$","16,111,985"],["Real estate construction and land","1,402,663","","","1,352,843","","","8,459","","","395,304","","","3,159,269"],["Commercial","2,415,675","","","2,301,464","","","814,438","","","233,730","","","5,765,307"],["Consumer","11,748","","","53,622","","","227,205","","","160,551","","","453,126"],["Total loans and leases held for"],["investment, net of deferred fees","$","5,258,189","","","$","6,235,724","","","$","4,892,924","","","$","9,102,850","","","$","25,489,687"]]
[[/GREPCENT_TABLE]]

At December 31, 2023, we had $5.3 billion of loans and leases held for investment due to mature over the next twelve months. For any loan modifications made to these borrowers, an assessment of whether the borrower is experiencing financial difficulty is made on the date of the modification. Loans are assessed to determine whether the modification constitutes a new loan or a continuation of the existing loan. Depending on the terms of the modification and nature of the borrower, this may result in a downgrade or placing the loan on nonaccrual status, which in turn would impact the loan’s classification within the ALLL. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the ALLL because of the measurement methodologies used to estimate the allowance, a change to the ALLL is generally not recorded upon modification.

The following table presents the interest rate profile of loans and leases held for investment, net of deferred fees, due after one year as of the date indicated:

[[GREPCENT_TABLE]]
[["","Due After One Year"],["","Fixed","","Variable"],["December 31, 2023","Rate","","Rate","","Total"],["","(In thousands)"],["Real estate mortgage","$","6,290,552","","","$","8,393,330","","","$","14,683,882"],["Real estate construction and land","872,241","","","884,365","","","1,756,606"],["Commercial","1,751,985","","","1,597,647","","","3,349,632"],["Consumer","432,279","","","9,099","","","441,378"],["Total","$","9,347,057","","","$","10,884,441","","","$","20,231,498"]]
[[/GREPCENT_TABLE]]

For information regarding our variable-rate loans subject to interest rate floors, see "Item 7A. Quantitative and Qualitative Disclosures About Market Risk."

81

Non-Core Loan Portfolios

The following table presents non-core loan portfolio information at December 31, 2023, where we have ceased making new originations and will allow these loans to repay upon maturity:

[[GREPCENT_TABLE]]
[["","December 31, 2023"],["","","","","","","","Weighted"],["","","","","","","","Average"],["","","","% of","","Weighted","","Remaining"],["","","","Total","","Average","","Life"],["Non-Core Loan Portfolio","Balance","","Loans","","Rate (1)","","(In Years)"],["","(Dollars in millions)"],["Civic","$","2,306","","","9.0","%","","6.2","%","","27.6"],["Premium Finance","732","","","2.9","%","","3.4","%","","6.1"],["Lender Finance","447","","","1.8","%","","9.3","%","","2.0"],["Student","367","","","1.4","%","","6.1","%","","27.7"],["National Lending","25","","","0.1","%","","9.0","%","","3.3"],["Total","$","3,877","","","15.2","%","","6.0","%","","20.4"]]
[[/GREPCENT_TABLE]]

________________________________

(1)    Weighted average rate excludes loan fees and accretion.

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. The allowance for loan and lease losses is reported as a reduction of the amortized cost basis of loans and leases, while the reserve for unfunded loan commitments is included within "Accrued interest payable and other liabilities" on the consolidated balance sheets. The amortized cost basis of loans and leases does not include accrued interest receivable, which is included in "Other assets" on the consolidated balance sheets. 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.

Under the CECL methodology, expected credit losses reflect losses over the remaining contractual life of an asset, considering the effect of prepayments and available information about the collectability of cash flows, including information about relevant historical experience, current conditions, and reasonable and supportable forecasts of future events and circumstances. Thus, the CECL methodology incorporates a broad range of information in developing credit loss estimates.

For further information regarding the calculation of the allowance for credit losses on loans and leases held for investment using the CECL methodology, see Note 1(j). Nature of Operations and Summary of Significant Accounting Policies - Allowance for Credit Losses on Loans and Leases Held for Investment of the Notes to Consolidated Financial Statements contained in "Item 8. 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. Our methodology and framework along with the 4-quarter reasonable and supportable forecast period and 2-quarter reversion period have remained consistent since the implementation of CECL on January 1, 2020. Certain management assumptions are reassessed every quarter based on current expectations for credit losses, while other assumptions are assessed and updated on at least an annual basis.

82

During the second half of 2022, we switched from using the Moody’s Consensus Forecast scenario to using a multiple scenario approach primarily to better address the inherent forecast uncertainty in calculating quantitative reserves. In the fourth quarter of 2023, we used the Moody’s December 2023 Baseline, S2 Downside 75th Percentile, and S7 Next-Cycle Recession forecast scenarios for the calculation of our quantitative component. The weightings of the scenarios were based on management’s current expectation for a mild near-term recession, while acknowledging inherent uncertainty. Additionally, in order to consider the impact of higher interest rates, the prepayment rates applied in the quantitative calculation were reduced based on the slowing trend of loan payoffs and paydowns since the Federal Reserve began increasing interest rates in March 2022. The increased weighting on recessionary scenarios and lower prepayment rates compared to the prior quarters resulted in an increase to the allowance for credit losses.

As part of our allowance for credit losses methodology, we consistently incorporate the use of qualitative factors in determining the overall allowance for credit losses to capture risks that may not be adequately reflected in our quantitative models. During the first quarter of 2021, we added qualitative components that were based on management’s assessment of various qualitative factors such as economic conditions and collateral dependency. These qualitative components were primarily related to certain loan portfolios including hotels, retail, and office properties that were more directly affected by the COVID-19 pandemic and may react more slowly to the improvements in the general economic conditions. Business operations and collateral valuations in these industries have stabilized in 2022 and 2023 with the exception of office properties for which there is continued uncertainty regarding the longer-term impact of remote working and flexible/hybrid work environments. During the fourth quarter of 2023, we updated our qualitative adjustments for loans secured by office properties to assess incremental credit risk based on forecasted changes in collateral value.

The increases in the quantitative reserve were primarily due to the Merger, increased net charge-offs, and management’s expectation for a less favorable economic forecast resulted in a $52.0 million loan-related provision for credit losses in 2023.

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. 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. We calculated alternative values for our December 31, 2023 allowance for credit losses using various alternative forecast scenario weightings and the calculated amounts for the quantitative component differed from the management’s probability-weighted multiple scenario forecast ranging from decreases in the dollar amount of the quantitative component of the ACL of 0.87% to 3.19%. However, changing one assumption and not reassessing other assumptions used in the quantitative or qualitative process could yield results that are not reasonable or appropriate, hence all assumptions and information must be considered. 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. Those results would then need to be assessed from a qualitative perspective potentially requiring further adjustments to the qualitative component to arrive at a reasonable and appropriate allowance for credit losses.

The determination of the allowance for credit losses is complex and highly dependent on numerous models, assumptions, and judgments made by management. Management's current expectation for credit losses on loans and leases held for investment as quantified in the allowance for credit losses considers the impact of assumptions and is reflective of historical credit experience, economic forecasts viewed to be reasonable and supportable, current loan and lease composition, and relative credit risks known as of the balance sheet date.

Management believes the allowance for credit losses is appropriate for the current expected credit losses in our loan and lease portfolio and associated unfunded loan commitments, and the credit risk ratings and inherent loss rates currently assigned are reasonable and appropriate as of the reporting date. 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:

[[GREPCENT_TABLE]]
[["","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","%"]]
[[/GREPCENT_TABLE]]

The following table presents the changes in our allowance for credit losses on loans and leases held for investment for the years indicated:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["Allowance for Credit Losses Roll Forward","2023","","2022","","2021"],["","(Dollars in thousands)"],["Balance, beginning of year","$","291,803","","","$","273,635","","","$","433,752"],["Initial allowance on acquired PCD loans","25,623","","","\u2014","","","\u2014"],["Provision for credit losses:"],["Addition to (reduction in) allowance for loan and lease losses","113,500","","","5,000","","","(149,500)"],["Addition to (reduction in) addition to reserve for unfunded loan commitments","(61,500)","","","18,000","","","(12,500)"],["Total provision for credit losses","52,000","","","23,000","","","(162,000)"],["Loans and leases charged off:"],["Real estate mortgage","(47,370)","","","(5,056)","","","(1,135)"],["Real estate construction and land","\u2014","","","\u2014","","","(775)"],["Commercial","(13,661)","","","(6,817)","","","(7,298)"],["Consumer","(2,397)","","","(2,164)","","","(1,507)"],["Total loans and leases charged off","(63,428)","","","(14,037)","","","(10,715)"],["Recoveries on loans charged off:"],["Real estate mortgage","885","","","1,748","","","6,767"],["Real estate construction and land","\u2014","","","178","","","\u2014"],["Commercial","4,125","","","7,163","","","5,711"],["Consumer","250","","","116","","","120"],["Total recoveries on loans charged off","5,260","","","9,205","","","12,598"],["Net (charge-offs) recoveries","(58,168)","","","(4,832)","","","1,883"],["Balance, end of year","$","311,258","","","$","291,803","","","$","273,635"],["Net charge-offs (recoveries) to average loans and leases","0.23","%","","0.02","%","","(0.01)","%"]]
[[/GREPCENT_TABLE]]

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:

[[GREPCENT_TABLE]]
[["","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)","$","\u2014","","","$","(178)","","","$","775"],["Average loan balance","$","3,677,785","","","$","3,527,334","","","$","3,396,145"],["Ratio of net charge-offs to average loans","\u2014","%","","(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","%","","\u2014","%","","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","%"]]
[[/GREPCENT_TABLE]]

Net charge-offs in 2023 were $58.2 million compared to net charge-offs of $4.8 million in 2022. This change was due primarily to the real estate mortgage portfolio segment going from net charge-offs of $3.3 million in 2022 to net charge-offs of $46.5 million in 2023.

Net charge-offs in 2022 were $4.8 million compared to net recoveries of $1.9 million in 2021. 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:

[[GREPCENT_TABLE]]
[["","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","","","$","\u2014"],["SBA program","339","","","417","","","622"],["Hotel","\u2014","","","55","","","343"],["Total commercial real estate mortgage","14,295","","","2,730","","","965"],["Multi-family","\u2014","","","\u2014","","","56"],["Residential mortgage","\u2014","","","81","","","\u2014"],["Investor-owned residential","21,844","","","814","","","114"],["Residential renovation","11,231","","","1,431","","","\u2014"],["Total other residential real estate","33,075","","","2,326","","","114"],["Total real estate mortgage","47,370","","","5,056","","","1,135"],["Real Estate Construction and Land:"],["Commercial","\u2014","","","\u2014","","","775"],["Residential","\u2014","","","\u2014","","","\u2014"],["Total real estate construction and land","\u2014","","","\u2014","","","775"],["Total real estate","47,370","","","5,056","","","1,910"],["Commercial:"],["Lender finance","150","","","\u2014","","","232"],["Equipment finance","\u2014","","","\u2014","","","\u2014"],["Other asset-based","\u2014","","","750","","","\u2014"],["Premium finance","60","","","\u2014","","","\u2014"],["Total asset-based","210","","","750","","","232"],["Equity fund loans","\u2014","","","\u2014","","","\u2014"],["Venture lending","5,013","","","940","","","620"],["Total venture capital","5,013","","","940","","","620"],["Secured business loans","658","","","479","","","210"],["Warehouse lending","\u2014","","","\u2014","","","\u2014"],["Paycheck Protection Program","\u2014","","","\u2014","","","\u2014"],["Other lending","7,780","","","4,648","","","6,236"],["Total other commercial","8,438","","","5,127","","","6,446"],["Total commercial","13,661","","","6,817","","","7,298"],["Consumer","2,397","","","2,164","","","1,507"],["Total charge-offs","$","63,428","","","$","14,037","","","$","10,715"]]
[[/GREPCENT_TABLE]]

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:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["Allowance for Credit Losses Recoveries","2023","","2022","","2021"],["","(In thousands)"],["Real Estate Mortgage:"],["Commercial real estate","$","\u2014","","","$","1,204","","","$","5,384"],["SBA program","281","","","281","","","697"],["Hotel","\u2014","","","\u2014","","","\u2014"],["Total commercial real estate mortgage","281","","","1,485","","","6,081"],["Multi-family","\u2014","","","4","","","\u2014"],["Residential mortgage","20","","","234","","","658"],["Investor-owned residential","175","","","25","","","28"],["Residential renovation","409","","","\u2014","","","\u2014"],["Total other residential real estate","604","","","259","","","686"],["Total real estate mortgage","885","","","1,748","","","6,767"],["Real Estate Construction and Land:"],["Commercial","\u2014","","","178","","","\u2014"],["Residential","\u2014","","","\u2014","","","\u2014"],["Total real estate construction and land","\u2014","","","178","","","\u2014"],["Total real estate","885","","","1,926","","","6,767"],["Commercial:"],["Lender finance","324","","","\u2014","","","3"],["Equipment finance","\u2014","","","163","","","263"],["Other asset-based","279","","","539","","","453"],["Premium finance","1","","","\u2014","","","\u2014"],["Total asset-based","604","","","702","","","719"],["Equity fund loans","\u2014","","","\u2014","","","\u2014"],["Venture lending","2,073","","","923","","","404"],["Total venture capital","2,073","","","923","","","404"],["Secured business loans","30","","","178","","","2,402"],["Warehouse lending","\u2014","","","\u2014","","","\u2014"],["Paycheck Protection Program","\u2014","","","\u2014","","","\u2014"],["Other lending","1,418","","","5,360","","","2,186"],["Total other commercial","1,448","","","5,538","","","4,588"],["Total commercial","4,125","","","7,163","","","5,711"],["Consumer","250","","","116","","","120"],["Total recoveries","$","5,260","","","$","9,205","","","$","12,598"]]
[[/GREPCENT_TABLE]]

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:

[[GREPCENT_TABLE]]
[["","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","%"]]
[[/GREPCENT_TABLE]]

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. As ratios to real estate mortgage loans at those dates, these percentages were 1.16% and 0.56%. The ratio increase was primarily due to a less favorable economic forecast, lower expected prepayment rates, and an increase in qualitative reserves for loans secured by office properties.

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 ratio decrease was primarily due to a decrease in loan balances with higher credit risks.

The allowance for loan and lease losses attributable to commercial loans and leases was $45.2 million and $52.8 million at December 31, 2023 and 2022. As ratios to commercial loans and leases at those dates, these percentages were 0.78% and 0.64%. The ratio increase was due to a higher allowance for loan losses as a result of less favorable economic forecasts and lower expected prepayment rates.

88

Deposits

    The following table presents a summary of our average deposit amounts and average rates paid during the years indicated:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2023","","2022","","2021"],["","","","Weighted","","","","Weighted","","","","Weighted"],["","Average","","Average","","Average","","Average","","Average","","Average"],["Deposit Composition","Balance","","Rate","","Balance","","Rate","","Balance","","Rate"],["","(Dollars in thousands)"],["Interest checking","$","6,992,888","","","3.16","%","","$","6,851,831","","","0.97","%","","$","7,198,646","","","0.12","%"],["Money market","6,724,296","","","2.83","%","","10,601,028","","","0.90","%","","8,843,122","","","0.15","%"],["Savings","1,051,117","","","2.95","%","","639,720","","","0.03","%","","606,741","","","0.02","%"],["Time","6,840,920","","","4.48","%","","2,540,426","","","1.51","%","","1,471,963","","","0.40","%"],["Total interest-bearing deposits","21,609,221","","","3.46","%","","20,633,005","","","0.97","%","","18,120,472","","","0.15","%"],["Noninterest-bearing checking","7,072,334","","","\u2014","","","13,601,766","","","\u2014","","","12,110,193","","","\u2014"],["Total deposits","$","28,681,555","","","2.61","%","","$","34,234,771","","","0.59","%","","$","30,230,665","","","0.09","%"]]
[[/GREPCENT_TABLE]]

The following table presents the composition of our deposit portfolio by account type as of the dates indicated:

[[GREPCENT_TABLE]]
[["","December 31,"],["","2023","","2022","","2021"],["","","","% of","","","","% of","","","","% of"],["Deposit Composition","Balance","","Total","","Balance","","Total","","Balance","","Total"],["","(Dollars in thousands)"],["Noninterest-bearing checking","$","7,774,254","","","26","%","","$","11,212,357","","","33","%","","$","14,543,133","","","41","%"],["Interest-bearing:"],["Checking","7,808,764","","","26","%","","7,938,911","","","23","%","","7,386,269","","","21","%"],["Money market","6,187,889","","","20","%","","9,469,586","","","28","%","","11,064,870","","","32","%"],["Savings","1,997,989","","","6","%","","577,637","","","2","%","","630,653","","","2","%"],["Time:"],["Non-brokered","3,139,270","","","10","%","","2,434,414","","","7","%","","1,177,147","","","3","%"],["Brokered","3,493,603","","","12","%","","2,303,429","","","7","%","","195,685","","","1","%"],["Total time deposits","6,632,873","","","22","%","","4,737,843","","","14","%","","1,372,832","","","4","%"],["Total interest-bearing","22,627,515","","","74","%","","22,723,977","","","67","%","","20,454,624","","","59","%"],["Total deposits","$","30,401,769","","","100","%","","$","33,936,334","","","100","%","","$","34,997,757","","","100","%"]]
[[/GREPCENT_TABLE]]

The following table presents time deposits based on the $250,000 FDIC insured limit as of the dates indicated:

[[GREPCENT_TABLE]]
[["","December 31,"],["","2023","","2022","","2021"],["","","","% of","","","","% of","","","","% of"],["","","","Total","","","","Total","","","","Total"],["Time Deposits","Balance","","Deposits","","Balance","","Deposits","","Balance","","Deposits"],["","(Dollars in thousands)"],["Time deposits $250,000 and under","$","5,526,396","","","18","%","","$","3,198,434","","","9","%","","$","885,938","","","3","%"],["Time deposits over $250,000","1,106,477","","","4","%","","1,539,409","","","5","%","","486,894","","","1","%"],["Total time deposits","$","6,632,873","","","22","%","","$","4,737,843","","","14","%","","$","1,372,832","","","4","%"]]
[[/GREPCENT_TABLE]]

89

During 2023, total deposits decreased by $3.5 billion, or 10.4%, to $30.4 billion at December 31, 2023, due primarily to a decrease of $3.4 billion in noninterest-bearing 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.

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.

The following table summarizes the maturities of time deposits as of the date indicated:

[[GREPCENT_TABLE]]
[["","Time Deposits"],["","$250,000","","Over"],["December 31, 2023","and Under","","$250,000","","Total"],["","(In thousands)"],["Maturities:"],["Due in three months or less","$","2,010,849","","","$","421,757","","","$","2,432,606"],["Due in over three months through six months","1,853,905","","","265,711","","","2,119,616"],["Due in over six months through 12 months","1,521,748","","","378,432","","","1,900,180"],["Total due within 12 months","5,386,502","","","1,065,900","","","6,452,402"],["Due in over 12 months through 24 months","131,601","","","34,807","","","166,408"],["Due in over 24 months","8,293","","","5,770","","","14,063"],["Total due over 12 months","139,894","","","40,577","","","180,471"],["Total","$","5,526,396","","","$","1,106,477","","","$","6,632,873"]]
[[/GREPCENT_TABLE]]

The following table summarizes the maturities of estimated uninsured time deposits as of the date indicated:

[[GREPCENT_TABLE]]
[["","","","","","Uninsured"],["","","","","","Time"],["December 31, 2023","","","","","Deposits"],["","","","","","(In thousands)"],["Maturities:"],["Due in three months or less","","","","","$","164,019"],["Due in over three months through six months","","","","","145,949"],["Due in over six months through 12 months","","","","","188,714"],["Total due within 12 months","","","","","498,682"],["Total due over 12 months","","","","","35,509"],["Total","","","","","$","534,191"]]
[[/GREPCENT_TABLE]]

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. 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.

90

Borrowings and Subordinated Debt

The Bank has various available lines of credit. 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. 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 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. 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, 2023, the Bank had no of overnight borrowings through the AFX.

On September 29, 2022, legacy Pacific Western Bank completed a credit-linked notes transaction. The notes were issued and sold at par and had an aggregate principal amount of $132.8 million with net proceeds of approximately $128.7 million and are due June 27, 2052. 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 credit-linked notes are reported at fair value and had a balance of $123.1 million at December 31, 2023. See Note 14. Fair Value Option for more information regarding the credit-linked notes.

The following table presents information on our borrowings as of the dates indicated:

[[GREPCENT_TABLE]]
[["","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","$","2,618,300","","","4.37","%","","$","\u2014","","","\u2014","%","","$","\u2014","","","\u2014","%"],["Senior Notes","174,000","","","5.25","%","","\u2014","","","\u2014","%","","\u2014","","","\u2014","%"],["Credit-linked notes","123,116","","","16.02","%","","132,030","","","14.56","%","","\u2014","","","\u2014","%"],["FHLB secured short-term advances","\u2014","","","\u2014","%","","1,270,000","","","4.62","%","","\u2014","","","\u2014","%"],["AFX short-term borrowings","\u2014","","","\u2014","%","","250,000","","","4.68","%","","\u2014","","","\u2014","%"],["FHLB unsecured overnight advance","\u2014","","","\u2014","%","","112,000","","","4.37","%","","\u2014","","","\u2014","%"],["Total borrowings","$","2,915,416","","","4.92","%","","$","1,764,030","","","5.36","%","","$","\u2014","","","\u2014","%"],["Averages for the year:"],["Total borrowings","$","7,068,826","","","5.90","%","","$","961,601","","","2.67","%","","$","231,099","","","0.27","%"]]
[[/GREPCENT_TABLE]]

91

The following table presents summary information on our subordinated debt as of the dates indicated:

[[GREPCENT_TABLE]]
[["","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","%","","$","135,055","","","2.58","%"],["With unamortized acquisition discount"],["or unamortized issuance costs","865,186","","","5.56","%","","804,325","","","4.76","%","","806,039","","","2.65","%"],["Total gross subordinated debt","1,017,768","","","5.93","%","","939,380","","","5.08","%","","941,094","","","2.65","%"],["Unamortized issuance costs","(4,349)","","","","","(4,866)","","","","","\u2014"],["Unamortized acquisition discount","(76,820)","","","","","(67,427)","","","","","(72,445)"],["Net subordinated debt","$","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","%"]]
[[/GREPCENT_TABLE]]

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. 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%. On July 1, 2023, interest rates transitioned from LIBOR to Term SOFR or Prime plus the relevant spread amount as the applicable benchmark upon the cessation of LIBOR on June 30, 2023. 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:

[[GREPCENT_TABLE]]
[["","December 31,"],["","2023","","2022","","2021"],["","(Dollars in thousands)"],["Nonaccrual loans and leases held for investment","$","62,527","","","$","103,778","","","$","61,174"],["Accruing loans contractually past due 90 days or more","11,750","","","\u2014","","","\u2014"],["Foreclosed assets, net","7,394","","","5,022","","","12,843"],["Total nonperforming assets","$","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","%"]]
[[/GREPCENT_TABLE]]

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. As of December 31, 2023, the Company's three largest loan relationships on nonaccrual status had an aggregate carrying value of $7.1 million and represented 11% of total nonaccrual loans and leases.

93

The following table presents our nonaccrual loans and leases held for investment and accruing loans and leases past due between 30 and 89 days by loan portfolio segment and class as of the dates indicated:

[[GREPCENT_TABLE]]
[["","December 31, 2023","","December 31, 2022","","Increase (Decrease)"],["","","","Accruing","","","","Accruing","","","","Accruing"],["","","","and 30-89","","","","and 30-89","","","","and 30-89"],["","","","Days Past","","","","Days Past","","","","Days Past"],["","Nonaccrual","","Due","","Nonaccrual","","Due","","Nonaccrual","","Due"],["","(In thousands)"],["Real estate mortgage:"],["Commercial","$","15,669","","","$","10,577","","","$","42,509","","","$","1,047","","","$","(26,840)","","","$","9,530"],["Multi-family","1,020","","","2,302","","","\u2014","","","\u2014","","","1,020","","","2,302"],["Other residential","31,041","","","83,747","","","55,893","","","95,654","","","(24,852)","","","(11,907)"],["Total real estate mortgage","47,730","","","96,626","","","98,402","","","96,701","","","(50,672)","","","(75)"],["Real estate construction and land:"],["Commercial","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Residential","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Total real estate construction and land","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Commercial:"],["Asset-based","2,689","","","608","","","865","","","\u2014","","","1,824","","","608"],["Venture capital","325","","","\u2014","","","\u2014","","","\u2014","","","325","","","\u2014"],["Other commercial","10,972","","","1,187","","","4,345","","","385","","","6,627","","","802"],["Total commercial","13,986","","","1,795","","","5,210","","","385","","","8,776","","","1,410"],["Consumer","811","","","3,461","","","166","","","1,935","","","645","","","1,526"],["Total held for investment","$","62,527","","","$","101,882","","","$","103,778","","","$","99,021","","","$","(41,251)","","","$","2,861"]]
[[/GREPCENT_TABLE]]

During 2023, loans accruing and 30-89 days past due increased by $2.9 million to $101.9 million at December 31, 2023 due primarily to increases in past due loans of $9.5 million in commercial real estate mortgage loan portfolio class, $2.3 million in the multi-family real estate mortgage loan portfolio class, and $1.5 million in the consumer portfolio class, offset partially by a decrease of $11.9 million in the other residential real estate mortgage loan portfolio class.

Foreclosed Assets

The following table presents foreclosed assets (primarily OREO) by property type as of the dates indicated:

[[GREPCENT_TABLE]]
[["","December 31,"],["Property Type","2023","","2022","","2021"],["","(In thousands)"],["Commercial real estate","$","\u2014","","","$","\u2014","","","$","12,594"],["Single-family residential","7,394","","","5,022","","","\u2014"],["Total OREO, net","7,394","","","5,022","","","12,594"],["Other foreclosed assets","\u2014","","","\u2014","","","249"],["Total foreclosed assets","$","7,394","","","$","5,022","","","$","12,843"]]
[[/GREPCENT_TABLE]]

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:

[[GREPCENT_TABLE]]
[["","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"]]
[[/GREPCENT_TABLE]]

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 following table presents the classified and special mention credit risk rating categories for loans and leases held for investment, net of deferred fees, by loan portfolio segment and class and the related net changes as of the dates indicated:

[[GREPCENT_TABLE]]
[["","December 31, 2023","December 31, 2022","","Increase (Decrease)"],["","","","Special","","","","Special","","","","Special"],["","Classified","","Mention","","Classified","","Mention","","Classified","","Mention"],["","(In thousands)"],["Real estate mortgage:"],["Commercial","$","75,739","","","$","219,687","","","$","43,737","","","$","106,493","","","$","32,002","","","$","113,194"],["Multi-family","74,954","","","108,356","","","3,611","","","60,330","","","71,343","","","48,026"],["Other residential","38,155","","","54,197","","","60,557","","","58,063","","","(22,402)","","","(3,866)"],["Total real estate mortgage","188,848","","","382,240","","","107,905","","","224,886","","","80,943","","","157,354"],["Real estate construction and land:"],["Commercial","\u2014","","","\u2014","","","\u2014","","","91,334","","","\u2014","","","(91,334)"],["Residential","\u2014","","","2,757","","","\u2014","","","45,155","","","\u2014","","","(42,398)"],["Total real estate construction and land","\u2014","","","2,757","","","\u2014","","","136,489","","","\u2014","","","(133,732)"],["Commercial:"],["Asset-based","4,561","","","12,506","","","865","","","56,836","","","3,696","","","(44,330)"],["Venture capital","7,805","","","98,633","","","2,753","","","127,907","","","5,052","","","(29,274)"],["Other commercial","26,044","","","9,984","","","6,473","","","13,233","","","19,571","","","(3,249)"],["Total commercial","38,410","","","121,123","","","10,091","","","197,976","","","28,319","","","(76,853)"],["Consumer","1,159","","","7,192","","","275","","","6,908","","","884","","","284"],["Total","$","228,417","","","$","513,312","","","$","118,271","","","$","566,259","","","$","110,146","","","$","(52,947)"]]
[[/GREPCENT_TABLE]]

During 2023, classified loans and leases increased by $110.1 million to $228.4 million at December 31, 2023 due mainly to increases of $71.3 million in multi-family real estate mortgage classified loans, $32.0 million in commercial real estate mortgage classified loans, and $19.6 million in other commercial classified loans, offset partially by a decrease of $22.4 million in other residential real estate mortgage classified loans.

During 2023, special mention loans and leases decreased by $52.9 million to $513.3 million at December 31, 2023 due primarily to decreases of $91.3 million in commercial real estate construction and land special mention loans, $44.3 million in asset-based commercial special mention loans, and $42.4 million in residential real estate construction and land special mention loans, offset partially by an increase of $113.2 million in commercial real estate mortgage special mention loans.

95

Regulatory Matters

Capital

Bank regulatory agencies measure capital adequacy through standardized risk-based capital guidelines that compare different levels of capital (as defined by such guidelines) to risk-weighted assets and off-balance sheet obligations. 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%.

Basel III currently requires all banking organizations to maintain a 2.50% capital conservation buffer above the minimum risk-based capital requirements to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively comprised of common equity Tier 1 capital, and it applies to each of the three risk-based capital ratios but not to the leverage ratio. Effective January 1, 2019, the common equity Tier 1, Tier 1, and total capital ratio minimums inclusive of the capital conservation buffer were 7.00%, 8.50%, and 10.50%. 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. 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. The add-back as of December 31, 2023 ranged from 0 basis points to 5 basis points for the capital ratios below.

The following tables present a comparison of our actual capital ratios to the minimum required ratios and well capitalized ratios as of the dates indicated:

[[GREPCENT_TABLE]]
[["","","","Minimum Required"],["","","","For Capital","","For Capital","","For Well"],["","","","Adequacy","","Conservation","","Capitalized"],["December 31, 2023","Actual","","Purposes","","Buffer","","Classification"],["Banc of California, Inc.:"],["Tier 1 leverage capital ratio","9.00%","","4.00%","","N/A","","N/A"],["CET1 capital ratio","10.14%","","4.50%","","7.00%","","N/A"],["Tier 1 capital ratio","12.44%","","6.00%","","8.50%","","N/A"],["Total capital ratio","16.43%","","8.00%","","10.50%","","N/A"],["Banc of California:"],["Tier 1 leverage capital ratio","9.62%","","4.00%","","N/A","","5.00%"],["CET1 capital ratio","13.27%","","4.50%","","7.00%","","6.50%"],["Tier 1 capital ratio","13.27%","","6.00%","","8.50%","","8.00%"],["Total capital ratio","15.75%","","8.00%","","10.50%","","10.00%"]]
[[/GREPCENT_TABLE]]

96

[[GREPCENT_TABLE]]
[["","","","Minimum Required"],["","","","For Capital","","For Capital","","For Well"],["","","","Adequacy","","Conservation","","Capitalized"],["","Actual","","Purposes","","Buffer","","Classification"],["December 31, 2022"],["Banc of California, Inc.:"],["Tier 1 leverage capital ratio","8.61%","","4.00%","","N/A","","N/A"],["CET1 capital ratio","8.70%","","4.50%","","7.00%","","N/A"],["Tier 1 capital ratio","10.61%","","6.00%","","8.50%","","N/A"],["Total capital ratio","13.61%","","8.00%","","10.50%","","N/A"],["Banc of California:"],["Tier 1 leverage capital ratio","8.39%","","4.00%","","N/A","","5.00%"],["CET1 capital ratio","10.32%","","4.50%","","7.00%","","6.50%"],["Tier 1 capital ratio","10.32%","","6.00%","","8.50%","","8.00%"],["Total capital ratio","12.34%","","8.00%","","10.50%","","10.00%"]]
[[/GREPCENT_TABLE]]

The Company's consolidated Tier 1 leverage and Tier 1 capital ratios increased during the year ended December 31, 2023 due mainly to an increase in capital due to Banc of California, Inc. shares issued in exchange for PacWest Bancorp shares as Merger consideration, shares issued in connection with the $400 million capital raise, and lower risk-weighted assets due to securities and loan sales in 2023, partially offset by a net loss of $1.9 billion in 2023, dividends declared and paid, and higher disallowed deferred tax assets.

Subordinated Debt

We issued or assumed through mergers subordinated debt to trusts that were established by us or entities we acquired, which, in turn, issued trust preferred securities. As of December 31, 2023, the carrying value of subordinated debt totaled $936.6 million. 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. Business - Supervision and Regulation - Capital Requirements."

Dividends on Common Stock and Interest on Subordinated Debt

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. Financial Statements and Supplementary Data" for discussions of factors affecting the availability of dividends and limitations on the ability to declare dividends. Interest payments made on subordinated debt are considered dividend payments under FRB regulations.

Dividends on Preferred Stock

The Company's ability to pay dividends on the Series F preferred stock depends on the ability of the Bank to pay dividends to the holding company. The ability of the Company and the Bank to pay dividends in the future is subject to bank regulatory requirements, including capital regulations and policies established by the FRB and the DFPI, as applicable. 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. Board of Directors authorized a Stock Repurchase Program to repurchase shares of its common stock for an aggregate purchase price not to exceed $35 million which expired on the program maturity date of February 9, 2024. At December 31, 2023, the dollar value of shares that could still be purchased under the program was $13.9 million.

97

Liquidity

Liquidity Management

Liquidity is the ongoing ability to accommodate liability maturities and deposit withdrawals, fund asset growth and business operations, and meet contractual obligations through unconstrained access to funding at reasonable market rates. Liquidity management involves forecasting funding requirements and maintaining sufficient capacity to meet the needs and accommodate fluctuations in asset and liability levels due to changes in the Company’s business operations or unanticipated events.

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 manage our liquidity by maintaining pools of liquid assets on-balance sheet, consisting of cash and receivables due from banks, interest-earning deposits in other financial institutions, and unpledged securities, which we refer to as our primary liquidity. We also maintain available borrowing capacity under secured credit lines with the FHLB and the FRBSF, which we refer to as our secondary liquidity.

As a member of the FHLB, the Bank had secured borrowing capacity with the FHLB of $5.3 billion at December 31, 2023, and $243.8 million was pledged for letters of credit but nothing was borrowed as of 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 Bank also had secured borrowing capacity with the FRBSF under the Discount Window program totaling $6.9 billion at December 31, 2023, all of which was available, and $2.6 billion under the Bank Term Funding Program, which was fully borrowed as of that date. The FRBSF Discount Window secured credit line was collateralized by liens on $7.7 billion of qualifying loans and $1.3 billion of pledged securities, and the Bank Term Funding Program credit line was collateralized by pledged securities with a market value of $2.3 billion and a par value of $2.6 billion. The Bank Term Funding Program provides borrowing capacity on qualifying government and government agency guaranteed securities based on the collateral par value.

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. 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 following tables provide a summary of the Bank’s primary and secondary liquidity levels at the dates indicated:

[[GREPCENT_TABLE]]
[["","December 31,","","December 31,"],["Primary Liquidity - On-Balance Sheet","2023","","2022"],["","(Dollars in thousands)"],["Cash and due from banks","$","202,427","","","$","212,273"],["Interest-earning deposits in financial institutions","5,175,149","","","2,027,949"],["Securities available-for-sale, at fair value","2,346,864","","","4,843,487"],["Securities held-to-maturity, at fair value","2,168,316","","","2,110,472"],["Less: pledged securities, available-for-sale, at fair value","(2,063,754)","","","(1,178,642)"],["Less: pledged securities, held-to-maturity, at fair value","(2,117,110)","","","(1,694,118)"],["Total primary liquidity","$","5,711,892","","","$","6,321,421"],["Ratio of primary liquidity to total deposits","18.8","%","","18.6","%"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["Secondary Liquidity - Off-Balance Sheet","December 31,","","December 31,"],["Available Secured Borrowing Capacity","2023","","2022"],["","(In thousands)"],["Total secured borrowing capacity with the FHLB","$","5,302,210","","","$","5,772,682"],["Less: secured advances outstanding","\u2014","","","(1,270,000)"],["Less: letters of credit","(243,801)","","","\u2014"],["Available secured borrowing capacity with the FHLB","5,058,409","","","4,502,682"],["Available secured borrowing capacity with the FRBSF","6,916,235","","","2,456,905"],["Total secondary liquidity","$","11,974,644","","","$","6,959,587"]]
[[/GREPCENT_TABLE]]

During the year ended December 31, 2023, the Company's primary liquidity decreased by $609.5 million to $5.7 billion at December 31, 2023 due mainly to decreases of $2.5 billion in securities available-for-sale, at fair value, $885.1 million in pledged AFS securities and $423.0 million in pledged HTM securities, offset partially by an increase of $3.1 billion increase in interest-earning deposits in financial institutions. 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 first six months of 2023, legacy PacWest was subject to multiple liquidity stress events that resulted in significant changes in liquidity levels and funding structure. The stress stemmed from the deposit outflow after the failure of two regional banks, which caused ripple effects in the banking industry and adversely affected legacy PacWest due to the perceived similar business profile between it and the two regional banks that failed. Legacy PacWest experienced deposit outflows of $6.5 billion or 19% of deposits over the period March 10 to March 17, 2023. Legacy PacWest experienced a second round of significant deposit outflows over the period May 1 to May 5, 2023, with an additional $2.5 billion of total deposits lost after the failure of another regional bank.

In light of these developments, legacy PacWest management activated the contingency funding plan on March 10, 2023 and took actions to stem the deposit outflows and bolster liquidity. Eventually, all available assets were pledged to borrowing lines at the FHLB and FRBSF. In addition, legacy PacWest management executed a $1.4 billion repurchase agreement collateralized by previously unpledged loans to further increase liquidity. Furthermore, legacy PacWest management utilized brokered deposits as a funding source to fill deposit gaps. Although legacy PacWest management realized the more expensive brokered deposits and borrowings would result in lower net interest income, management prioritized increasing liquidity to address deposit outflows and the potential for further deposit outflows.

In addition to the above, legacy PacWest management took other actions including: (1) announcing on May 5, 2023 the reduction in the quarterly dividend on PacWest common stock from $0.25 per share to $0.01 per share, (2) increasing the number of customers enrolled in reciprocal deposit programs, which increases the amount of FDIC insurance coverage on their account(s), to help retain these customers, (3) offering competitive promotional rates on deposit products to attract new customer deposits, and (4) beginning to reposition legacy PacWest's balance sheet and asset/liability maturity profile by selling the $2.6 billion National Construction loan portfolio, selling the $2.1 billion Lender Finance loan portfolio and selling $521 million of the Civic loan portfolio.

All of the aforementioned actions taken by legacy PacWest management helped to increase customer deposits in the later part of the second quarter and in the third quarter. Immediately available liquidity was $16.7 billion at September 30, 2023, which exceeded uninsured deposits of $5.0 billion, with a coverage ratio of 332%. Immediately available liquidity also represented 63% of total deposits at September 30, 2023. However, at September 30, 2023, despite the progress made, legacy PacWest was still not in compliance with all of its funding concentration liquidity guidelines.

Legacy PacWest's net interest margin and overall profitability were reduced as a result of the loan sales, and continued to be affected by elevated levels of higher-cost brokered deposits and borrowings. Obtaining new customer deposits, or having existing customers increase their deposit balances with us, are the primary sources of funding for our operations and is one the highest priorities of the Company. See "- Balance Sheet Analysis - Deposits" for additional information and detail of our deposits. Additionally, we fund our operations with cash flows from our loan and securities portfolios.

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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.

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. 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.

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). 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. 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. 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. The Bank is subject to restrictions under certain federal and state laws and regulations that limit its ability to transfer funds to the holding company through intercompany loans, advances, or cash dividends. Banc of California, Inc.'s ability to pay dividends is also subject to the restrictions set forth by the FRB, and by certain covenants contained in our subordinated debt. See “Item 1. Business - Supervision and Regulation - Banc of California, Inc. - Repurchases/Redemptions; Dividends.” and Note 22. Dividend Availability and Regulatory Matters of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data” for discussions of factors affecting the availability of dividends and limitations on the ability to declare dividends.

Dividends on the Series F preferred stock are not cumulative or mandatory. If the Company's Board of Directors does not declare a dividend on the Series F preferred stock in respect of a dividend period, then no dividend shall be deemed to be payable for such dividend period or be cumulative, and the Company will have no obligation to pay any dividend for that dividend period, whether or not the Board of Directors declares a dividend on the Series F preferred stock or any other class or series of its capital stock for any future dividend period. However, if dividends on the Series F preferred stock have not been declared or paid for the equivalent of six dividend payments, whether or not for consecutive dividend periods, holders of the outstanding shares of Series F preferred stock, together with holders of any other series of the Company's preferred stock ranking equal with the Series F preferred stock with similar voting rights, will generally be entitled to vote for the election of two additional directors. Additionally, so long as any share of Series F preferred stock remains outstanding, unless dividends on all outstanding shares of Series F preferred stock for the most recently completed dividend period have been paid in full or declared and a sum sufficient for the payment thereof has been set aside for payment, no dividend shall be declared or paid or set aside for payment and no distribution shall be declared or made or set aside for payment on the Company's common stock.

At December 31, 2023, Banc of California, Inc. had $285.8 million in cash and cash equivalents, of which a portion is on deposit at the Bank. We believe this amount of cash, along with anticipated future dividends from the Bank, will be sufficient to fund the holding company’s cash flow needs over the next 12 months.

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Material Cash Requirements

Our material contractual obligations are primarily for time deposits, subordinated debt, commitments to contribute capital to investments in LIHTC partnerships, SBICs and CRA-related loan pools, and operating lease obligations. At December 31, 2023, time deposits totaled $6.6 billion, of which $6.5 billion was due within one year. Gross subordinated debt totaled $1.0 billion, all of which was due after five years. Our liability to contribute capital to LIHTC partnerships was $161.1 million and our commitment to contribute capital to SBICs and CRA-related loan pools was $94.5 million for a combined total of $255.6 million, of which $146.6 million was due within one year. Our operating lease obligation for leased facilities 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. Leases of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data.”

We believe that we will be able to meet our contractual obligations as they come due through the maintenance of adequate liquidity levels. We expect to maintain adequate liquidity levels through profitability, loan and lease payoffs, securities repayments and maturities, and continued deposit gathering activities. We also have in place various borrowing mechanisms for both short-term and long-term liquidity needs.

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. The loan commitments, a portion of which will eventually result in funded loans, increase our profitability through net interest income when drawn and unused commitment fees prior to being drawn. We manage our overall liquidity taking into consideration funded and unfunded commitments as a percentage of our liquidity sources. Our liquidity sources, as described in “- Liquidity - Liquidity Management,” have been and are expected to be sufficient to meet the cash requirements of our lending activities. For further information on loan commitments, see Note 13. Commitments and Contingencies of the Notes to Consolidated Financial Statements contained in “Item 8. 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.

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